Parks Associates Blog

Wednesday, December 13, 2006

The Internet and the Airlines - More in Common than You'd Think?

Hello from C-Scape, Cisco's annual analyst conference. Yesterday's opening sessions gave a great deal of insight to Cisco's strategy in the "Network as the Platform" age. As top executives such as Chairman and CEO John Chambers and Chief Development Officer Charlie Giancarlo stated, Cisco's big bets in the next five years will be in emerging markets (they are moving a number of top execs there and working closely with policymakers on such issues as healthcare and education), video (professional, user-generated, communications, and security), and a continued effort to give service providers a truly end-to-end solution for the quad-play.

Mike Volpi Cisco's Senior Vice President/GM Routing and Service Provider Technology Group gave a really interesting talk in the afternoon titled "Service Provider - Consolidation, Trends and the Future View.

Volpi centered his discussion on the argument that service providers can actually reshape the Internet and leverage next-generation networks (NGN) to provide value-added and differentiated services. Referring to the September 15, 2006 edition of The Economist, in which the front-page headline declared, "How the Internet Killed the Phone Business," Volpi said that he hoped a future headline would read "How the Phone Companies Reshaped the Internet." Clearly, the traditional service providers are facing many threats from Web service companies that are using high-speed connections to deploy "over-the-top" services (Vonage and Skype with voice; Google, Yahoo, AOL, Apple, YouTube, MySpace, Revver, etc. with video). However, Cisco anticipates that the service providers may be able to retake some of the momentum. He laid out some strategies:

1. Much like an airline charging passengers different rates for different classes of services (First, Business, Coach), Cisco anticipates that service providers will be able to charge certain premium subscribers extra for QoS and for smarter content policy management. Our data backs up this premise. In our Managing the Digital Home: Installation and Support Services study from 2006, we found that a small but enthusiastic group of consumers are willing to consider paying extra for an optimized Internet experience for such applications as entertainment and sharing personal content. We content that upstream bandwidth - and specifically a service provider's ability to offer faster uploading for sharing home videos and photos, as well as for uploading digital content to secure storage services - will start becoming a key differentiator from one provider to another.

2. Cisco is very much anti-Net Neutrality. Volpi says that it would reduce service providers' incentives to differentiate and innovate.

3. Cisco thinks that mobile broadband will take a huge leap in its marginal value as consumers experience speeds beyond 256 kbps.

4. Finally, IMS isn't a panacea for solving a lot of policy issues. Smarter networks are needed because there are lots of applications that are not IMS or SIP-based. Cisco's smarter networks are needed.

Cisco has much at stake in convincing service providers that smarter and more managed networks are a key to growing their business. However, some of the early bets that they've made in such applications as Telepresence are gaining traction (Cisco believes that this could be their fastest-growing business since switching). With the acquisitions the company has made and the continued strive to innovate, they will certainly be among a key class of equipment and solutions providers working with the service provider community in the next few years.

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