Cut Cords, Cost-Based Clouds? Not.

Friday’s usually a bit of a slow news day, and so it’s often a good day to recap some things that were pushed to the rear of the interest queue by other events.  There are a couple that fit this category that I’d like to explore a bit today, and the first two come from the Internet.

I’ve never been a supporter of the popular notion of cord-cutting, meaning abandoning cable/satellite or telco TV in favor of a pure streaming OTT TV model, and the latest data shows very clearly that cord-cutting is just not happening.  TV viewing is up, subscribers for TV services rose even in 2011 as Netflix gained its greatest ground.  What I think is clear is that mobile/portable devices and streaming are combining to make it possible for some people to watch things at times they couldn’t or wouldn’t watch TV, or to jump off onto an alternate program when they didn’t like the consensus choice for the home TV.

What this says is that (again despite the hype to the contrary) the TV Everywhere model is probably well-grounded on the viewer-behavior side.  If people are supplementing their channelized viewing, then the best way to support their needs is to offer them alternate delivery of what’s essentially the same material.  Rights to network programming, then, are conveyed with subscription to the broadcast of that material.  Once you’ve got the rights, you can then stream both roughly current and past episodes of your programs.  This is the force that I think is transforming the video space, and also the equipment space.  In the latter, the change is coming about because TV Everywhere viewing is a proactive monetization strategy and it shifts the focus of some early CDN interest from pure traffic management.  I think that players like Akamai who have been public CDN providers and are now dabbling in licensing their stuff to the carriers are doing so because TV Everywhere monetization could make carrier CDNs a reality on a larger scale (but a longer timeline, says my data; the projects take longer to get approved because they have more integration requirements than simple CDN projects).

A related point to this is advertising of course.  According to the analysis of 2011 numbers, online ad growth slowed and in some areas reversed.  Paid search, for example, declined not only in Q4 but for the year overall.  Network TV ad spending rose by almost 8% in Q4, but it was also off a bit for the year.  This suggests that there isn’t a persistent flight from TV commercials to online advertising (and so it may explain why Google is honing its privacy policy to target better).  Interesting how objective data often flies in the face of “classical wisdom”.

Classical wisdom is a problem in the cloud too, if you look objectively at the numbers.  I just saw a survey that said that the main reason why people want to move to the cloud is not for flexibility (something the cloud actually delivers) but for savings, which the cloud cannot deliver for the average IT app.  So what this says is that the expectations of businesses for the cloud migration are not realistic and that the cloud will be a tragic failure.  Here’s the thing.  You cannot, now or ever, fund a technology revolution with anything but NEW BENEFITS.  The cheapest way to do something is almost always how you’re doing it already.  You have sunk costs (unamortized capital cost), commitments to support, and most of all operating procedures and performance benchmarks that you’ve build a business around, and you’re then going to toss this for something hosted on the Internet?  Believe in cost-based cloud adoption and you’ll see your shadow next time you go out; there will be no clouds to block the sun.

I don’t believe in that model, of course, nor should you.  IBM had part of the truth in their recently published survey—they said that business process optimization would drive cloud adoption.  We analyzed this report in our March Netwatcher.  I believe in business-process-based cloud adoption.  IBM’s only problem was that they said that it was simple cost elasticity and scaling that would be the “revolution” and that’s nonsense again.  We are going to redevelop our model of IT, and our model of the Internet, based on the cloud and the changes will touch every aspect of every business and every consumer’s life.  But it’s not instant gratification.  This is a long process, which is why nobody bothers to hype it.  For those vendors who can stay the course, there’s an opportunity here the like of which we have never seen before.  There are hundreds of billions of annual dollars on the table, more new revenue than there has ever been, and new benefits fund revolutions, remember?


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