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Follow the money. David D. Clark Communications Futures Program. Motivation. A recurring conversation centers on the sources of revenues for ISPs. Today the consumer pays essentially all the costs of the access provider.

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Follow the money

Follow the money

David D. Clark

Communications Futures Program


Motivation
Motivation

  • A recurring conversation centers on the sources of revenues for ISPs.

    • Today the consumer pays essentially all the costs of the access provider.

  • Is there an alternative frame in which other parts of the ecosystem contribute to the cost of access?

    • Advertising?

    • Paid content?


Ad revenue data
Ad revenue data

  • From Interactive Advertising Bureau (IAB) unless otherwise noted.

  • Data gathering and analysis: Israel ValentinVinagrero. (Thank you.)

    • Also doing some industry interviews.

  • US interactive ad spend 2012: $36.6B.

    • Per HH: $34.63/month


A lot or a little
A lot or a little?

  • Am I really worth that much?

  • This pays for all of the “free” Internet experience.

    • All the web sites based on ads and behavioral profiling.

    • From this point of view, it seems like a little.



Google
Google

  • The x00 pound gorilla in advertising.

  • Revenues (worldwide 2012):

    • Google sites: $31,211

    • Ad partners sites: $12,465

      • Partner share: $10,956

    • Net Google: $1,509

    • Total Net: $32,720

    • US share: 46% $15,051 41% of total



Explanation
Explanation?

  • Consumer wealth is not the (only) explanation.

  • Perhaps it is privacy policies?

    • Hypothesis from Catherine Tucker, MIT Sloan.

    • One estimate is that removing behavioral tracking information cuts the value of an ad by 75%.


Internet expenditures per BB household

Total excluding CDN and advertising: $479.47

($82,74 per

paying customer)


eCommerce: Top 5 countries by B2C Sales


US eCommerce and mCommerce


US retail eCommerce

15% of total US retail eCommerce



Motivation1
Motivation

  • A recurring conversation centers on the sources of revenues for ISPs.

    • Today the consumer pays essentially all the costs of the access provider.

  • Is there an alternative frame in which other parts of the ecosystem contribute to the cost of access?

    • Advertising?

    • Paid content?


Speculate about italy
Speculate about Italy

  • Per-household ad spend: $11.57/month.

  • Speculate that Google is 41%-> $4.75

  • What could an access ISP manage to extract as a share? 5% of top line? ->$.23/month.

  • Now think about the developing world.


Paid content
Paid content

  • Netflix: profitable but low margin.

  • ESPN: profitable and (it would appear) higher margins.

  • Unless ISPs imagine that they are going to price access differently based on the margins of the content provider, must price so as not to squeeze low-margin providers out.

    • Really hard for ISPs to capture value by pricing bits from providers.

      • Only obvious approach is zero-rating.


Zero rating
Zero rating

  • In a system with usage caps, an application that does not count against the user’s cap because the application provider has paid the ISP a fee.

  • Allows a balance of payment based on value.

    • Content providers can pay if the flow is valuable to them.

    • Users can pay if the flow is valuable to them.

  • Will raise regulatory concern about abuse of market power.


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