Cisco has announced it will acquire ExtendMedia, a content-management play that extends Cisco’s increasingly successful server-side content strategy for network operators. While operators originally saw content as being an example of a service-layer application, that view has faded in the face of a lack of vendor support for tools to actually realize that vision.
Instead, operators have been building a bottom-up content strategy based on data center tools, servers, and server-side middleware. CMS tools like those of ExtendMedia are very close to being the binding point between the service layer and the data center, and thus Cisco has little more to do before it would have a complete solution.
For example, ExtendMedia manages metadata and asset distribution to CDNs, which is a very small step from the network itself. This could be huge for Cisco, which has already been winning early deals in the content space because of its Unified Computing System (UCS) approach. This is being portrayed as an IPTV strategy, but we think ExtendMedia’s platform could also be used to manage more traditional VoD assets, TV Everywhere, and even pure-play OTT media.
Google has confirmed an integrated VoIP offering for Gmail — a service is already slightly integrated with Google Voice. The GUI looks much like the Google Voice interface, and it would make no sense for a call-out capability to be added to current VoIP calling with Gmail/IM and not integrate it with the same feature already provided in Voice.
In fact, Google says that calls to your Voice number can be received via Gmail VoIP. We expect full integration with Voice later this year. We believe that a unified Google Voice/VoIP offering is a transformational step in the voice services market, with major ramifications on nearly every aspect of voice communications. It would make Google Voice perhaps the most powerful voice service available, and it would likely force telcos to consider very strongly their plans for evolving their TDM voice services.
We’d point out, however, that it’s unlikely to create a rush to drop land-line voice since many of the customers for telco voice are also DSL customers who get their broadband services via the same loop. Telcos will likely try to set a pricing policy to control their revenue losses should users try to abandon their current services.
Also, Google Voice does not provide E911 compatibility and will not allow users to port their current numbers to the service, so it can’t easily replace a user’s current phone services. Both capabilities could be added, though the business case for that move would be hard for Google to make in our view.
Talking about its much-criticized joint declaration on net neutrality with Google, Verizon commented that what the document calls “managed services,” which operate likely using IP but will be independent of the Internet, are the future of broadband rather than the Internet. These comments, like the wording of the net neutrality document, illustrate both the gulf in articulation between telcos and the media, as well as the telco’s view of the future.
Broadband’s future is what pays the bills — that’s what the company is saying. Internet access clearly will not do that in the long term (it often fails in the present). Operators need to define new services that are profitable enough to help subsidize broadband access, and so meet both their shareholders’ expectations and public policy broadband goals. Developing these services on the Internet is clearly possible but clearly could not hope then to subsidize Internet broadband costs, since other competitors without those costs would then undercut the telcos in pricing.
India lifted a ban on buying telecom gear from the giant China vendors Huawei and ZTE, marking an end to one of the few formal barriers to the two price leaders remaining among major countries.
We found in our spring survey that providers generally expected the more informal barriers to Huawei and ZTE (such as the one in the U.S.) would gradually fall over the next several years, as well.
Political factions in various countries have cited security concerns as the reason for restrictions, and indeed India noted that there would be increased security oversight. Fears that China might use “back door” features to monitor traffic or interfere with networks are widespread, but telcos tell us that they believe they are groundless.
Another round of talks on telecom regulation and net neutrality kicked off with the implicit sponsorship of the Information Technology Industry Council. This session includes a broader group of companies (including Cisco as well as ITI members), but the FCC is not a party to the sessions.
We’re not sure whether this is an attempt to come up with a broader-based consensus on net neutrality than the previous Verizon/Google pact provided. Perhaps they believe that would make it look less like a conspiracy, but we think it will only create what looks like a bigger one. The problem is that no industry recommendation is going to placate the public-policy supporters of net neutrality, and there’s no real pressure on the FCC to go along.
Is the web dead at 20? A number of sensational comments suggest it’s true, and some of Cisco’s traffic trend data seems to show the same thing. There are also suggestions that even if the web is alive, it may increasingly be just a way of getting onto a social website or receiving Tweets. Finally, there’s the view that Google may own search, but that search is really just a web-exploiting activity that’s doomed because the web is doomed. We think it’s more complicated than that.
Traffic on the Internet is increasing rapidly, but much of that increase comes from video delivery, social network activity, etc. To say this isn’t the web is a bit misleading given that everything is delivered from a web page to a browser. But it is true that consumption of normal textual/image web sites is virtually static in an age where other traffic types are growing. A major driver in this trend is the increased use of smartphones, which because of the way they’re used and the limits of their form factors tend to encourage an arm’s-length application interface to websites rather than a browser interface. It’s fair to say that people may be focusing their attention on specific things they want, browsing less, and searching less.
The social network shift is in our view less important to transforming behavior and business online than the application shift. That said, though, you could characterize both applications and social communications as exercises in the underlying connectivity model of the Internet rather than of the hypertext model of the web. The two could create a tendency to view the Internet as a connection network rather than as an information service. VoIP does that already.
For Google, the challenge is that the Internet is a zero-sum game in two ways. First, there is a limited budget of eyeball-minutes for people to expend online, and anything that takes online time without generating searches limits Google’s ad upside. Second, online ad budgets are also typically fixed for a given period, and so the advent of a new thing to spend ad dollars on (social networks) diverts attention from search advertising.
The biggest impact may be on how regulators and governments view the Internet. There’s been some willingness to accept the notion of a guarantee of Internet availability based on the notion that it advances the state of public education and awareness, better informs people on issues, etc. Those benefits are hard to reconcile with Tweets and Facebook. The “connection network” mission is also clearly a telecommunications service and not an information service, and at least for the FCC, this could be a deciding factor in setting regulatory policy.
The FCC has released a report on broadband speeds, and the results are unsurprising. Users get perhaps half the speeds advertised by their ISPs. A small number of users (6%) consume a big chunk of the total broadband capacity, so the median total bytes downloaded is less than a quarter of the average.
Perhaps the major “policy” finding was that about 80% of the use profiles that were identified demanded no more than 4 Mbps, so it’s possible the FCC is taking some steps to justify a target speed for “universal” broadband falling somewhere in that range.
The discrepancy between advertised and experienced speeds comes from a variety of factors, according to the report, and it’s not possible to say that ISPs are deliberately “oversubscribing” the service to create congestion in the access line. In fact, we agree that home configuration is a major reason for the experience difference, and we think that congestion at the server level for content is another.
Probably to no one’s surprise, FTTH customers are happier with their service than cable or DSL customers, according to some recent research commissioned by the FTTH Council. While the source (and insight) of the story are in doubt, we think that the results really do reflect user attitude.
Our own research suggests that FTTH users are happier about just about every aspect of their service, not just the quality and performance of the Internet. Our model says that what customers pay for FTTH is only about 14% more than for cable, but the actual cost of providing FTTH nationally would likely run almost 2.2 times as high.
There continues to be a compression of buyers toward the lower end of offerings, and while people want more channels and faster Internet, they are very reluctant to pay even a modest premium to get it.
A new report from eMarketer says that social networking in the U.S. may be approaching saturation, meaning that the growth in users is likely to match population trends, and usage per user is unlikely to grow.
Our own research shows another trend; “social exhaustion.” Users who sign up for social networks fall into two categories—those who become addicted and those who lose interest to at least some degree. Right now about 26% of the population fits into the first group, and that’s primarily young and affluent types.
Over time, our model says that engagement of the larger second group will wane, and that activities like games, polls and contests designed to raise usage and interest are actually lowering it. Those techniques target the first group only and disenchant the second.
Cisco reported a quarter in line with analyst estimates, but the company was cautious about its next quarter and its guidance in year-on-year growth would suggest that the next quarter could be flat relative to the current one.
The numbers disappointed investors, who jumped off the stock in after-hours trading, but it’s not a surprise to us. Recall that our spring survey showed that enterprises had suddenly become cautious about tech spending, and that the second half was likely to see a slow-roll on the critical project budgets. We think Cisco is showing that it’s not immune to systemic factors, but we also saw very strong strategic leadership growth ratings for Cisco in the last survey. We think the company’s market share will increase over the next two years and that the caution it expressed about the quarter might still prove unnecessary.
The next month will tell the tale — back-to-school spending is a leading indicator for the whole fall period. An interesting tech point was that switching growth was nearly double routing growth for Cisco, and the switching growth rate matched Cisco’s advanced products. We think this shows that Ethernet is becoming the big focus in both carrier and enterprise segments, which also matches our survey results.