That is the estimated data traffic used by Joost for full screen video……

Andrew stop by Cambridge for a NOC tour you will be a believer.

Peer-to-Peer being a 1000% less is a sensational but untrue statement. Peer-to-Peer operators replace their network costs with development and deployment costs. Ask any IT director the cost to maintain desktop software. That is usually for a homogenous deployment but imagine trying to maintain thousands of desktop applications across multiply configurations. If a Peer-to-Peer company wants to charge a price per GB delivered type model to be viable they need to be in a range that is not much lower than current CDN transit rates today. Most cannot get companies to pay this due to feature gaps like lack of Quality of Service SLA, privacy and security concerns. This will force Peer-to-Peer business models to vertically integrate. You see Joost in the ITV space, BitTorrent having a storefront and a home run hit with Skpe. The issue here is that consumers will only lend their 150Kbps of upstream bandwidth to one or two of these services. This will make it necessary for hybrid models to emerge like Kontiki. In this model they use both transit bandwidth in combination with peer to peer. This now creates a company with an org chart that is massive on the engineering side with weak sales and low margins. This will lower their share prices and without being properly capitalized they will fail.

- Peering arrangements
- Foreign ISP competition
- The muscle of CDN’s & big content players (youTube etc.)

Lets start with peering arrangements which will lead us into the second point about the Euro & Asian guys. As we’ve discussed before all the Tier 1 guys have free peering arrangements with each other, and for the most part the Tier 2 guys only pay a couple of folks here and there. Why is this important? Because screw Verizon and screw ATT – we (CDN’s in this case) don’t need them to get to an eyeball! You make a good point that Verizon may have the FIOS customers at their behest, but so what? Picture it this way: A Verizon fios customer is sitting at home and wants to download a video from siteX.com. SiteX is a colocated at a facility in Dallas and uses Savvis (not Verizon) for their transit uplink. Once the packets hit the Savvis link, SiteX will be incur the charge and thats it – done and paid for. Savvis doesn’t pay Verizon – neither do GLBX, Qwest, LVLT, and even some Tier 2’s like Tiscali (this is an example – i don’t know the exact relationship here). If Verizon all of a sudden tried to start make some of the really big guys start paying for peering, the big guys would laugh. If by chance they succeeded in squeezing out some Tier 2’s, the Tier 2’s have multiple ways of routing to the destination so they’d de-peer with Verizon and go through another ISP.

Now, speaking of Tiscali, lets talk about foreign ISP competition. Its these guys who have quietly thrown a catalyst into the US transit market by building a quality backbone, running leaner and meaner organizations and networks, and using their European (or Asian if you’re PCCW for example) leverage to negotiate peering relationships. So for instance, if a Tiscali comes to Level3 and says I need 50Gbps of peering with you in San Jose, LA, Miami, Ashburn, and NYC and Level3 says “no” or “ok, but you’re paying,” then Tiscali would say, “ok, there goes your free transit in Milan, Rome, and Frankfurt.” They’ll eventually work out ratios and understandings of the relationship, but at the end of the day Tiscali can now offer cheaper transit than Level3 directly and I don’t give a damn what Verizon is charging anyone (on the backbone/transit side – not the customer side) because at the end of the day I don’t need Verizon to reach a Verizon customer.

A major reason that we’ve seen this massive growth of BW usage is because transit did become more affordable. The telco’s have enabled the content providers to push quality bits at high speeds by offering them – or the CDN’s – cheaper transit. After the bubble recovery, there was all this capacity with unused dark fiber. GigE and 10GigE ports replaced OC12 and OC48’s and this made interconnecting more affordable. Also, CDN’s (and youtube/myspace/etc) are major customers of the ISP’s and we carry heavy weight with them due to volume. If one of my carriers was to come to me and say we’re raising transit rates when your 2 year term ends. I’ll then say, “ok, but you just lost any burst traffic you were getting from us (commit overages) and we will not longer be a customer of yours at the end of term.” If they lose 20Gigs or so from an CDN, thats significant to that Telco sales rep and billable Mbps. In addition, ISP’s need CDN’s b/c they help improve their customers’ performance, reduce the need for backbone build out, and effectively increase billable Mbps.

Oh, one more thing. At least for now, p2p means nothing in the enterprise content sector. Its a great technology and has its applications. But we’re a long way from seeing any content that can potentially be monetized be dependent on random hard drives. Just my opinion.

CDNs infact cut the RBOC operation cost by caching data close to RBOC. This is becoz if not for caching RBOC would have to pay upstream provider for repeated access to data.

Ofcourse there is always a possibility that RBOCs might allow competitive CDN POPs in their location to reduce what they have to pay to any CDN.

But the final deciding factor for RBOC is the subscriber experience. Their feedbacks will demand that RBOCs give priority to quality. And I believe the CDNs on their part will be differentiated by their customer list and delivery quality and reliability.

As for distributing popular media, things will push to the edge, and the last step is P2P. P2P should be able to do DRM and streaming if one wants, I don’ think anything about P2P precludes them. If you want DRM it does seem tricky, but in theory at least it can be done. Check out http://en.wikipedia.org/wiki/Superdistribution If one want real time streaming that should be possible too. BitTorrent and other swarming techniques don’t support it, but think multi room DVR where one room is your house and the other is your neighbor’s.

It is a ways off to be sure, but it looks like BitTorrent and Solid State Networks are trying to go legit. I thin the evolution to wide acceptance will go like this, and I admit there are a lot of steps… Set top boxes are the likely host. Storage and processing power is increasing. They are closed systems often owned by the service provider, should make DRM easier. Upstream bandwidth, especially with GPON is huge, but mostly idle. New access boxes in the CO are being built with more bandwidth between users than towards the uplink. QoS should be possible using RSVP or something better. It should all be possible.

It is pretty clear that the trend in all of computing, is and will be for many years, to parallelize and distribute. No one buys a mainframe any more, they move their application to a cluster. Intel can’t make a single faster chip any more, they put two slower ones in the same chip. Centralized data centers will move to regional, to local, to everyone’s home. Until then streaming from the data center will rule, especially with the aid of IGMP in carrier live IPTV offerings.

Great post. I agree (not surprising given that you used our market data to make your point — thanks :) Not to nitpick, but rather than “inflation”, I’d bet on “decelerating deflation”: price changes were about -35%/year in 2000-2005, now it may be -10% to -20% per year. Of course traffic has been increasing fast enought all along that the dollar value was never shrinkning, and therefore I fully agree that the dollar amount being spent on bandwidth is going go way way up and that the broadband access providers will be in a great position to charge more…

However, content delivery networks are not necessarily going to end up losers. If they play their cards right, CDNs can position themselves as the quality and price mediators, which could be an enormously valuable position. To do that, instead of creating their margin by driving the price of their supply down faster, they have to add value by implementing ways for the content to get and pay for quality delivery. Whether that’s more for some of the bits than others (i.e. differentiation) or simply more for all bits (inflation) remains to be seen .. but the opportunity is there for CDNs jump in bed with broadband providers and benefit at the expense of the transit provider.

-nemo-

P.S. Sak, yes you can play the bandwidth market… See http://www.invisiblehand.net

I agree 100% that it is not all about cost. It is also about performance, QOS, and reporting. I would also add that it is important that P2P to allow the ability to set business rules around both the content objects and user experience that are aligned with the business models of the content distributors.

These are the things that Solid State Networks is talking about every day, and the message seems to be resonating. We are not offering the 90% cost reduction solution most other P2P companies tout. Our DDN offering enables the combination of reliability/QOS you expect from a CDN with the economic and performance advantages of P2P (specifically, our own extended implementation of the BitTorrent protocol) to deliver faster performance, at a guaranteed QOS, while lowering per-unit delivery costs.

I also agree with Andrew. It is inevitable that Akamai will want or need to incorporate P2P delivery into their business, as will most every other serious CDN. That is why we see a need for enterprise class software tools to enable this next evolution of content delivery not only for the service providers, but for the growing number of content publishers that choose to manage at least a portion of their own infrastructure.

Rick Buonincontri

CEO
Solid State Networks

But access to the consumers of these bits is not a commodity. It’s a duopoly. And P2P is the only way to bypass this duopoly.

I fully expect Akamai to get into the P2P business. It’s inevitable.