1. Quality Of Service
The Monetization Of Latency
June 2013
Four Basic Networking Services
Network operators of all types across the globe sell
four basic services to consumers, businesses, and
content publishers. They are:
CONNECTIVITY
This is the most basic
deliverable, a data link between
different networks, hosts or
users.
BANDWIDTH
The evolution of most
applications, web sites and
media is that they grow in size.
To address requirements,
network operators have built
increasingly larger pipes to end-users, businesses, and
content publishers.
For example, the history of consumer bandwidth
services is:
1. Dial-up at 28.8K
2. Low-speed broadband (<10Mbps)
3. High-speed broadband (<100Mbps)
4. Gigabit
DEFINITIONS
CONTENT DELIVERY
Preparation
Transformation of data for
display or use by devices
and networks
Acceleration
Delivery of latency-sensitive
data to meet the
expectations of users and
technical requirements of
the traffic
Security
Limiting availability of
data to approved users,
devices, networks, and
geographies
Quality of Experience
A user’s perception of
delivery
A Content Delivery Strategy Service Report from Arcus Advisors, LLC
2. 2
LATENCY
User expectations and the
technical requirements of
streaming and downloaded
media, financial transactions,
applications, and web sites often
require that data is delivered nearly instantaneously.
The absolute lowest latency delivery would be from a
consumer device directly. Caching on STBs, smart
TVs, phones or tablets will provide the quickest
delivery.
The next lowest latency delivery is provided by last-mile
network operators (ISP) as they have
infrastructure in homes, neighbors, central offices, etc.
Long-term, in the race to monetize latency,
ISPs have a strategic and facilities-based
advantage.
Some network operators are evaluating new content
delivery business models that include a lowest-latency
service marketed to other network operators
and content publishers directly. This effort is often
combined with compute and storage for a larger cloud
strategy.
ADVANCED SERVICES
As most network services are
eventually and often dramatically
commoditized, most network
operators attempt to differentiate by
offering new, more complex, and costly services.
CDNs Provide Al l
Four Network
Services
Connectivity
A CDN provides
connectivity for its
customers to the entire
Internet through its
peering and transit
relationships.
Bandwidth
CDNs currently account
for 50% of total Internet
traffic.
Latency
The placement of content
caches close to users is the
common method for
creating low-latency
delivery. Other methods
include peer-to-peer and
TCP optimization.
Advanced Services
Value-added services such
as security, transcoding,
and digital rights
management are common
examples.
3. Monetizing Latency To Consumer
Countless academic studies and successful business models across the globe and through
the ages illustrate the economic value of tiered service models with ‘time to deliver’ a key
distinction between tiers.
Several models exist for managing latency when delivering content. They are:
Best-effort. A server is set up anywhere in the
world and delivers data to anywhere in the world.
The expectation of users and technical requirements
are that content will ‘get there when it gets there.’
Email is an example of an application that is well
served by best-effort delivery. If it takes 1, 5 or 10
seconds for an email to arrive, then user expectations are typically met.
Better-Than-Best-Effort. CDNs and large content publishers take advantage of how
the congestion control algorithm in TCP functions and place caches as close to users as
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possible. For most consumers, this model provides a sufficient
quality of experience.
There are many efforts, both academic and from industry, to tune
or adjust network protocols to more closely match the
requirements of content delivery. Examples include ‘UDP-based
transport for ABR streams’ and ‘TCP Relentless:’
Relentless Congestion Control can segregate traffic into different flows and can
send different congestion signals to each flow such that the network, and not the
end- system, controls capacity allocation.1
1 staff.psc.edu/mathis/relentless/drafts/draft-mathis-iccrg-relentless-XX.html
4. Best-Of-Best-Effort. Companies such as Cedexis,
Conviva, and Renesys identify which data center, ISP,
cloud, CDN, or network route are an ideal mix of
delivery assets for clients.
This is a relatively new delivery model (e.g., less than
five years old). The ROI model is typically the value
of ‘recapturing’ lost user engagements (e.g.,
transactions completed, minutes of a video viewed,
web site delivered) is greater than the cost of
purchasing the company service or solution. The
model for Renesys is slightly different but amounts to the same thing: identifying the
ideal mix of assets.
Straight Line Deployments
Less a technology solution than literally following the old adage that the shortest
distance between two points is a straight line.
Networks operators such as Hibernia Atlantic and Lightower deploy submarine and
terrestrial fiber in a direct a path as possible to minimize network latency.
These CDNs are distinct in several ways:
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1. Network footprint is focused on financial centers such as
New York City, Chicago, London, and Sao Paulo
2. Last-mile connections are to buildings and not ISPs2
3. CDN data centers are within a few milliseconds of stock
market data centers
Straight Line CDNs would not be appropriate for the
distribution of mass-market media like a Netflix. They
would, however, be an ideal mix of delivery assets for:
1. A ‘behind the firewall’ video chat and broadcast service for the financial industry
2. A content production network in media centers such as Los Angeles or Mumbai
2 Lightower has a 120-page long list of ‘on net’ buildings
5. Guaranteed delivery. The challenge with
guaranteeing the delivery of content to consumers is the
unanswered question:
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Who will pay for guaranteed delivery?
Consumers are price sensitive and react badly to price
increases on the Internet, especially for OTT services. Netflix’s attempted price hike of
US$6 in 2011 was met with overwhelming disapproval by customers, critics, and the
stock market. Ultimately, the company was forced to roll back the new pricing.
Content originators and publishers are similarly price sensitive. This is due in part to
being ‘trained’ by the content delivery market over many years to expect greater and
greater services levels as delivery costs continually decline.
Until someone is willing to pay for a guaranteed service level, it will remain a challenge
for ISPs to monetize their ability to provide the lowest-latency.
Future Opportunities For Monetizing Latency
Though there are currently significant headwinds to new latency monetization models,
there are several mid- to long-term market opportunities. Examples include:
MOBILE
The ability to scale capacity and performance in wireless networks is
inferior when compared to fixed networks. This is due to technology,
environmental, and regulatory issues. Because bandwidth can not easily
be added to a wireless last mile, delivery to mobile devices will eventually
include tiered-services for spectrum optimization and revenue
generation.
6. Offering prioritized services in wireless networks has several models. They include:
Small cells. The long term trend of wireless
networks and mobile devices points to more
capacity being added closer and closer to where
people congregate or where deploying macro cells
does not make sense.
RAN caches. Small cells, local caches, and a lot of
software to tie it all together is a content delivery
network. An sample opportunity is the delivery of video to mobile devices in sports
stadium with 100,000+ people.
Wireless Backhaul. A popular type of network for carrying traffic to and from cell
sites is carrier Ethernet, which has ‘class of service’ identifiers and can be used to
prioritize traffic.3
BRING YOUR OWN DEVICE (BYOD)
Users with a single mobile device for work and personal use represent a hybrid market
opportunity. The delivery of consumer data could continue over existing best effort
networks while work content is delivered over the same physical networks, but with
better performance. Security in addition to lower latency is an ideal bundled offering for
the BYOD market.
CACHING + SOCIAL GRAPH
This is a very new market opportunity.
The first impact on the industry (i.e.,
revenues, market-share, traffic) is at
least 3 years out.
The benefit of the social graph is the insights it can provide into large groups of people,
what content they might like in common, and where the congregate.
3 metroethernetforum.org
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7. HOME OR DEVICE CACHES
This is a mid-term market opportunity with industry impact at least 3 years out.
Delivery from caches within a home or a device directly would theoretically provide the
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lowest-latency service. Managing the complexity
of a multi-tier delivery network with potentially
millions of caches is the major headwind to this
delivery model.
Over time, however, STBs, gaming platforms, and
other devices with storage and compute resources could locally cache, repackage or
transcode content for tablets, smart phones, and other devices in the home.
QoS PEERING
Current efforts by a group of Tier 1 telcos to create a new, higher-priority
and end-to-end service by enabling DiffServ between
networks has not made much impact on the industry.
Developing the inter-carrier revenue models and the small size of
the market opportunity point to continued challenges for this model.
Perhaps not with DiffServ, but cooperative business models that network operators are
exploring could evolve into the federation of ISP cloud assets.
Market Evolution
The marketplace for lower-latency services will evolve over the next five years.
Time-Frame Low-Latency Market Opportunities
0-2 years Existing business models
3-5 years Wireless CDNs w/prioritized services
3+ years Guaranteed delivery to fixed-line users
8. Recommendations
In the near-term (<2 years) not much will change. Akamai, Edgecast, Google, Level3,
Netflix’s OpenConnect, etc. will continue to operate with little change to existing
business models. Business and technology models for how latency is monetized will also
stay relatively unchanged.
Longer-term, however, the content delivery business and the Internet in general are at
several inflection points which, over many years, could remake the CDN business.
In order to be prepared for future market changes, CDN market participants need only
‘keep an eye’ on new latency monetization models.
1. Wireless operators should study the market oppportunities for tiered/low-latency
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services
2. Fixed-line operators should study the technology and businesss models for selling
lowest-latency cloud services to CDNs, big content providers, etc.
3. Consumer electronic manufacturers should cooperate with network operators and
others to study in-device and in-home caches
4. Wireless hot spot operators, retail chains, malls, airports, sporting, music or religious
events, etc. should study offering lowest-latency caches
10. 10
Contact Information
Scott Landman
Founder & Managing Par tner
Arcus Advisors, LLC
M: +1 703.297.5411
Skype: landmanscot t
s landman@arcusadvisors.com
