Monday, March 12, 2018

Netflix Wants Massive Disruption of Every Internet Access Market in the World

The thing about value chains is that, lower in the stack or earlier in the chain, each participant’s revenue is a “cost” to other participants. That explains, as much as anything, industry segment views on network neutrality, inter-segment competition, regulation and antitrust action, irrespective of the public policy goals any particular policy represents.

Be clear, that does not mean there are only naked commercial interests involved. There are legitimate issues of public policy. But for every element of public policy, there are corresponding financial interests.

Example: Netflix views on disruption of access markets. Universal internet access availability and massive internet access cost declines are preconditions for Netflix and its business model.

“Reliance Jio has been a transformational network in India and has brought down data cost massively,” says Netflix CEO Reed Hastings. “There are other people around the world having that kind of impact and can get people to use internet more.”

“We hope someone would do a Reliance Jio in every other country,” says Hastings.

It would be exceptionally hard to find any reasonable objection to the policy notion that every citizen and consumer should have access to the internet, at prices they can afford.

At the same time, it is incontestable that the widespread availability of cheap internet access is a precondition for the business models of every application provider and device manufacturer, while high-quality (fast, reliable, low latency) is a precondition for some business models.

Since application providers sit “at the top of the stack,” every other segment’s revenue streams are “costs” for the application layer providers.

That is true even when the app provider has vertically integrated all or most of the value chain (silicon, processors, optical fiber, communication networks and elements, network management and operating system software, data centers, end user devices, personnel, marketing platforms and fulfillment mechanisms.

That explains why retail telecom service providers care about the cost of servers, switches, construction, optical cable, management and billing software, end user devices and software used to create and deliver the actual end user applications, union contracts and so forth.

All those are cost inputs to the retail price. So for Netflix, universally available cheap internet access is a fundamental requirement for people deriving value from Netflix services. Without internet access, the product has no value.

So it is in Netflix business interests for the rest of the value chain to create and support universal and low-cost internet access. The same is true for Google, Facebook and all other app providers.

If you want to know why industry segments fight over network neutrality, it is because their business interests are at stake. The net neutrality debate is not only about business interests of particular firms and value chain segments. But it explains the positions those interests take.

1 comment:

Alisha Charlton said...
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