Market Analysis (5)
As a company, Netflix is a great case study in how to bring a new consumer content platform to market, and the importance of creating partnerships in the retail ecosystem. I certainly see some parallels to the Powered by ClearAccess model and how we deliver new applications through our service provider channel. And for the record I think $16 is still a pretty good deal for basically all-you-can-eat access to movies and shows, but I’m more interested in the bigger picture here.
Back in January I wrote about the over-the-top video market and concluded that it’s a zero-sum game for consumers, and this recent Netflix price increase reflects this fact. Netflix locked in great content licensing deals back when streaming full-length features was something new, there was no competition, and it posed no real threat to DVD or theater revenue. Now, consumers have other options from big names like Amazon, Hulu, and Apple, and Netflix’s licensing terms are set to increase ten-fold according to one analyst I read. Furthermore, service providers are well aware that Netflix uses more bandwidth than any other application on the Internet, and the shift towards usage caps and metered broadband could pose a new kind of threat to any kind of streaming video offering.
Ironically, one key reason for “cord cutters” to drop their cable or satellite provider and go all-Internet streaming is the perceived continued rate increases for the same service bundles, and its that kind of rate increase that Netflix is catching heat for this week. But the reality is that all of the content originates from the same short list of major studios, and while the means of distribution will vary, the cost to license the content eventually evens out. It then comes down to who creates the best user experience, offers pricing flexibility, and can deliver the highest streaming quality, and in those categories right now I think it’s still anybody’s game.
It’s interesting that as the mobile wireless market increases capacity and speed with 4G/LTE, operators are at the same time increasing the use of WiFi offload to control costs. AT&T just inked a deal to provide free WiFi in New York’s city parks, no coincidence given that New York has been a focal point of AT&T’s mobile performance issues.
ClearAccess’ customers are highly focused on enabling these roaming applications, while at the same time improving the WiFi experience in the home. Our WiFi Signal Monitor app has been a big hit, and our ability to manage and restore settings, and report on trends in WiFi use are key differentiators for ClearVision. In Europe, WiFi is often used to provide VoIP service over shared access points, and dense housing materials have necessitated a quicker shift to “dual band” WiFi technologies for delivering over-the-top video. Both trends require coordination and management that ClearAccess can deliver.
In talking to our customers I hear that ClearVision significantly reduces the cost of deploying and supporting WiFi gateways, but with more devices in the home connecting over WiFi there are always news challenges. Our response is to add more WiFi diagnostics and reporting features to our roadmap, and in the coming months we plan to reveal new and innovative approaches to making WiFi easy to configure and support.
I don’t think it’s an overstatement to say that cloud computing is one of the most hyped subjects in our industry today. Every day brings a continuous stream of announcements and coverage on who’s doing what in the cloud. It’s not a completely new concept, in fact it’s rooted in the days of IBM mainframes, or in the 90s when Sun Microsystems coined the phrase “the network is the computer.” More recently, the term “cloud” has become synonymous with everything from enterprise software-as-a-service (SaaS), to consumer services like online backup and networked DVR. It seems everyone is pushing a cloud strategy for their product, with an obligatory marketing campaigned that relies heavily on bad puns (“it’s about to get cloudy…”). Microsoft’s “to the cloud” ad campaign, and Apple’s recent acquisition of the iCloud.com domain, show that companies are even trying to get consumers interested. This is a stretch to me, since most consumers have no idea what cloud means in this context, and are more likely to associate the term with bad weather and bumpy flights.
Don’t get me wrong, the cloud concept of storing and managing data/content in a centralized manner makes perfect sense…in some cases. A very basic example, network printing, is something that obviously saves money by not having a printer attached to each PC in your home or office. But according to my research, consumers may be hesitant to turn everything over to a network they don’t own. We see this debate coming to the forefront in music apps, where iTunes is being challenged by cloud music offerings from Amazon and Google.
You’ve no doubt seen the ClearAccess approach described as “cloud-based,” which refers to the fact that our ClearVision platform resides in the cloud, and we are centralizing the data and service management, making it easy to remotely access content and provide centralized support. However, we also have a heavy focus on developing intelligence outside the cloud, since we are communicating with increasingly complex devices in the home network. A good example is Parental Controls—in this case the application is defined and configured in the server, and the consumer uses a web portal to specify for example, which websites are allowed or blocked. To make the app work, the policies are then passed down and put into action by that subscriber’s home gateway. So effectively our cloud-based ClearVision server platform is complemented by the more edge-based Powered by ClearAccess device software, and that combination creates the best of both models: a centralized, cost effective network management system that drives intelligence and action through managed consumer devices in the home.
Though right now the trend is to move everything to the cloud, I think we’ll continue to see the fine balancing act as new consumer technologies emerge and the cost of storing and moving data shifts one direction or the other.
There are some good sources of information on the recent debate, and no shortage of opinions and bias from all sides. I’ll share my opinions both as a consumer and as part of the industry that stands to gain or lose the most depending on what laws may pass.
As a “typical” broadband consumer, I like not having to count minutes or bytes like the old dial-up days. I want to stream content or send files as much as I like regardless of the source, which was the great part about getting broadband in the first place. Net Neutrality opens the door for usage-based pricing, which sounds great for those of us that believe our broadband is unused all day. The reality is that bandwidth conservation is not exactly the same as the natural resource conservation we are all familiar with, and it’s unclear if, when the dust on the debate settles, my monthly bill will be significantly lower in a usage-based model. If I could save a few dollars by metering usage, I would probably consider it.
In some ways ClearAccess is on both sides of the debate, in fact the gateways we manage literally reside in the middle—where home network meets backhaul. Setting the politics of Net Neutrality aside, the attention the debate has brought to the experience of broadband, optimization of the pipes, and competition for the consumer is healthy. We recognized long ago that we play an important role in the interconnectivity of the devices that drive bandwidth consumption. We launched the Intelligent Pipe™ application line knowing that consumers want to better understand their bandwidth use, and that ISPs want tools that address their strategy on Net Neutrality. How these tools are eventually used may very well be impacted by the FCC’s policies, which makes this an important topic for us.
We’ll continue to follow these developments; given the complexity I have to believe that any definitive rulings are still a ways out. The rapid expansion of devices in the home and adoption of over the top video may accelerate matters, in which case the concept of home network bandwidth optimization becomes critical to any broadband strategy.
Speed, however, is only part of the equation. A recent FCC survey showed that 80% of broadband users in the U.S. don’t even know what their speed is. The recent ClearAccess broadband study showed that speed influenced the decision to switch providers about 25% of the time, about the same rate as cost, customer support, and application bundles.
So why are ISPs focused so much on speed, especially when they are trying to drop the "dumb pipe" stigma? Certainly it’s an easy message to deliver, and the means of comparison are straightforward: “We have 30Mbps vs. their 15Mbps.” Faster speed isn’t exactly innovative, but it’s something everyone understands.
As a consumer I’d like to see the debate expanded to include the experience of broadband, as some of the mobile operators have done. Yes I want fast speed, but how about assistance in setting up my home network, troubleshooting problems with my devices, and even advanced capabilities like Remote Access and Parental Controls?
I’ve spoken to a few forward-thinking ISPs that are already going this direction with their product offerings, and I think it’s just a matter of time before others realize that it takes more than just faster speed to really connect with consumers today. We've created the ClearAccess solution to enable this experience-centric approach, which enables our partners to expand their marketing beyond the speed factor. For the broadband providers out there, perhaps the time is right for you as well?