Best of 2007: Web 2.0

While working to accurately measure audience size, apply effective ad models and monetize their assets, content owners and those seeking videos on social networking sites are fueling the spread of video to a fast-growing number of Internet destinations.

The broadening availability of content online presents challenges and opportunities to operators anxious to provide the right menu of services when the slew of content-owner/content-delivery partnerships announced this year produces robust Internet portals.

The business opportunities for operators, say industry experts, could include sales of managed home network services, hosting facilities, content delivery offerings, flexible storage and server-based packages. The challenges include learning more about content owners’ needs, tracking video-viewing trends and emerging consumer preferences.

While there are no easy answers in a core issue with many shades of gray, veteran telco executives anticipate selling more and different types of services, as a result, to residences and enterprises as the volume of video traffic continues to climb.

“This trend is exactly why, with residential services, we need to move the traditional demarc from outside to inside the home to take advantage of opportunities now and going forward,” emphasizes Bill DeMuth, CTO of SureWest Communications, a pioneer in video service delivery and very high-speed Internet with its 50mbps symmetric broadband offering. “The biggest challenge with IPTV and media sharing in the home is simplifying the installation and set-up of the hardware, software and physical network to support it. This creates opportunity to provide managed services.”

Managed services have been a boon for telcos over the last 15-plus years, originally hitting the market in the form of a carrier-managed data circuit with an attached on-premises data device for enterprises. While the list of managed service types since has grown longer than the Mississippi for corporate users, broadband services to the home are seen by many as fertile ground for offerings that surround content delivery — IPTV and/or Internet video. The rapid climb of interactive games also has fueled the need for high-speed Internet links and a more robust and scalable home network plan.

SureWest’s DeMuth also sees an opportunity to sell Internet connections with faster upstream speed. For one, asymmetric connections introduce latency that can hurt those using the links for online games. Secondly, whether the destination is YouTube or an online photo service like SnapFish, he adds, consumers are uploading far more content today than even just a year ago, with this trend expected to accelerate and broaden. “You have to watch closely what consumers are doing using separate options to understand opportunities as they come together.”

A beneficiary of the rise in online video sites is the hosting industry and the networks that provide hosting companies with bandwidth. The rise of Internet video sites has been driven by more than just consumer destinations such as YouTube; corporate America also is increasing its interest in establishing its own sites for product promotion and marketing powered by social networking with customers. Add in facilities needed to host more — and more advanced — sites for content owners and broadcasters, and it’s not a huge surprise that a powerful resurgence in hosting is under way. Formerly, hosting companies were thought to be in an overcrowded market with billions in stranded investment after the technology bubble burst in 2001, but now companies that possess these once capex-intensive facilities are all smiles.

“There are lots of new opportunities in the data center,” says Matt Niehaus, a partner with Battery Ventures, a large venture capital firm with extensive investments in telecom and IT companies. “And after a retrenchment, hosting companies are once again charging a premium for their services driven in large part by Internet video and video sharing. It’s another sign that the worm has turned.”

Where there’s a Web hosting facility with content-rich sites, there’s often a need for content delivery services along the lines of those made popular by Akamai Technologies before the dotcom bubble burst. While much of the company’s competition dried up, operators either have acquired or built content delivery networks (CDNs) to protect against overloaded or paralyzed sites.

Level 3 Communications Inc. paid more than $130 million this year for the CDN service business and related assets of SAVVIS Inc. Investors say CDN startups are solid investments, obviously hoping they’re ripe for the picking by operators.

While the movement of content to the Internet is not seen as a revolution by all, some believe that a long-term revolution, a more complicated one, may be brewing beneath the surface of the video-to-the-net phenomenon.

“It’s the notion of personalization, the vision of media that is available on demand, not on schedule,” says Tom Nolle, president of CIMI Corp. “This trend has been developing over the last decade or more, fueled by things like VHS and DVDs, and most recently by DVRs.”

The notion of personalization, Nolle stresses, opens new risks and new opportunities. “On the risk side, the cost of delivering a show to 10 million users at once using broadcast media is the same as giving it to one user; in personalization, the cost is 10 million times as high. On the opportunity side, broadcast material is broadcast, period, including commercials, and personalized video can support personalized ads.”

The two-part question for all, Nolle contends, is how fast this trend develops, and how far. “If personalization moves slowly, then Web delivery of content remains as IPTV is today — broadcast-like. If personalization moves fast, then Web delivery becomes like downloading.”

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