The Internet has proved disruptive to a lot of traditional business models, and possibly none more than the retail model. Recent numbers from Forrester say that online retail sales will hit nearly $280 billion by 2015, and I think they could easily top $350 billion. While this is small potatoes in absolute terms, the online model has also changed the pricing and margins of retailers. Anything that’s expensive-ish and that has a model number is going to be priced online even if the consumer comes into the store to see it first. That changes the whole way that buying behavior has to be manipulated, or it sets retail storefronts as involuntary live catalogs for people who use Amazon to visit.
The role of the Internet in buying stuff combines with social media to generate about 80% of all online time spent by consumers, with video making up nearly all that’s left. People do little or nothing, comparatively speaking, to further their education, manage their finances, improve their health, or any of the other things that broadband proponents say are the reasons why everyone needs better/faster/some broadband. With the exception of video (which, remember, is only about 20% of online time) none of these applications are bandwidth-intensive. Mobile video is a bandwidth hog in mobile terms, but a mobile video stream is small potatoes in the spectrum of wireline broadband, where nearly everyone who has broadband at all can get at least 6 Mbps.
The question of how much broadband you need has implications beyond public policy. Vendors would love to visualize the future as one where video-greedy consumers demand more and more capacity while network operators draw on somehow-previously-concealed sources of funding to pay for the stuff. The fact is that’s not going to happen, of course. Recently the cable industry offered us some proof of that. If you cull through the earnings calls and financial reports of cable providers, you find that they like the telcos are focused on content monetization and not carrying video traffic. The difference is significant; monetization means figuring out how to make money on content, where traffic-carrying is simply providing fatter pipes. For cable, the difference is whether they utilize DOCSIS 3.0 to provide some new video services or to expand broadband capacity, and they’re voting to do the former.
The fact that all kinds of network operators are looking for monetization beyond bit moving may explain why the big IT vendors like IBM are working to be seen more as a cloud partner to these players than as a cloud service competitor. Microsoft alone of the big vendors seems focused on going their own way with their Azure cloud offering, and that’s likely because Microsoft is focused on competition from Google. I’ve been hearing rumors that Oracle has decided against a hosted cloud offering and decided instead to focus on service provider cloud opportunities.
The complexity of the cloud market is shown in the latest IDC numbers, which give IBM the leading spot again. What’s interesting is that IBM outgrew the x86 commodity server space, and in large part because of its strength in mainframe and mini-frame non-x86 products. In fact, growth in that area doubled the server industry average. What this shows is that enterprises were telling me the truth when they said that there were really two models of IT evolution; virtualization-centric (based on x86 and Linux) and service-centric and largely based on other OS platforms that used SOA for work distribution. IBM’s strength could be its ability to harmonize these two worlds, though so far that’s not how they’re positioning themselves. But then the media’s not understanding the existence of the two groupings, so what can we expect?
In economic news, Fed chairman Bernanke said that he expected there would be a small but not worrisome rise in inflation, and it does seem as though the basic strategies for economic recovery are working. Wall Street is also showing it’s less concerned about a major problem with the oil supply, though obviously oil prices are up on the risk so far. It’s important to note that oil, like nearly every valuable commodity, is traded. That means that speculative buying of oil contracts drives up prices even though none of those speculators actually intends to take delivery on oil, and thus there’s no actual impact on supply or demand. They’re betting on future real price increases at the well-head or on more demand, and we pay for the profits on their bets. It’s an example of how financial markets influence the real world, and sadly there’s more of that kind of influence today than there is of cases where the real world influences financial markets.