Come again? One is an RBOC the other is an Internet company.
Ten years ago SBC competed with AT&T. They won and bought them. Three years ago they started competing with the cable companies who annoyed them by selling voice. Now, in retaliation SBC is building fiber around the country to sell video. I was at the TelcoTV conference last week, and according to SBC, major rollouts are due to happen in 2006. SBC is delivering IPTV to you with the help of Microsoft who is delivering the software. By the way, if Microsoft delivering the software, I doubt there will be room in it for Google. Hold that thought.
Let's talk about IPTV for a second. IPTV is the "third platform." The fist was the PC and created massive amounts of wealth around it. The second is the handset, where applications on this platform are exploding today. I think tomorrow, it's IPTV. The definition is nebulous, but you can think of this platform as your TV, or entertainment center. Once the TV is hooked on IP, then it can receive all sorts of applications, only one of which is broadcast video. Your new on demand karaoke machine is another application, as is your new video enabled yellow pages.
To create this platform you need the network, end device, and operating system. SBC controls both the network and end device, Microsoft delivers the software. So how can Google come in?
I claim that it's not a big deal in terms of money to build the network and deliver the end devices.
It's easily doable by a company which generages $500M free cash per quarter, and has shown the ability to think big. Enter Google.
Why are they buying dark fiber, and why are they wiring SF with WiFi? Do the math. If you look at what the nationwide WiFi providers are estimating for costs, and if you look at what the Wimax forum is calculating for deployment costs, you'll come out with a number in the $8-9 range per home passed in the US. That's $1B to blanket every household. That's the network cost.
What about the end device? Is it a $400 TV, or is it a $200 STB with a hard disk? It's neither. Wake up everybody, the new generation isn't watching TV on their TV. They are getting their video on their computers. The end device is a PC or wirelessly connected laptop. The consumer either already has it, or there are cheap ways being developed. Check out the $100 laptop project at MIT here. If you had to give this $100 laptop to 50M people that's only $5B. OK, maybe this laptop won't have all the video capabilities you need, but soon enough it will. We can stipulate that.
Now you got the network and end device for anywhere from $1B to $6B (the latter if you had to eat the entire cost). This is same amout SBC says it'll spend for fiber. But where does the software come from, the software that Microsoft intends to provide SBC? It comes from the network, through http://video.google.com. With Google video, you don't need middleware, you don't need PVR, you don't need video on demand. You search for what you want and you get it. Google's video service is a place where anybody can upload their content (including big name content owners) and either give it away free or sell it. Is this network of content real, is it big, who can it reach?
It's big and reaches everwhere because it empoweres both professional and user-generated content to be democratized. I'll give an example. Have you seen the video of the two asian kids lipsynch the backstreet boys. You can get it here. It's a silly video going around VC circles that's 3 minutes long but funny only for the first 10 seconds. The interesting thing here is that, this video has been downloaded more than 1M times. Two kids make a home video in Asia and it gets downloaded 1M times around the world including on Sand Hill road. I'd say the network is big enough and ready (by the way, I am envious of those two kids. I made better videos than that with my brother 20 years ago, but they are rotting on video tape at my parents house, and these clowns get 1M+ downloads.)
Need more convincing that Google will take on the RBOC's and cable MSOs? Google announced a deal that they will air episodes of UPN's comedy "Everybody Hates Chris", details here. They also hired Internet guru Vint Cerf, as underscored by Scott Bradner here.
Net net, the RBOCs and cable companies may think that there is victory after their battle, but they are about to be washed away by a Tsunami.
This is a very thought provoking write-up by Baris -- not only does it raise questions about the future of video delivery, it also makes me wonder what google may look like in a couple of years. It almost seems like Google is poised to skim from the top of the food chain again, this time by indexing and organizing video.. Can these guys repeat the same model one more time? But if they invest in the infrastructure this time, aren't they making a radical change in their business strategy?
Great blog Baris, keep it coming.
Posted by: ali_akgun | November 28, 2005 at 04:20 PM
Google may contend and plenty of the established powers from media and communications may too. But if a substantial market develops around content like the brothers Karadogan lip syncing, I'm not sure that there will be necessity for any of these parties to play much of a role.
Why is the Chinese backstreet video provided via Google? Probably largely for purposes of caching and fulfilling bandwidth requirements for streaming purposes. But you're becoming aware of it by email and Google's playing practically no other vital role in the experience. As bandwidth issues for video over the Internet become resolved, such companies are fungible intermediaries for the service.
jibjab didn't need any big brother for its Bush-Kerry stuff to catch on. That company did wind up affiliating with Yahoo, but as the quality and disctinction of its content has declined, that affiliation has gained it nothing.
As rich media becomes more widely available from more sources on the Web, consumers will largely interact directly with the producers of the media. There will be meta-roles for functions like search and hosting, but those will not be major seats of power.
Ad syndication will likely also be one of these roles, and a stronger one at that. This is key for Google and the RBOCs and cable companies -- identifying defensible business functions in a world of popular homemade content.
When it comes to professionally produced content, the equations and roles change, but the considerations are no less dynamic and the themes are largely the same: If you're going to be an intermediary, identify how to be a value-adding one.
Cable operators are working hard right now to advance their value-add in delivering vidoe programming through endeavors such as better program guides, stronger user control over viewing, and content protection. Plus many cable companies have content production efforts. The RBOCs, search companies and others had better embark upon similar pursuits in order to carve valuable positioning.
Posted by: Seth Kenvin | March 05, 2006 at 09:33 AM