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Broadband as a value add? Yes, Its about the eyes.

June 5, 2015 Leave a comment

InternetThe days of ISPs making super profits are long gone. The margins being created by ISPs world over are thin. Also, should Internet connectivity prices go lower due to either more competition or legislation, ISPs stand to create even thinner margins in future. There will therefore be little if any revenue/profit oriented incentives for ISPs to be in business.

Having worked in the industry for about 12 years now (That’s eons in Internet growth terms), I have seen the ISP industry evolve both on the technology front and its value proposition to customers. The liberalization of the sector in most countries has also attracted many investors into the industry, this has created a stiff and competitive market, this has brought with it diminishing returns on investments. Small ISPs are dying or being bought out as they cannot stay afloat. Large ISPs are also merging to create economies of scale to survive.

With the coming projects such as Google’s project Loon and Facebook’s Internet.org (and subsequent Internet by drones project) and many more that aim to provide nearly free Internet to the worlds’ unconnected, there will be no financial incentive for a commercial ISP to go into business anymore.

So what do ISPs need to do?

There has been a lot of talk in the market about value addition and that ISPs should stop selling ‘dumb pipes’ and offer value over and above just the internet pipe. All this has already happened and at the moment ISPs have been outmaneuvered by OTT providers who are providing this value addition type of services over the links the ISPs are providing to their customers. For example, some years ago, all ISPs were offering VoIP as a value add, now with the likes of Skype and Whatsapp calls, ISP-provided VoIP is a dud. Another example is dedicated hosting at ISP provided ‘data centers’ (a room with access control and cooling 🙂 ), with the maturity of cloud services, such a service is also not appealing anymore to customers. ISPs are at the end of their rope.

If you carefully analyze all recent ISP mergers and buyouts in Africa (and beyond if you have the time), you will realize that buy out decisions are less and less being based on an ISPs profitability or revenues and cash flow position. They are now based on subscriber numbers. But what is the commercial point of buying a unprofitable or low revenue business? Answer: Its about the eyes.

ISPs are and will no longer be about direct internet pipe derived revenues but about indirect revenues. Sources of these indirect revenues include online advertizing, OTT services and content delivery and purchase. This is the very reason why giants such as Google and Facebook have entered the ISP business, Its about the eyes. An ISP with more subscribers and loss making is now more attractive to buy than one with few subscribers and super profitable. Unbelievable isn’t it?

End to end control.

OTT operators such as Facebook have been blamed by traditional ISPs for using the ISPs network infrastructure to do business with the ISPs end users. Attempts by ISPs to make these operators pay for delivery of content has been met with opposition due to fears that such an arrangement can result in a tiered internet and with that a demise of net-neutrality that has been one of the key characteristics and a supposed catalyst of internet development. Attempts to camouflage net-neutrality-flouting arrangements by use of ISP led offers such as Facebook’s Internet.org where users on certain networks access Facebook and Whatsapp for free outside their data plans have also been meeting resistance. Being so froward thinking, I am of the opinion that these companies foresaw the resistance to their initiatives to offer their content for free by paying the traditional ISPs, this is why they are all rushing to roll out their own infrastructure to provide free or near free internet to the masses. At the moment, other than their Satellite/baloon projects being tested in New Zealand, Google is already testing out high speed fiber -FTTH in select American cities. This will give them end to end control of the broadband supply chain and therefore quell concerns of creation of a tiered internet. This of course assumes they will come up with a way to show regulators that they have fair access policies for all third party traffic.

The future

As i see it, the traditional ISP will die a natural death if they don’t adapt to the coming changes. What was once a value add will become the product and vice versa. Internet broadband will be a value add to content and OTT services. A content provider such as Facebook or Google will offer you free internet to access their content. Internet broadband provision will be a value addition to content providers. As someone once said, if the product/service is free, you are the product. The free internet will come with privacy strings attached so as to enable advertizers track your habits and offer more targeted adverts. This targeting is getting more accurate and spookier if the tweet below is anything to go by.

glasstweet

The use of browser safety features to disable cookies wont work as companies such as Google are now using what is known as device finger printing to identify you. Device finger printing works on the basis that your computers OS, installed programs (and the dates they were installed), CPU serial number, hardware configuration (RAM/HDD/attached peripherals) will give your computer a unique identifier if applied to an algorithm. Therefore your computing device is unique and can therefore be tracked without the need to set cookies.