Everyone talks about the explosion in Video traffic. Everyone talks about the explosion in the bandwidth required to carry it. No one talks about who is going to pay for it. There is one likely source: transit bandwidth inflation.
Prediction is an entertaining activity better suited for stimulating discussion than providing an absolute outlook on the future. Therefore, the bolder and more controversial, the better. Keep that in mind as you read and respond.
Level3 (LVLT) tries very hard to appear hip with the Web 2.0 vibe, and today’s WSJ article cites content distribution (namely video) as the reason for a resurgence of investor interest in carriers. Simultaneously, investors continue to flood liquidity into content delivery networks (CDNs) like Akamai (AKAM), trumpeting them as key enablers of the Web 2.0 content rage. It is impossible for both to be right, as each business is designed to eliminate the need for the other.
Wading through my morning reading I happened upon an Acme Packet (APKT) white paper that did a good job explaining my apprehension about Akamai (AKAM) and how their business might be commoditized. In the long term, do SIP and managed media sessions replace the media caching model?
Gizmodo has a video demonstrating the new Xbox Live Video service which allows Xbox 360 owners to download and watch high definition Movies and Television. I discussed the impact of this announcement earlier.
Akamai (AKAM) was an exception in my portfolio. I typically avoid high P/E high market cap companies, but Akamai had a unique and dominant position in the marketplace that I felt people overlooked. But I’ve synthetically hedged out Akamai holdings since September 22.
I woke up in SFO at 4AM to make sure I could get to Tahoe in time for this debate. I’ve written extensively on Net Neutrality and stopped once I realized it was unresolvable.
Broadband Brawl: A Debate Over Net Neutrality
The WSJ discusses (free link) Googles (GOOG) push to mend fences with content owners and creators and strike advertising revenue sharing deals. Google is the undisputed efficiency and size leader of connecting on-line advertisers with on-line consumers, with the exception of Yahoo! in banner advertisement.
Akamai Technologies Inc. (AKAM) is the undisputed leader (80% share) of content distrubution infrastructure. When you stream video or iTunes, it is probably coming from an Akamai server and not NBC or Apple. Akamai simply takes bits from one of it’s customers, like NBC, and ensures a quality viewer experience. NBC puts the ads into or around the video you watch.
No one, as of yet, has really started to successfully implement user-targeted video advertisements. Brightcove is trying to do this, but most online video advertisements are sold by the content creators themselves. If you watch the Sci-Fi channel online, you see ads that NBC sold to it’s existing advertising partners. In the web world, most sites outsource the selling of ad space on their sites to Google, Yahoo, etc.
It is this transition that will catalyze an inevitable conflict between Akamai and Google.
I attended the Lightreading “Future of Optical Networking” conference in New York last week.
I had high expectations for the conference based on one I attended two years ago on Ethernet in the WAN. At that conference there were a number of participants from start ups and established companies who led a vigorous debate about what the future of SONET/SDH looked like. Even though I lived and breathed Ethernet over SONET/SDH at the time, and met regularly with the companies on the panel, the debate that ensued was highly educational and enlightening.