Cisco Says Video Traffic Is Growing, But Where's the Business Going to Come From?

This week, Cisco (CSCO) released its second annual visual networking index which predicts that by 2013, all forms of video will account for almost 90% of the total consumer traffic on the Internet. While that sounds like a big percentage, I'd like to know how Cisco came up with these numbers. Cisco's website shows a lot of charts and numbers, but then says the source for the data is themselves.

Where is Cisco getting these numbers? How did they come up with them? What are they based off of? What is their methodology? Come on Cisco, show us the data behind this. More importantly, if Cisco's predictions are right, that's not necessarily a good thing for the industry.

We keep hearing about traffic growth due to video, but what we don't keep hearing from are content owners making money from all this traffic growth. If Cisco's numbers turn out to be accurate, that's a lot of additional video traffic that someone needs to monetize unless they want to be thought of as someone like YouTube. A company that pushes a lot of traffic, but can't break even. Don't be fooled into thinking that just because video traffic is growing, so too is the revenue of the companies in the space. Video now easily accounts for more than 50% of all the traffic on the CDNs, but it accounts for far less than 50% of their overall revenue. That's a problem.

For all the traffic growth we keep hearing about, we also see companies like BT and others capping users or telling content owners they are going to have to help foot the bill for network upgrades. We've now got content owners doing 3MB streams and folks like Microsoft (MSFT) announcing they will do 8-10Mbps 1080p streams on the Xbox 360 later in the fall. All of this is great, but there needs to be some kind of business model behind this surge in traffic.

If it's not figured by the ISPs and content owners, many are going to have a false sense of security thinking that because video traffic grows by a large percentage, the revenue of companies in this space will grow by the same volume. That won't happen. While the CDNs won't tell us how many total streams or GBs they deliver each quarter or each year, if they did, we'd see that they are delivering five or ten times more volume, yet their revenues are not going up by the same rate.

I'm all for video growth, but let's be realistic when companies like Cisco put out numbers like these and won't show us how they came up with them. Traffic growth without revenue growth really does not matter.

Disclosure: No position

Comments

[Alok Swain:]

Fully concur.

Dan good work.

Many people mistake the growth of traffic with revenue. You have made the key point that they don't necessarily correlate.

In fact if the traffic volume grows that's good for companies like Cisco, they get to sell more gear, no wander they want to publicize it. But is that necessarily good for service-providers, because they have to get their equipment upgraded to support these services. And if they don't get to monetize these services, their revenues decline and their capex increases. That's bad for the service providers.

Usually if you find somebody peddling info like this - that some traffic or the other is growing at a fast rate (if not exponentially) those are mostly box makers like Cisco. They have a vested interest in showing that traffic is growing disproportionately, just so they can get to sell more gear. May be I'm just cynical. I should be after seeing the telecom bust of 1999-2000.

Jun 12 11:07 AM