Time to take your digital strategy out of neutral – net neutrality is gone
Today marked the announcement of what many have been expecting, the loss of net neutrality. The effects of net neutrality are not likely to be fully felt until the beginning of 2018. However, as they arise, the impact will likely be significant. We expect the following trends to shape the internet of 2018 and beyond.
The internet as a market
The internet may become a market itself, rather than as a facilitator of other marketplaces. In 2018, we expect a market place to develop with a 3-sided business model – where Telcos (along with Internet Service Providers) are located in the middle, facilitating the transfer of data between a producer (potentially via a hoster) of content and the consumer.
Producers race to secure preferential access to Telcos
For producers which provide consumers with a data heavy service or which provide a service to a significant volume of users driving high data transfer volumes, we expect a race to secure preferential (or even exclusive access) with Telcos in order to lock in access to the relevant Telco’s customer base. In the short term, we expect this to be mostly focused on the video on demand area, with impact also being felt in certain producers which address particular use cases, rather than across the internet in its entirety. It is likely that producers will use game theory tactics to optimize revenue (e.g. considering how to balance locking in an exclusive contract with a particular Telco at the expense of a preferred supply agreement with many Telcos). The cost of securing this exclusive access will drive up costs for the content provider and may also impact the revenue side of the content provider’s business model if their user base is reduced as they are not able to negotiate agreements with all the relevant internet service providers. However, we expect this impact to be offset by the negotiating power of the video on demand providers, the fact that most of them are well capitalized and that a number of them already use content delivery networks which operate separately to the internet.
For producers which are entrepreneurial in nature, internet access just got added to their “to-do” list, particularly if they operate in the AI or data analytics sectors. However, those which are well funded will be able to use their funds to gain access to customers through promotion by a Telco, making it easier for these companies to acquire customers. Essentially, the market for producers will become a “pay to play” market, rather than the one where the most attractive content wins.
Rise in the heterogeneity of the internet
Consumers will experience an increase in internet access costs and a decline in service quality (in what services they can access and not just the speed at which they can access these services). Consumers can expect plans to decompose into base plans and a complex array of add-ons which can be acquired for an additional price. To acquire access to some services, consumers may even need to acquire contracts with different Telcos. The speed at which certain services are provided is likely to decline (while, to be fair, some preferred services selected by the Telco will increase in speed). In short, this is not a win for consumers.
Focus on Telcos
Telcos are the market makers and will be given the ability to monetize and market products to their user base. In short, they will be elevated up the value chain to being in a position of power (and responsibility). The responsibility of controlling what their users see and have access to will now also sit on their shoulders, in addition to the content providers (e.g. Facebook).
The growth of aggregators
Hosting providers (and owners of data centers) are unlikely to remain static, and will also act to lock in preferred agreements with Telcos to secure competitive advantage over their peers. We also expect to see the growth of new business models which act to help businesses navigate the complex and evolving landscape.
We expect that there will be increased pressure on Telcos around the world to drive their governments towards relaxing net neutrality rules. We have already seen the rise of “Data Localism” where countries are contemplating laws restricting the free flow of data. China, Russia, and Brazil have already created rules around the storage of company data on services which reside inside the country. This trend is likely to combine with the relaxation of net neutrality, resulting in the commercialization of the internet.
Rise of edge computing for IoT data
This trend is likely to rapidly increase the development of Edge Infrastructure and Computing where computing processing power is located close to the edge of the network. This will allow autonomous objects, augmented and virtual reality applications to receive rapid responses to requests where the data needs to be processed at the edge of the network and also reduce latency due to preferential data transfer when the data is required to be processed at a central data center.
What should you be thinking?
The internet as a marketplace will increase the complexity associated with supplying, consuming, paying and accessing this piece of digital infrastructure. The winners, apart from Telcos, are companies which are able to quickly and effectively negotiate with Telcos to lock down market access. The race is on…