Open Play
In 2001 I came in contact with the Dutch Innovation Platform, from the Ministry of Economic Affairs. Because I foresaw a major shift in the value chain.
Thanks to the Internet, consumers were not locked anymore in the old walled garden, linear value chain:
Consumer -> buys television package from cable operator -> buys tv channels distribution rights -> broadcasters add advertising revenues -> pay the content producer.
The open Internet allowed multiple new value chain models:
Consumer -> buys flat-fee broadband. End of chain.
Consumer -> surfs the web for content aggregators who ask money for their service or add advertising revenues -> to pay the content producer.
I called this Open Play. An open value chain, controlled by the consumer. This reduces the infrastructure provider role. They no longer control the consumer. Content owners can do direct business with consumers. Heck, even content producers can do direct business with consumers by cutting out the middle men. This was a threat to telecom operators.
I also explained that there is a new role in the value chain: the distributor: hosting providers and the CDN’s. Content owners rent resources from CDN’s to deliver content to the end user. This further downgrades the position of telecom operators in the value chain. They lose the distribution control, and are marginalized to being a dumb access provider only.
I warned that if the telecom operators did not enter the CDN market, they would be forced to only compete on capacity and price and can’t even make money from content owners traffic. While the CDN’s could make a lot of money.
And that is exactly what happened in the past years. Walled garden attempts with unique content from broadband ISP’s and mobile operators dramatically failed. ISP’s now face a saturated, highly competitive market and compete on incredibly small margins.
Flat-fee subscribers pay the same, even if they double their network usage. And that happens year after year. CDN’s push PetaBytes data into ISP networks. Via free peering or on-net edge server arrangements. No revenues for the ISP. Traffic grows fast. So the ISP’s have to do major investments in their infrastructure. But who’s gonna pay?
If ISP’s had moved sooner into the CDN business, they could have kept control over the distribution role in the value chain. They could have optimized their network. They could have gotten great revenues from content owners who now have to pay through the nose to CDN’s.
The ISP’s could have differentiated themselves towards the consumer market. Cheap versus content performance.
ISP’s are now starting to realize this. It’s not too late for them. Yet. ISP’s are now telling CDN’s to start paying for traffic. No more free peering. “Oh and please could you remove your edge cache from our network”? The ISP’s are taking back control of distribution.
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