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Summary:

YouTube, Joost and dozens of online video start-ups have done something many thought impossible: they have gotten the telecom executives excited. So excited that some of them are sponsoring Web 2.0 cocktail parties and cutting deals with little companies, hoping that Internet video will keep pushing […]

YouTube, Joost and dozens of online video start-ups have done something many thought impossible: they have gotten the telecom executives excited. So excited that some of them are sponsoring Web 2.0 cocktail parties and cutting deals with little companies, hoping that Internet video will keep pushing the demand for bandwidth, and bring in some much needed relief.

There are some who dream of a return to the go-go days of late 1990s. (I think me losing my 16th pound has higher odds!) If the service providers are getting excited, well it is time for equipment and component suppliers to crack open that bottle of bubbly.

prabhu.jpg“The YouTube success story is merely one illustration of the remarkable changes that are taking place in the way we communicate and entertain ourselves,” writes Krish Prabhu, CEO of a decidedly dowdy hardware maker, Tellabs in his company’s annual report.

“As broadband Internet access has become increasingly available and affordable … it has fueled an insatiable hunger for video.”

Somewhere in his note, he points out that

If you download one minute of video to your iPod, you’re using four times the network capacity that’s required to download one minute of music. If you upload a video clip from your mobile phone, that takes five times the network capacity of one minute of talk. And if you use the Internet to stream a movie in high definition, that requires five times the network capacity needed to watch that same movie in standard definition.

A lot of people have forgotten this but back in the 1990s it was Napster that acted as a catalyst for demand for high-speed connections from the population at large. Of course people wanted to reach Amazon.com and Yahoo faster, but it was click-and-download music features of Napster that made us opt for expensive-but-fast broadband connections.

Similarly, we are seeing the YouTube effect, though this time instead of new connections; the demands are being put on network infrastructure and consumers clamoring for higher speeds.

Paul writes about this over on New Tee Vee, channeling our dear friend Tom Evslin.

One of the most compelling questions is about the “where,” as in where is more bandwidth really needed to deliver a better Internet TV experience; Tom’s surprising answer is that it may not necessarily be in that last-mile link to your home, but instead a little farther up the line, in the networks being built to deliver IP-based content.

Whichever way you look at it, it is good news for the guys making the widgets – finally there will be some demand for what they sell. The optical industry was particularly hit hard by the bust, but recent signs show that there might be sunny days ahead, at least from an IPO and M&A perspective.

Over the past few months, we have seen the return of the optical IPO. Today optical equipment maker Infinera filed for an IPO, though it should be a while before it can actually get out of the gates. (Full analysis to follow!)

I think more than the IPOs, it is the increased M&A activity that portends better times for the optical business. Yesterday, Cortina Systems announced that it is buying Immenstar for an undisclosed amount. Today JDS Uniphase announced that it is buying Picolight for $115 million (plus $10 million in cash earn outs). Now this is nothing like JDS Uniphase’ mega-billion-dollar buying sprees, but a calculated bet on markets which are seeing modest-to-strong demand driven by a massive infrastructure upgrade cycle.

How long can this party continue? I can’t say, though it is going to end sometime.

Last time around the whole infrastructure upgrade was driven by Web 1.0 start-ups before it spread to other sectors, before finally ending in 2000 with a rump-shaking-thump. This time it is video which is doing the leading, and it is hard not to think about another thump.

  1. How about those datacenter guys? They must be pretty joyful these days too…:)

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  2. Om…since you’ve broached the subject with us readers a number of times ;-), I’ve 3 easy things you (or most anyone) can do that should take off those last few “tough” pounds:

    1. Keep a bottle of (preferably) cold water handy at (most) all times; use as your drink during meals…and when those hunger pains start up between meals and in the evenings (or whenever you hear about or get pitched about another video or “social” site/service).

    Water–especially when it’s cold–helps us feel full/er; and of course has no calories.

    2. Use smaller plates whenever possible; they fill w/less food, and fulfill the mind’s desire for a “full plate.”

    3. Walk briskly for 30 minutes/day as often as possible…even between appointments counts. Burns calories…and raises the metabolism for hours afterwards…while refreshing your minds to handle more “me-too” telecom and mobile app pitches.

    We want you healthy and around for many years to come!

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  3. Party like its 1999

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  4. Steve,

    that is some seriously good advice. i am going to incorporate the “cold water” right away. I am doing the brisk walk etc and have even joined a gym. Oh well, promises to keep and all that.

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  5. I believe, the data center crowd is in heaven!

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  6. “it is hard not to think about another thump.”
    Too many people are thinking about the thump, and that is why the huge wave of technological change and advancement coming in the next 3 years is not being recognized yet.

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  7. Dee,

    what is that wave of change you are talking about? i am trying to get a better idea – not questioning your comment.

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  8. Hi Om,
    I am referring to the massive buildout of the communications system (Networx, IPv6, noted yesterday by Abby Cohen “true restructing”) as well as the sudden strong upswing in computing output (moving from being stuck at a core forever to now having a quad core out this summer; 16 core on the way), Vista and Apple impact (starting this fall when corporations start to buy it and people start to recognize the difference in graphics, etc. Companies put it off this fall to wait for the upgrades. Cowan’s comprehensive study – consumer, large enterprise and small business, show upgrade activity in second half of 2007 and growing into 2008). One source noted “This will in turn prod consumers to buy better hardware, fancy peripherals (especially speakers, screens, and HD-DVD drives) and more graphics-rich software and Web services. For every $1 that Vista earns for Microsoft, IDC analyst Marcel Warmerdam says, it will pump a minimum of $12 into the global economy. So if the OS generates $9 billion in revenue for Redmond, that’ll mean about $110 billion for other tech firms worldwide. . . then there is the $40 billion boom effect that Vista is likely to have on the software market, as everything from PC video-games to business apps begin to take advantage of Vista’s improved graphics.” Also, the next wave in mobile video. For example, full size screens for cell phones and crackberries (see http://www.mvis.com). George Soros, Karsch Capital, other big funds starting to move toward tech, etc. As you recently reported, tech IPOs starting to come forward (2007, the year of tech IPO).

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  9. Om-cold water is a great one; my wife and our friends who use it swear by it.

    Gyms are tough; that’s for sure. I’ve tried them in the past, but just didn’t go often enough…and these days, with so many scary skin and other diseases out there now, I no longer like the idea of sharing the equipment with who-knows-who…or what.

    Now I stick w/4-5x/week jogs + 1/2 hr of simple dum/barbells 2-3 times a week. Feels great, and keeps the weight off.

    Since you travel so much, you do of course have access to the hotel gyms; you might also pick up a set of those stretch bands. Easy to use, light weight, not much space…and you can use them in your hotel rooms.

    Last thought. Pick up a DVD set of the old 1970’s Kung Fu TV series staring David Carradine. I know this one sounds nutty, but there’s just something about experiencing Kwai Chang Caine’s approach to life that’s very calming in this often over-stimulated, too-much-to-do world of ours…

    Peace.

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  10. there is a good model for online video – i have seen it on a torrent, and i have seen it on joost (i have tokens)

    http://mattishness.blogspot.com/2007/02/internet-video-ad-model-solved.html

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  11. Thanks Dee. ANy chance you can forward that cowen & company report you mention? it be fun to read that.

    best

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  12. Steve

    the cold-water efforts have begun in earnest. thanks for the tips and you are spot on about the gyms. Though some of them are a little better than others.

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  13. Om,
    Here are the sources. If you subscribe to Barron’s online you might get the full deal:

    http://money.cnn.com/magazines/business2/business2_archive/2006/12/01/8394979/index.htm?postversion=2006113015

    and

    Small Business Looms Large on the Vista
    Word Count: 537
    Cowen & Co.
    COWEN & CO. AND CMP Channel Group’s Computer Reseller News (CRN) conducted the Microsoft Vista Adoption Study in mid- to late-January prior to the Vista consumer launch.
    The study, which included three individual surveys (consumer, large enterprise and small and medium business), suggests that Street expectations of corporate upgrade activity beginning in the second half of 2007 and the first half of 2008 are properly set.
    However, results also suggest that SMBs [small- or medium-sized businesses] will move about 50% to 60% faster than large companies to Vista in the second half of 2007 and first half …
    • THE FULL BARRON’S ARTICLE IS ONLY AVAILABLE TO SUBSCRIBERS.

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  14. One more item – from Money Honey Maria Bartiromo’s Business Week Column Feb.26, interview with Michael Dell. Dell’s comments on bad quarter –
    “Knowledgeable computer customers were reluctant to buy right before the Vista upgrade.”
    This will make next year’s comparable quarters huge on a year-to-year comparison. It is also why the manufacturing, semi, and other computer related production stats are skewed lower for a couple of quarters right now, and will be going gangbusters next year.

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  15. You’re welcome, Om. :-)

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  16. Great read, I never knew that it was Napster that encouraged users to purchase high speed internet services.

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