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Summary:

Hulu is a problem. So argues a paper by University of Minnesota Professor Dr. Andrew Odlyzko, who says that video isn’t actually clogging the Net right now, but that streaming video content is such an inefficient way of getting video from one place to another that […]

Hulu is a problem. So argues a paper by University of Minnesota Professor Dr. Andrew Odlyzko, who says that video isn’t actually clogging the Net right now, but that streaming video content is such an inefficient way of getting video from one place to another that sites should find better options, such as faster-than-real-time streaming and buffering. The goal of the paper is to counter carrier assurances that they will protect video even without any mandated Network Neutrality. Odlyzko argues that such assurances might lead to special video pathways, but that’s not the Internet the market wants and needs.

Aside from Odlyzko’s attack on streaming, which he says comprises 9.6 percent of total web traffic during evening hours and has grown 169 percent year over year, the largest part of the paper is devoted to data that supports his conclusions that content, such as Internet radio and video, is worth less than connectivity such as voice or Twitter. People don’t pay for content, they pay for connectivity, says Odlyzko.

For all the hoopla about Hollywood, all the movie theater ticket sales and all the DVD
sales in the U.S. for a full year do not come amount [sic] to even one month of the revenuesof the telecom industry. And those telecom revenues are still over 70% based on voice,
definitely a connectivity service. In wireless, there is very rapid growth in data service
revenues, but most of those revenues are from texting, another connectivity service (and
one that the industry did not design, but stumbled into).

The report makes for good reading for those thinking about the value of broadband connections (from a revenue perspective a text message generates $1,000 per MB for a carrier while a wireless voice call generates $1 per MB and broadband Internet generates 1 cent per MB) and next-generation services. But if people will pay for connectivity, why can’t Twitter find a business model?

  1. [...] Neutrality (PDF). Odlyzko argues that video is a low-margin business (a point my colleague Stacey nicely recaps over at GigaOM) and that faster-than-real-time progressive downloads are preferable to real-time [...]

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  2. Is it that Twitter can’t find a business model or just doesn’t want t start charging people? The model is staring at them.

    As for the meat of the post – people don’t pay for content, they pay for connectivity and he justifies that with revenue numbers?

    Talk about apples to oranges. It is easy to have much higher revenues of something that costs more money per unit.

    If people didn’t pay for content, cable subscriptions would be decreasing, HBO would not exist, pay-per-view would vanish and movies would no longer be made.

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  3. @David Mullings, you are right that it’s apples to oranges. look at the thousands of content creators versus the handful of voice/data providers.

    the internet needs to get clogged before it will get upgraded. Until consumers are inhibited from consuming they will not give net neutrality and internet architecture the attention required to make such a substantial overhaul.

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  4. @David: “It is easy to have much higher revenues of something that costs more money per unit”

    You seem to be assuming that the revenues are proportional to cost. False assumption. The incremental costs to support messaging over an infrastructure that is already there are tiny. And the infrastruture needs to be there to support the voice. The cost of a single base station is small compared to wiring and serving each individual dwelling in the same area with upgraded broadband.

    I actually think it illustrates why they are so ready to spend on wireless while instead trying to suppress traffic on wired broadband.

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  5. It is because of morons like this guy Odlyzko and the people that actually bother listening to him that the internet is not farther along today. He is the sort of idiot who would have said in 2001 that there is no market for search engines as nobody makes money off of them. The only reason people pay for voice and texting is that they are forced to by the 2-4 wired or wireless companies that offer service in their area on proprietary devices. Twitter offers connectivity but doesn’t make money either on the open web. There are plenty of people willing to pay for content. They just don’t want to keep paying the old inflated prices for bundles they don’t want and they want it all to be dead-simple to use. That clearly hasn’t been done yet, though iTunes is the closest and makes a fair amount of money as a result.

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  6. @Allen

    Unfortunately you seem to have confused “Revenues” with “Profits” because that is the only way that “costs” would matter.

    I quote: “those telecom revenues are still over 70% based on voice”

    He did not say “profits” and thus my assertion stands – If I sell $200 pairs of jeans, you sell $50 pairs and we both sell 1000 units for the month, I can now claim to have “more revenues” than you do.

    Apples to Oranges

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