Level3’s smoke and mirrors

Level3 didn't slash pricing for CDN service with their recent 'same price as transit' marketing ploy. If anyone slashed pricing, Amazon did with the introduction of their S3 storage. All Level3 did was imply their baseline CDN service is no better than their transit....heck, at least they admit it. A couple points to note. Baseline CDN service really is transit or no better than transit from Internap or some other route aggregator and Level3 may have lost allot of money over the years so it should come as no surprise that they are at it again. This time with some method to their madness, they baiting customers and will up sell them on value added services or give the baseline product away for free but demand a share of the customer's revenue generated as a result of distributing content. In essence subsidizing the delivery costs of that content.

Questions that come to mind about Level3's shuffling of the product pricing boxes: How much is their storage going to cost? What about those companies who need some DRM functionality for their downloads? How much with that cost? What about custom players or layered advertising? How much with they charge for that and what percentage of the advertising revenue will they require you give them for using their CDN?

I read their new delivery pricing works out to about $11 per Mbps equivalent. Not a bad rate, but certainly not as low as some of the pricing from other players in the space. And definitely not free, yet. It will be free sooner than later because it will be subsidized by advertising dollars.

First it may be helpful to explain the difference between transit of data and distribution of data. Everyone on the internet has transit. It is the ability to send packets from one place to another. Inherently there is some form of intelligence built into transit because it is built into the core backbone routers of the major carriers and isps.

Example: you're sitting at your computer on Sunday morning checking your fantasy football scoring on the Sportsline website. You live in CA and have Comcast as your ISP. Sportsline is hosted in FL at the Terramark datacenter(not sure if this is actually the case and am using as an example only) and connected to the Internet in Terramark via Sprint. When you type in the url and hit return a request gets sent from you computer out your cable modem and onto Comcast's network. Comcast's routers see the IP address of where that packet is supposed to go, looks up in it's routing table what would be the quickest way to get that data off of it's network and onto the Sprint network. Since quickest doesn't always translate into best and in this case only translates into Comcast not wanting to carry the cost of that packet on it's network your experience is subject to all sorts of hiccups along the way. That first packets eventually gets to FL and Sportsline and when it does, the same process, only in the inverse order, happens again. The updated score makes it's way back to you in CA and all is well. In this instance the experience wasn't all that bad but the information you requested was quite small in volume of data required to get you that score. Imagine if, instead of the updated score, you were requesting the infamous Paris Hilton and Rick Soloman video. The file size of that video is exponentially larger than that of the score of the fantasy game and the cost to Comcast and Sprint is also exponentially higher to deliver than the score. Fortunately for you, Rick Soloman was out to make some dough and wanted the user experience to be similar to his own experience so he hired a CDN to help ensure the quality of the experience remained tip top :) Important detail to note, CDN's all buy transit and most buy it from multiple upstream providers. In this made up example, Rick was uhttp://www2.blogger.com/img/gl.link.gifsing ACME CDN who was a new CDN. Unlike Akamai, ACME was built from the ground up to deliver large video files and wasn't too concerned with the last mile. As such, they had a smaller # of nodes placed in carrier neutral data centers on the two coasts and a couple in the South and Midwest. Since ACME isn't a web hosting company, Rick needed to contract with a second vendor to host the rest of his homepage. Rick is a sharp cat and a penny pincher so he used Amazon's S3 file storage service which would itself have been sufficient had the video been of Rick and anyone but Paris. He understood S3's limits and since he was out to make add to the stack of paper he was blowing on Paris, he only relied on Amazon for the non revenue generating files. When you click on the 'watch' button on his site the url where it sends you is not on Amazon's infrastructure but on that of ACME's. Similar to the fantasy scoring example, Comcast's routers determine that the destination address is part of address space supplied to ACME and easily accessible via SBC who happens to be one of Comcasts upstream providers. Comcast dumps this packet onto SBC. Unlike Akamai, ACME's technology doesn't rely upon multiple DNS queries to determine where the originating or destination IP address is physically located. ACME uses anycast protocol/technology which allows it to have the same ASN at all of it's nodes. Another difference with ACME is that they aren't using a cacheing setup but instead are acting as the origin for their customers files. This allows them to guarantee that 100% of their customers files to be distributed will always be on 100% of their nodes. When using a cache, this can't be the case as only the most requested files remain on the node for a matter of time and then they're purged. Its great if you're popular but not so great if you're not popular of are very private data but depend on high performance. When SBC gets that packet it see's the AS it's destined for and dumps it as soon as possible. In this case that hap pend to take place in the same building, Equinix in San Jose. Both ACME and SBC are colocated at Equinix so there was minimal cost to SBC to deliver that packet which makes them happy to deal with ACME. Can't say the same for their dealings with Akamai because Akamai's nodes are out at the edges of SBC's network, in the CO's which would mean SBC has to keep those packets on it's network far longer than their ideal. Amazon's S3 cloud is located in VA and had Rick not used ACME for the origin location of the video, a similar process for delivering the fantasy football score would have occurred with the deliver of the video. Fortunately for you, Rick's decision to use ACME results in your viewing the video almost instantly and not waiting around for the packets to go back and forth from the West coast to the East coast.

So what does this have to do with Level3 pricing or the pricing of the CDN market in general? It highlights how much of a difference adding an origin storage component to a CDN can make in terms of route miles. If Level3 can charge customers more money for using less route miles then all the better, it may even make sense to give transit away if they can make up that $11/Mbps by making customers believe they're being so cutting edge with pricing and product positioning when in reality they're stroking themselves by driving more efficiency on their network.

Ohhhhh, if that were only the case. I guess theory sounds good on paper but reality is what it is.

Net Neutrality: The Ugly Bride

Over the next 20 years net neutrality will be left at the alter many, many times. At&T already did it once when they had no way to provide cable modem service because @Home Network had been the choice of partner for the cable co's. Meaning AT&T didn't have a broadband connection into the home. What did they do? They found the other kid who wasn't invited to the party, AOL, and cried all the way up to the principals office where they screamed and yelled about how poorly they were treated and how they should be included. Funny how shortly after the TCI acquisition was approved they slowly crawled across and into the anti neutrality, anti gov't intervention, pro free market camp.

What about Google? Google talks a good game but like the Barons of the past, they're so rich and powerful that it's easy to be preaching the socialistic smoke screen of open access when the commotion you're making distracts the attention from the real reason you need open access policies: Advertising $$.

Before I get into why, this thesis hinges on where I see Google taking it's road map over the next ten years. Google will become and will accomplish during those 120 months:

- already is today and always will be, and DON'T EVER FORGET IT, generating revenue by getting a piece of the advertising and marketing budgets of BUSINESSES worldwide (Sound familiar? It should because you know many similar companies. Companies like NBC, CBS, ABC, FOX, etc)

- building out an IP network that will kick ass on anything we have today because they'll squeeze every little drop of 'utility' out of each tiny unit of that network, driving the revenue per packet higher and higher the longer that packet stays on it's network. The big deal in this? They will give access and access device away for free to anyone who wants one. Just like the bikes at the googleplex, take one when you need one and leave it for the next guy to use when you're done. Since they're free, there really is no reason to steal them because there is no reason to buy one, right? Riiiight.

- will emerge as the leading global wireless phone carrier, giving access to voice and data via free gPhones to the masses.

- will enable a true global village as Marshall McCluhan predicted. providing ubiquity in access reach, speed and scope. no kids left behind, just like the California school system. uh huh.

How could such a beacon of industry and a company that is studied and admired as the pinnacle of American enterprise show its true colors and be so fickle? Flip flopping from one side to the other? I love answering my own questions and since nobody else is raising their hand I will tell you; first, its real simple and sheds some light on why net neutrality is a pipe dream. Net neutrality itself is a concept and notion created by the telco's and in cooperation with their opposition, which pits each other in a one extreme to the other showdown. Nobody will ever win this showdown because if someone did it would then be over and if it's over how can they conveniently flip or flop to the other side when need be? Everyone wants to have their cake and eat it too and when your talking about something you can see, touch and feel, the history of any given involved party is easily forgotten, effectively masking economic warning signs. The most obvious one being the saying, "if it's to good to be true, it is and never will be true."

It's all about one $ and maximizing how many times that same $ can be 'turned over' during it's lifetime. For this example, my definition of 'turned over' is the value of the taxes the US gov't(or any type of tax collector) collects on each dollar it spends, collects, spends, collects, etc...

Keeping that packet on your network all the time ensures you can have more opportunity to market to the user, provides them with more and deeper analytics of this persons habits, a deeper understanding of what is important to this person and what are they hiding. After all, the easiest way to get someone to do some action is by guilting them into it.

Yes, businesses will do what they can to maintain an advantage in the market for the assets they've built or acquired. This is nothing new and is happening on behalf of every industry, not just telecom. And it is expected. If you elected an official who is uneducated and susceptible to rhetoric and hype you have the ability to change that instead of throwing more rhetoric and hype on top of it. The fact of the matter is that with or without net neutrality, market innovations will happen that shake up the landscape. We're seeing it now with wifi. In a few years the net neutrality debate as it relates to in ground last mile connections to the home will likely be a laughable memory because of innovations by companies addressing a market deficiency such as lack of competition for the last mile connection. Wifi, WiMAX, satellite or any other protocol/standard/whatever bypasses the last mile altogether, thus bypassing the ILEC, MSO, etc.

So, if you really want a competitive market for alternatives to any of the technological services we have today, the best way to ensure that is to allow those companies to keep their systems closed and have tiered offerings because the capitalistic market forces will produce alternative, innovative, ground breaking and industry shattering service offerings. Does Napster ring a bell?

Another thing to consider, the telcos(distributors) rely on the content producers(websites, aps's, isv's, etc) as much as the producers rely on the telcos. They are complimentary in nature and it is in their best interest to play together because the combination of the two is what makes each, in its own right, attractive. What would Yahoo or Google be without the internet? Why did GM pull that all electric car they used to have off of the market and now why is Tesla coming out with an even better one? Because the oil companies needed GM as much as GM needed the oil companies.

We aren't fans, we are participants. Just how fans often confuse their favorite team signing a questionable player or a player saying something negative about their team, these industries are made up by for-profit businesses which must show a return on investment or they will vanish faster than they got here. Don't be fooled by the smoke screens!!!

Is Comcast going to buy Yahoo?

A good deal has been written about Brian Roberts, CEO Comcast, announcement that 160mbps connections are just around the corner. The problem is the internet was built on best effort relationships and is nothing more than a bunch of networks connected together with no quality control on where or how these various networks interconnect. Without some standard for interconnections it is impossible for Comcast to guarantee any performance of packets once they leave the Comcast network. The network is as strong as it's weakest link so even though you may have the ability to get 160mbps, chances are you won't if the origin of your requested content is not physically in/on your AS.

IMHO this is more about setting the stage for a new approach to the comcast network than bandwidth to the internet in general. It is in Comcast's best interest to get as much capacity on their own network as possible because it gives them a huge advantage over the likes of Google, MSFT, YHOO, Fox, etc when it comes to QoS on specific applications. Besides, there is no possible way this could scale out to the internet and that is on purpose....meaning comcast will never be able to guarantee 160mbps anywhere but on their own network. These ever evolving broadband local networks with some overlay backbone connecting them together is the ideal situation for p2p distribution. At the end of the day, comcast wants to keep those packets on it's network as long as possible because then and only then do they maintain 100% control. In doing so they have leverage with the customers who are mainly home users. Service for the enterprise is not far behind nor hard to accomplish...a simple dedicated line between the enterprise and comcast's network and the enterprise is connected. Or better yet, the enterprise could outsource their IT services such as email, CRM, storage, collaboration, voice, video conf. etc. to Comcast and be guaranteed XX Mbps throughput from an employees homes to the corporate environment. Given all of the local and federal incentives for going green which will trickle down to driving companies to promote telecommuting even more than they are now, this is actually a valuable service to be able to offer. Add video conferencing, voip, VOD, etc on top of it and they'll have a network that offers an enterprise customer the most efficient way to address all of their voice/IP/IT requirements. In doing so it also de-stresses comcast's reliance on upstream links by using them less(assuming p2p is in place) and relying more and more on peering. Comcast was one of the early peering sluts so to speak, when other MSOs thought peering was what you did when you teamed up with your second grade classmate to do a bookreport, Comcast was signing network peering deals with anyone who sends a fair amount of traffic to them or vice versa.

I have mentioned Surewest previously and they are currently offering fiber to the home in Sacramento. For customers where this is available, everything (voice, HDTV, IP, VOD, catv, etc) are delivered over IP. It may seem cutting edge and far too complicated for a dumb old cable company to accomplish but comcast is no TCI even if they are saddled with some of the TCI infrastructure, Brian Roberts gets it and embraced it long ago. If that isn't enough, IP really is proving the most efficient delivery medium available. @home was developing products and applications around these virtues and Comcast has merely expanded on that vision.

IMHO, so take it for what its worth, Comcast and Google are the two powerhouses today. Comcast should buy Yahoo or better yet, pull a trifecta Comcast/MSFT/YHOO combo. That would be the google killer. Why bring in MSFT? They have lots of cash, a great revenue stream, lifelong customers and can turn office apps into a hosted infrastructure which yhoo no comcast have done. All of these services may even be free to the end user because they'll all be subsidized by advertising. After all, it is advertising that drives goog's revs and it will be advertising or subscription fees(I view them as the same as they should be mutually exclusive) that surpass licensing revenue of software vendors. Remember, advertisers are fickle and will spend their dollars where they think they are going to get the best return. As such, when a comcast user needs to access google servers, it is comcast who controls how well that user gets that packet back and it isn't necessarily in their best interest to make it smooth and seemless. Think about it, causing poor user experiences with google is one way to discourage ad spend with google. One piece at a time and sooner or later it all adds up to a significant threat to google's so called "unfair advantage"

Next up: GoogleNET

They are giving away everything else, why not connectivity too? Its all about efficiency right? Operational efficiency, risk mitigation efficiency and customer efficiency. Efficiency is the driving force behind Googlenet(gnet). What is GNet? Google's foray into the ISP business. This 'business' for them can be classified as marketing or a means to an end. The end being, selling advertising.

The gnet hypothesis: Bandwidth costs have fallen to a level that the advertising revenue more than subsidizes the cost of the network. We are in the very early stages of a true 'gloabl village' as Marshall McCluhan called it. The cost structure for a traditional ISP like PacBell DSL..errr AT&T, comcast, etc to supply services to the residence is around $40 per month and trends down as they grow because they get cost scale.... in the network world, the more you buy the less it costs.

goog will be placing a bet, and a very calculated one, that advertising $$ will not only subsidize operational costs of providing free services(isp, voip, office, etc), but will exceed them.

Owning the customer's network routes from end to end(being the ISP) provides Google with private solution for delivering customized content and adverting to each and every one of the people using their service. this delivery platform is always on and knows where you go, what you type, where you live, who your friends are, what files you have downloaded, what you look like, and whatever else they add on to their services. So when Johnson & Johnson or GE or Proctor & Gamble or Coca Cola or Pepsi is planning their media buys for the next year do you think they'll purchase advertisements on radio, television, print or the 4th network(Google)? based on the ability to target a specific population that has certain attributes you desire, the choice is clear...you pick google. Why? because you know that your marketing msg is going to a qualified prospect as opposed to the traditional 'shotgun' approach. plus, you can get results in realtime and tweak your msg if its not working in real time. with the other three media you are somewhat ratholed into trusting some third party for ratings that may or may not even reach the people that you want it to. by the time you figure this out a slew of things can happen...some good some bad but why chance it when you don't need to.

At the end of the day, Google is building a traditional media killer and the funny thing is..actually not really funny but kinda, that the writing is on the wall but nobody seems to believe it. I do. @Home Network had this vision but couldn't pull it off because the cable co's couldn't get their heads out of their rear to see the opportunity that was sitting right in front of them.

goog already has deals in place and likely in the works with the producers of original content which will allow their users access to that content. if i'm a content producer where would i want my content to be seen? ex. let's say you are the producer of The Office and goog offers you the ability to place your content on their network so that it can be viewed by anyone, anywhere, anytime and offers a revenue share or some other creative structure around it such that you know your worst case scenario beforehand. simple choice right? sure abc or cbs might offer an upfront fee in the form of $$ per show but the audience is limited, the timeslot is finite and in order for someone to view it, they have to purchase cable tv or satellite or whatever whereas on the google network you content would be globally accessible and the broadband access which replaces the cable or satellite tv service, is free to the masses. additionally you can develop complimentary services that engauge your viewership such that you are able to really develop a community around you content as opposed to content around a community.

What does this have to do with being an ISP? Everything, why do you think there is such a brouhaha over net neutrality? Without connectivity none of this is possible and with the right connectivity, all of it is possible and defendable.

The internet hasn't changed anything. The driving force of media is and always will be advertising. Without it, there would be no televsion, radio, print or internet. It doesn't matter if its old world or new world, it's still dependent upon advertising and gnet is to google what airwaves were to ABC, NBC and CBS, something to exploit in order to sell advertising.

The Facebook Marathon

Robert Young wrote an interesting post on Gigaom asking the question whether Facebook missed the boat or is here to stay.

One thing that is crystal clear is that the guys at Facebook are just getting started. The recent video deal with Comcast, the upcoming gift shop, the jobster deal and probably a boat load more on the way. Last time I was in Palo Alto I wondered what was up with the line of people stretching out from facebook to hiway 280 and back was all about, now I know, it was all the BD guys from the F10000 waiting to do deals :) (joke). The Facebook niche is as much college aged adults as was googles niche the technorati. They did both start there though. Facebook is and will continue to do deals, real deals, with name brand, established companies who all want so badly to market to the Facebook users.

Robert and some of his readers bring up some interesting issues that these advertisers appear to be experiencing via their placements in Facebook. It seems they aren't getting the results they want or thought they would. SHOCKER. Could it be that this population doesn't have the disposable income they thought, are more fickle than anticipated, have no patience, are multitasking while online, or just don't buy stuff online?

Perhaps, but doubtful. I believe the problem is these advertisers haven't qualified the audience they are marketing to and developed a strategy to assuage the fact that these people know that if it talks like a rabbit, hops like a rabbit, &^$%s like a rabbit and eats carrots night and day then chances are it is a rabbit. The rabbit in this case is their marketing efforts. These advertisers also spend ad dollars on network television and rely upon Nielsen ratings to tell them whteher or not they spent their money well. Yet in the online world they experience low immediate purchases and they question the value as it relates to where they spend their ad dollars. That makes perfect sense in a vacuum environment like television or radio or print where you literally have no idea how or who is watching what. Is Nielsen selling beachfront property on the Texas gulf too?

When an industry like advertising can get lazy and assume what worked in the past will work in the future, their clients will experience a relative decline in the utility of a dollar spent on advertising. In this case, the agencys are developing campaigns and buyin inventory from facebook and placing their campaigns in the inventory and when an ad is served, it's served and that's it. It's just served. Why is that? facebook users have grown up on the internet, know about spam, pop ups, phishing, dos, ddos, etc and just as the generation before them became immune to direct mailings that came via USPS delivery person, this generation is immune to the lame ads being served today. If these advertisers want to really see value in their advertising spends they will need to make some major adjustments including adopting a long term, not short term strategy.

Short term is like a one night stand and nobody likes being screwed. They like to get laid which implies a mutually pleasing relationship. Success based advertising is short term and there is certainly a place for it among these users but it's definitely not coming from a mainstream company like CocaCola or McDonalds. It's coming from the guy across campus who just posted a msg saying he has KGB for sale for $40 an eigth. Brand establishment, brand placement and brand alignment are the long term approach advertisers will need to take if they aren't selling drugs or sex. It shouldn't be a surprise, they've been thinking they were doing this all along with the other three networks(TV, Print, Radio). We're seeing product placement in films so and some TV programming and we will soon see it online too. Conde Naste and Reddit is an example of this alignment and that combination will be a winner because they are bridging that gap that the advertiser can't and the Madison Ave marketing agency sees this new wave of strategy marketing as a threat to their business model of selling airtime, eyeballs, ears, clickthroughs, etc they are disincented to adopt it now, when the opportunity is in front of them. Like anything else, advertising strategies and associated successes are cyclical and have a finite timeframe and always have some association with the culture of the time. Therefore, as time moves on so should your thoughts on marketing.

Facebook wasn't stupid for choosing to remain independent, they 'get' it and are quite clueful. It is a marathon, not a sprint and steady progress will allow facebook to cross the finish line. If we're in mile 8 right now, facebook, google, salesforce, ebay, amazon, and yahoo are all still very much contenders who will likely find romance amongst them, it just may not be what we thought it would or when we thought it would happen.

Peering at the edge and the role of the P2P

Here are some reasons why I am leaning that way:

1. Ubiquity in access and Choice. Everyone, everwhere on the planet and perhaps elsewhere will eventually have the ability to choose who their isp is and how they connect to their isp. ISP is defined as a company who sells transit. How they connect is defined as the last mile and example are hfc(cable), fiber, copper(DSL), wireless(wifi, wimax, satellite, whatever)

2. Networks are only as good as the networks they connect to. The whole point of p2p was to improve performance and save costs, at least that is my impression of how p2p's position themselves commercially. p2p technology works best when the 'sharing' happens locally, as in the same town, region, neighborhood because the data doesn't have to encounter so many hops along its way from one peer to the next.

3. Last mile service providers don't connect with one another. This is stupid on their part! Example: I'm on comcast and my neighbor uses pacbell dsl. I just downloaded the maverics surfing competition video which i got by seeing it in my koniki client. I watch it and move on but it is still on my computer and kontiki is still running in share mode. My next door neighbor fires up his kontiki client and he too sees the link for the surf comp and clicks it. Does my neighbor get that file that is sitting on my machine or does he get it from some other location on the net? That depends on different factors but chances are it isn't coming from my pc. Stupid because this isn't efficient and when services aren't efficient they will be driven to the ground sooner rather than later. It wouldn't be efficient for my neighbor to get to my pc vs some other node on his isp's upstream provider(for example sake pac bell, sbc and att and all separate companies) even though he can see my pc from his home office window because in order to do so it is going to cost pac bell money, it is going to cost comcast money, and it is going to cost the surfin website company money and its going to take a shit load longer and have no QoS. That little request for the video i just watched, should it have to come from my pc to my neighbors, would have the itinerary below:

neighbors pc to pac bell Central office to pac bell regional hub to upstream provider to some public peering switch to Level3(comcast upstream provider) to Comcast regional datacenter to headend to neighborhood node and finally down to my pc. and then head back(next door to me) in some similar fashion....I think there is another hop between the node and headend too so it's even longer has more potential points of failure.

For this reason, it would make sense to move the peering to the edge and the p2p networks are a potentially more efficient way to peer than what is currently done. This could take place in or at the CO level or Headend level by merely interconnecting the two and running bgp or some other protocol that accomplishes the same thing. In this example, it would save comcast money that they pay to L3 for their upstream connectivity, it would save PacBell money that they pay to uunet for upstream, it would save the peering provider money because the router would consume less power and generate less heat and not be taxed by the demand of the reques. ie, it's more efficient. The old school telco boys with their closed networks and fear of new techonologies and competition are slowly but surely retiring and moving on because they've been at it for 30+ years and they have better things to do like play golf and play golf again. Backfilling for them are leaders from the IP generation and their mindset is more progressive, they understand the layer one is always going to be layer one and that it is a commodity. As such, they aren't as concerned with keeping it closed at the local level as their predecessors once were. They see the value and understand the threat of not opening it up. Its better to get something than go out of business right? They're keenly aware that their incumbant status could be a liability on several fronts including net neutrality supporters stirring up the pot and filing lawsuits, new technologies emerging which are more efficient and have low barriers to market entry and they still owe a shit load of money to pay back the banks for paying for all that fiber so they wise up and collectively develop a plan to have some arbitrator transfer packets amongst themselves. The arbitrator has to be a neutral third party to avoid any conflicts of interest between the networks and has to have deep reach into the networks users hardware and obviously know what they are doing from a technical perspective.

A couple p2p providers, specifically kontiki, are in a great position to jump on this. It's no wonder they were purchased by Verisign!