Blog Post

Will Incumbents Stifle Innovation?

[qi:006] Earlier today, I spent a delightful hour with Vinnie Mirchandani, a well respected analyst in the enterprise software industry, mostly because he knows how to figure out the impact of big technological trends on software. Accompanying him was George Gilbert, formerly an enterprise software analyst with Credit Suisse First Boston, a Wall Street firm.

While the conversation flitted from topic to topic, the main question they asked me was this: Can innovation survive against the backdrop of a broadband duopoly? Can we innovate when the plumbing of the network is controlled by only a handful of players, even when it comes to selling connections to corporations? Those are the very same questions that I have raised on numerous occasions, and you very well know that I am quite alarmed by new impositions such as silly bandwidth caps and attempts to do away with Net Neutrality.

The answer to that question isn’t that simple. However, as I told Vinnie, the incumbents are fighting a losing battle. It is obvious that Comcast’s 250 GB cap is a blatant attempt by the cable company to save its own video-on-demand franchise. It wants to make sure that video watchers buy video from Comcast (CMSCA), instead of Netflix (FLIX), Apple (APPL) or anyone else.

But Comcast has an indefensible position. Why? Because the innovators are going to figure out a way to beat those caps. Take Roku, which is making a special video player for Netflix. Tim Twerdhal, Roku’s VP of consumer products, told Chris Albrecht over on NewTeeVee, “We’ll be introducing same visual quality at lower bitrates in the future….There are lots of things going on with codecs and bitrates that make caps not as relevant as they may appear to be.” What will Comcast or any other incumbent do then? Lower their bandwidth caps even further? In all likelihood that is how they are going to react — a futile exercise, in my opinion.

Of course, you might have an entirely different opinion on the question. Will incumbents stifle innovation? Care to share with me?

14 Responses to “Will Incumbents Stifle Innovation?”

  1. Only Comcast knows why they put up the 250G cap. See The reason Comcast puts forth is to solve traffic management. Considering the problems that P2P can deliver to a neighborhood of cable users all on a single older head end and associated router handling that traffic, Comcast needs to do something to keep its low usage customers happy about their Internet data rates. My guess is that if and when Comcast upgrades the head ends and last mile loops – to FTTH – like Verizon is doing with FiOS, most of the traffic shaping concepts will disappear as non-issues. So I tend to believe Comcast when it claims that traffic management, not protection of its VOD service, is the driving factor for the 250G cap. The 250G cap idea, planned for October 1, 2008, may disappear when the new network design described in Comcast’s Sept 19, 2008 FCC filing is implemented. Every parent of a teenager knows the P2P problem when the parent wonders why their Internet is slower that it should be and discovers (if the average parent understands P2P …) the teenager’s P2P is causing congestion at the home router. While I am a big believer in local loop competition and think this country is severely lagging in this area (maybe a new regulatory creation like LoopCo would solve the problem for all parties in particular the shareholders divesting themselves of the central offices and outside plant or loops), I have seen first hand what several P2P streams can do to a local neighborhood’s network speeds and sympathize for that reason with the Comcast engineers working to solve the problem. It seems that Comcast’s newly proposed network solution is more agnostic (or neutral) and may make the various constituencies satisfied (but not happy!).

  2. I think COMCAST might be looking at revenue streams by limiting downloads as a way to begin charging for overages.

    Think of the business models of the phone companies and cell phone companies. You go over your “package”, you incur extra charges. Nothing diabolical, just a new way to create revenues from an incumbent user. Read my take –
    If this is successful, you’ll see others try to apply the old “message units” approach to increase monthly revenues based on “usage”. Instead of message units, it will be gigabytes.

  3. I always thought that monopoly is when you do stuff that intentionally damages your competitors ability to compete. Comcast is going to have a field day in court when someone points out the fact that their “Caps” (which really are not necessary) are nothing more than a ploy to restrict competition.

  4. Couple of points here…

    1) We don’t know what type of arrangements Netflix might make in the future to assure QoS for its service. Netflix may toss Comcast some paltry amount per (active) user on the Comcast network in order to insure QoS. And if Netflix pays the extortion, er, QoS assurance fees, its services might not count against the 250GB cap. Value-add for Comcast, everyone gets paid, everyone gets happy, users stay on the Comcast network, otherwise…

    2) Verizon FiOS ain’t got no stinkin’ cap, so if you’re in a Comcast/Verizon duopoly, you suddenly have an incentive to switch off of cable to FiOS; suddenly that $100-150/month “triple play” cable customer turns into a $0 customer for Comcast. Do that a lot, and suddenly we’re talking real money, which leads to…

    3) Ultimately, Comcast upgrades its customers in very competitive (i.e. FiOS) markets to DOCSYS 3.0 and higher speeds to compete with FiOS. Suddenly, with all the bandwidth flowing freely, the 250GB cap goes away. Later, Comcast goes DOCSYS 3.0 across the board for support and cost (i.e. the old stuff needs to go) reasons.

    SO, net-net = Comcast 250GB cap is not a long-term strategy, but a short to mid-term bargaining chip…IMHO…

  5. In my opinion the question should be.

    In which direction will/should innovation go.

    If it’s just compression, that will help a few. If it’s in services no matter bandwidth used, that is a total different beast. But might spur a new wave of small or big businesses.

    In general innovation will happen, the direction should be either left alone or be set by our leaders. I think that’s what makes it so confusing or provides a way for companies to weasel out of or set the direction of the discussion. Since innovation will happen they can always point to it, if it’s moving in the direction of greater good or only their own direction and to their save business model is a different question.
    It would require leadership to set the direction. But what is a leader and what distinguishes him/her from a manager?

  6. There’s a limit to the ability to reduce the bitsize of content without losing quality.
    The traffic cap will be broken by market forces, competitors who don’t limit their users consumption, an improvement to infrastructure and bandwidth. Content will get bigger, rather than smaller, but capactities and declining costs will make it more accessible.

    If Comcast is indeed trying to save its own VOD service, it’s going about it the wrong way. If people don’t want it, they won’t buy it.