Level 3, and the Web 2.0 fatigue

39 Comments

The Web 2.0 conference hasn’t even begun, and you can feel the fatigue. You can almost predict the marketing “spin” coming over next few days, that is enough to make you groan.

A perfect example is this news from Level 3 Communications, touting the fact that they had won the contract to provide bandwidth to fast growing photo-video hosting service Photobucket. This is not the first, and I am betting the last news release from Colorado-based backbone provider trumpeting their deal with some “Web 2.0” company. They had made similar announcements when they did deals with YouTube and MySpace.

It is all spin and a blatant attempt to get a little Web 2.0 pixie dust. In fact, Level 3 is spending liberally to get it. They are sponsoring the Web 2.0 conference, and paying top dollars for it. I wonder why they are not one of sponsors (or even an exhibitors at) ISPCon, a conference that is closer to their core business.


Hate to break it to you guys, but you paint a pony with black stripes, it doesn’t become a zebra. You are a bandwidth provider, and might become a content delivery network, but you will still remain in the background, and a plumbing company. Not that there is anything wrong with it.

Getting associated with Web 2.0 might give a temporary sizzle to the stock, but in the long run that is not why anyone would care about Level 3. Clean balance sheet, profits and solid business fundamentals would be the best way to do that. If Level 3 CEO Jim Crowe or anyone else in his executive team wants to talk about that, have your people get in touch. Thanks but no thanks for Web 2.0 spin.

39 Comments

neurokinetikz

Om,

I don’t think it’s wrong to question the Web 2 marketing spiel. In fact, I think it’s healthy given all the misconceptions and hype surrounding the term. Whether or not Level 3 is viable as long-term growth business remains to be seen, and to me, is irrelevant in the context of this conversation. I am just curious about how you can be so smug about their marketing approach to web 2.

“Hate to break it to you guys, but you paint a pony with black stripes, it doesn’t become a zebra. You are a bandwidth provider, and might become a content delivery network, but you will still remain in the background, and a plumbing company. Not that there is anything wrong with it.”

I trust that you’ve been in this business long enough to know that marketing is about perception and not reality. If you’re going to call them out on their marketing BS, then you open yourself up to the same criticisms for you are both riding on the coattails of this web 2.0 meme.

I mean, Widgets Live, seriously. You’re making money on selling tickets to a conference about widgets. If not for all the developers out there busting their ass to build cool stuff, what would you be doing? How would you be earning your money? It’s ok for you to glom onto Web 2.0 as a means to boost traffic and revenue but not Level 3. That just seems weird to me.

What web 2.0 is really about is the people who take that idea and create something unique with it … and not the marketing folks and journalists who spin it well out of proportion.

Like it or not, Level 3 is a player in the Web 2 space and stands to gain from it if they execute on the opportunity. Besides, without plumbing, what we’d be left with is a steaming pile of shit.

:)

cheers

anon

Om — good for you. you are 100% correct. Level3 is literally a desperate company that (contrary to what one of the comments above says) should have filed for BK when the industry reorganized. Instead, they have a huge debt machine (to their credit, they keep finding new debt) with little hope of doing much more than carrying the interest expense. taking out wiltel, broadwing, etc., helped to firm up pricing, but they lack traction on the enterprise space (read: “customers with money”) and instead bottom feed on the big bandwidth crowd (read: “customers seeking cheapest provider”). No one really thinks that photobucket, etc., wouldn’t be better off on UUNET, AT&T, etc, they are simply more expensive.

As stated before, this company will go BK and i intend to bring beer and popcorn to the hearings. Let’s kick it around, then.

Om Malik

Jope,

I am checking out the Intel Business Suite, though still not clear on what that really means. I will post later.

Om Malik

neurokinetikz,

i will take your word for it. but on the tone of the post, why is it wrong to question the web 2.0 marketing spiel. i called it just that.

on the level 3 stuff, read all the posts on them over the years.

on the web 2.0 pixie dust: this blog has been around for five years, before there was web 2.0, or whatever. i write about technology and always have.

just pointing it out.

neurokinetikz

Om.

The reason why I did not say that I worked at Level 3 is because I don’t.

I was just surprised by the tone of your post given that Web 2.0 pixie dust is a significant boon to your business.

Mike Abundo

On the other hand, the bandwidth requirements of Web 2.0 startups are often higher than anything the dotbombs ever consumed. L3 could simply be saying they’re ready for that.

Om Malik

Look breathtaking, i agree with all those things you say. however, when they say what is my beef, then what is your angle too. all you have to do is say that. and that’s that. yes, conversation is still continuing isn’t it.

breathtaking

Level 3 has been, and will probably continue to be, one of the most misunderstood comanies around. Let’s clarify two misunderstandings above. First, Level 3 has not served the enterprise directly until recently and will probably never serve the enterprise to the extent that many telco providers do. This is the primary reason why the volume of contract announcement is relatively low. In addition the types of contracts that are Level 3’s meat and potatos frequently require confidentiality – thus no PR jobs. Level 3 has top ten clients that have never released a PR with Level 3.

Secondly, Level 3 has some of the best operating margins in the industry by a wide mark. This is due to the fact that a very high percentage of their traffic is “on-net”. Because Level 3 is highly leveraged, the margins are hidden at the accounting income level. But the recent acquisitions that Level 3 has made have significanty reduced the leverage ratios – a reality that wall street is beginning to understand.

Can’t believe Om outed a guest just because he disagreed. Aren’t blogs for enabling conversation? Ouch.

Jope

Although I don’t really agree with you on this one, talking about Web 2.0 spin, can’t wait to read your opinion on Intel’s launch of SuiteTwo… :)

Big Al

Om

I can see the point you’re making – that Level 3 is trying to get some Web 2.0 street cred, a la all the dotcom hype of a few years earlier.

But I see their positioning is as an enabler of the carriage needs of these companies. They have been pretty clear about their desire to go after this market.

The margins on this business probably aren’t pretty high at this point and, yes, they are coy about exactly the $$ worth of these contracts. But at the same time it’s pretty clear that Level 3 aspires to dominate the bandwidth market and they see that winning market share and heloing expand the size of the web – quickly – is all grist to their mill. Overall the company keeps an extremely close eyes on their margins so i figure tehy know what they are doing.

At the end of the say, what’s the problem with a company to put its marketing $$$ where it thinks best? Personally I’d be very worried to see them putting their marketing money into the ISP business, which is non-core for them now (though a good cash cow at the time).

As I said, i don’t think they’re sponsoring the conference just to look cool, but rather to sell into this customer base.

Disclosure: I’m a Level 3 shareholder. So I’m biased, but it does mean I follow closely what this company does. If I though they were wasting their money on this, I’d be saying it. They’ve been making some pretty good moves over the past 12 months and give every impression of executing with great focus.

cheers
Al

Ben Metcalfe

I agree with you Om, and it’s refreshing to see that GigaOm will call out companies like L3 on this crappy marketing effort.

You put it perfectly – they’re a plumbing company, and there’s nothing wrong with that. But the point is it doesn’t matter whether their plumbing services dowdy Home Depot bathrooms or up-market granite-finished examples (like they have at the W where so many of the W2.0 conference goers seems to be staying) – they’re still just plumbing.

Om Malik

neurokinetiz or whatever your name is:

do you work for level 3 (your IP address points to that.) why don’t you at least say that.

Level 3 Communications, Inc.
OrgID: LVLT
Address: 1025 Eldorado Blvd.
City: Broomfield
StateProv: CO
PostalCode: 80021
Country: USNetRange: 63.208.0.0 – 63.215.255.255
CIDR: 63.208.0.0/13
NetName: LEVEL4-CIDR
NetHandle: NET-63-208-0-0-1
Parent: NET-63-0-0-0-0
NetType: Direct Allocation
NameServer: NS1.LEVEL3.NET
NameServer: NS2.LEVEL3.NET
Comment: ADDRESSES WITHIN THIS BLOCK ARE NON-PORTABLE
RegDate: 1999-05-28
Updated: 2001-05-30

RTechHandle: LC-ORG-ARIN
RTechName: level Communications
RTechPhone: +1-877-453-8353
RTechEmail: ipaddressing@level3.com

OrgAbuseHandle: APL8-ARIN
OrgAbuseName: Abuse POC LVLT
OrgAbusePhone: +1-877-453-8353
OrgAbuseEmail: abuse@level3.com

OrgTechHandle: ARINC4-ARIN
OrgTechName: ARIN Contact
OrgTechPhone: +1-800-436-8489
OrgTechEmail: arin-contact@genuity.com

OrgTechHandle: TPL1-ARIN
OrgTechName: Tech POC LVLT
OrgTechPhone: +1-877-453-8353
OrgTechEmail: ipaddressing@level3.com

Om Malik

Skibare,

given your own comments on the blog here, clearly you have special interest in level 3. me, i don’t care either way – if the stock goes up, down or sideways.

I just been there before – Qwest used to do similar announcements with ASPs, and look what happened there.

My beef with them sponsoring Web 2.0 conference: none. Just pointing out their Web 2.0 spin.

Om Malik

And if announcing big contracts was such a big deal, how come they don’t announce every single big contract they snag.

large corporations, some of them old and established, are not paying customers? are they not adding to level 3’s revenue?

How about those announcements? Why pick Web 2.0 announcements?

Om Malik

Yes i listened to their conference call and heard about their outline. sure all those things are great, except they said the same things about their VoIP foray. those revenues are still coming, and they

they don’t outline how big are these contracts? a few million, or ten million dollars a month or more. are they going to make any money on these deals? tough questions to answer.

breathtaking

If Om listened to the last quarterly Level 3 conf call he would have heard the CEO saying over and over that the network needs of Web 2.0 type companies are “breathtaking”. Level 3 has a substantial opportunity working with these companies. It would be ludicrous for Level 3 not to advertise in this market which may wind up being one of the biggest for Level 3.

As far as the isp show goes, dial up access is a declining business for Level 3 and they report it as “non-core revenue”. Why would Level 3 focus on a non-core business?

hellooo?

Yes, Level 3 is a Levi Strauss or a pick and axe company of the Web 2.0 goldrush. The fact of the matter is that Level 3 was built for Web 2.0. It’s just that Web 2.0 has blossomed about 10 years later than expected.

skibare

Om calling the Pixie Dust at level3 is like the Pot calling the Kettle Black…Web2.0 is the conference and the HYPE and MONEY is Web 2.0…dial up IPSCON is simply dial up…how can you DISS Level3 for announcing MySpace, YouTube, and Photobucket Wins??????
If Gigaom landed a big client, I am guessing YOU would NOT annouce the win????????? Come on Om, come clean with WHAT your BEEF is with Level3 sponsoring the Web2.0 Conference????
skibare

Michael Maggard

But Level 3 isn’t a “Web 2.0 business”. Sure they’re a supplier, so are Dell, Redhat, Starbucks, Steelcase, the local power co. & the folks who make those gross fruit-chunks-on-a-stick “flower baskets”.

Throwing big bucks at a conference is great when you can get big return on it. But what kind of return can Level 3 get on Web 2.0 vs being a no-show at ISPCon?

Yeah it’s not as sexy or publicly high-profile but for every Web 2.0 it’s-gonna-change-the-world pitch there’s a telecoms engineer at ISPCon looking to get some info and make some buying recommendations. Sans any Level 3 presence.

Every business has to set priorities, we-can-make-this-show-but-not-that-one, but sponsoring as high-end speculative one like Web 2.0 and skipping bread & butter ones? That’s a questionable decision and worth commenting on.

Dale Harper

Um… Om …! There is more wrong with this post to cover in one comment, but here is just one take ok.

So Intel should stop advertising CPUs in computer magazines and trade shows? and auto component manufacturers should stop advertizing their (insert auto pimping component here) in car magazines/shows?

Get some sleep, then get a wake up call, cause thats just plain precious. Last time I checked web 2.0 ain’t the point, in fact web 2.0 applications are all about “getting out of the way” of what folks are actually trying to get done on the web. Much like those pipes in fact.

Marc

Since when is it inappropriate for a company to maximize their positioning in the marketplace with well timed press releases and sponsorships? To take L3 to task for this is completely misguided in my opinion

AP

Is it not more likely that L3 have the insight to realise that many of the new Web 2.0 offerings are way more bandwidth intensive than those from the previous 10 years of Internet development and therefore their network is better equipped to cope than most others.

Patrick Lee

Another possibility is that by associating themselves with Web 2.0, other Web 2.0 companies will consider them first when looking for a bandwidth provider. So perhaps all this marketing is a way to generate new customers. Isn’t that normally what marketing is for?

caggio

I really do not understand what this post is all about.

If carriers like Verizon were not close to the internet traffic npatterns, we would still be using dialup.

If people like L3 were not aligned with internet traffic we would still have to wait for them to lay down fibers for WEB2.0 to exist.

I believe that you would be better off by apologizing for this post. It would really show how good you are.

If you do not apologize you actually would show that Level3 understand the big picture [both pipes and traffic patterns] and you don’t.

Please review your position on this !!!

Thanks

Matt Liotta

I wonder what the margins are on these marque deals. I can’t imagine they are very good or do much to fix the debt situation long term.

neurokinetikz

So let’s see, Level 3 announced contracts with Photobucket, YouTube, and MySpace, three of the most highly trafficed sites on the web. And Level 3 makes money how … oh, that’s right by providing bandwidth.

and as you said…

“Getting associated with Web 2.0 might give a temporary sizzle to the stock, but in the long run that is not why anyone would care about Level 3. Clean balance sheet, profits and solid business fundamentals would be the best way to do that.”

So my question is how do you get a clean balance sheet, profits, and solid business fundamentals if you’re Level 3? My guess is that signing deals with 3 titans of the internet space is a good step in the right direction. And those companies happen to be in the Web 2.0 category, just like your site. If you’re calling Level 3 out on chasing Web 2.0 pixie dust, then might I suggest a look in the mirror. At least they are enabling Web 2.0 in a big way instead of merely talking about it.

You see, not everyone wants to sell tickets to a widget conference as part of their business model.

The real question is why you have a bone to pick with Level 3. Now that would an interesting post.

cheers,
:)

km4

I applaud Level 3 for not taking fraudulent BK route like XO, Global Crossing and many others but putting lipstick on this pig ( carrying $7B in debt and still with questionable business model ) is ridiculous with stunts like sponsoring Web 2.0 conference. The Level 3 executive management obviously prefers to spins and buy revenue streams ( other companies ) rather than trying hard to earn it the old fashion way.

Kevin Cawley

99% of the time I agree with you Om, but not this time. Other than some friends that work at Level 3 and the Colorado connection, I have no real ties to the company.

That said, I would argue that many people have no clue about what Level 3 does, but as they get some press around deals w/ MySpace, or YT, or Photobucket it ups their brand. In Colorado, there are lots of talented engineers and lots of cool companies (seems like demand is higher than supply right now)… if you can rise to the top you have a better chance of getting the best talent. And that is just one reason why this is good for Level 3.

skibare

Om , seems the 6% POP today got you a little ”spun up”over missing the train leaving the station…
put some lipstick on a PIG and what ya got????? Better Lookin’ Bacon!@!!!
skibare

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