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Follow the money

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

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  1. Follow the money David D. Clark Communications Futures Program

  2. 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?

  3. 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

  4. 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.

  5. Online advertising per BB household (2012)

  6. 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

  7. Total consumption and online adv/total ratio

  8. 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%.

  9. Internet expenditures per BB household Total excluding CDN and advertising: $479.47 ($82,74 per paying customer)

  10. eCommerce: Top 5 countries by B2C Sales

  11. US eCommerce and mCommerce

  12. US retail eCommerce 15% of total US retail eCommerce

  13. Top online retailers Worldwide US billion $

  14. 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?

  15. 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.

  16. 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.

  17. 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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