High-Potential Data Services David J. Waks System Dynamics Inc. High-Speed Data Delivery Strategies for the Cable Industry April 25, 1996 Copyright © 1996 System Dynamics Inc.
High-Potential Data Services David J. Waks System Dynamics Inc. High-Speed Data Delivery Strategies for the Cable Industry April 25, 1996 Copyright © 1996.
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High-Potential Data Services
David J. WaksSystem Dynamics Inc.
High-Speed Data Delivery Strategies for the Cable Industry
April 25, 1996
Copyright © 1996
System Dynamics Inc.
Slide 2Copyright © 1996 System Dynamics Inc.
Outline
Data applications have high potential for cable operators– Internet and the Web
–SOHO (“Small Office, Home Office”)
–CD-ROM and Multimedia
Data services business very different from video services
Customer expectations hard to meet
Profitability will be a challenge
Recommendations
Slide 3Copyright © 1996 System Dynamics Inc.
Near-Term Opportunities
Residential Data Services–Access to Internet and online services
–Personal Web content hosting
–Telecommuting
Business Data Services–Access to Internet and online services
–Business Web content hosting
Slide 4Copyright © 1996 System Dynamics Inc.
Internet and On-line Services
WorldWide Web Growing Rapidly–50 to 100 new sites per day
–Standards emerging Few proprietary obstaclesEntrepreneurial ferment
–Low barriers to on-line entry Web browsers distributed widelyWeb development tools built into applicationsWeb servers readily available
Internet displacing OLS for mass-market content owners–Owner controls content and presentation
–Better business terms and evolution
Slide 5Copyright © 1996 System Dynamics Inc.
SOHO is Important Revenue Source
Residential PC Penetration–40% have PCs now --> 60% by 2000
–Of these ~ 1/3 work at home full-time ~ 1/3 work at home part-time ~ 1/3 don’t work at home
Small Business PC Penetration–Very small business (< 10 employees): ~2 PCs
–Small business (10 to 99): ~8 PCs
Small Office
Home Office
Slide 6Copyright © 1996 System Dynamics Inc.
High Near-Term Revenue Potential
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
1996 1997 1998 1999 2000
An
nu
al R
even
ue
(,00
0) Business data services
Residential data services
Subscription videoservices
Illustrates cable system with 25,000 homes passed, average industry statistics
Slide 7Copyright © 1996 System Dynamics Inc.
CD-ROM and Multimedia Situation
Plenty of multimedia platforms–Vast majority of home PCs sold with multimedia:
CD-ROM, sound card, speakers, microphone Plenty of CD-ROM titles–More than 5000 today
Shelf space limits CD-ROM availability–Average store has 100 titles, big store maybe 250–“Hit” oriented–Few big publishers control shelf space
Hard for CD-ROM producers to make money–Cost of production - $350K and up–Revenue per title sold - $1-3–6% of titles (total of 200) generated profit in 1994
Sources: Simba, IMA
Slide 8Copyright © 1996 System Dynamics Inc.
CD-ROM and Multimedia Revenue Opportunities Near term–Combine CD-ROM with access to OLS and Web
CD-ROM provides static multimedia contentOn-line provides dynamic update
–OLS starting to incorporate CD-ROM
Longer term–On-line multimedia content for CD-ROM and Web
applications
–CD-ROM product demonstration and sales
–Multimedia “pay-per-play”Existing CD-ROM contentNew multimedia content without CD-ROM limitations
Slide 9Copyright © 1996 System Dynamics Inc.
Many Promising Broadband Data Applications
Near-term– High-speed access to Internet and on-line services– Web content hosting– Telecommuting– Local community content
Longer-term– CD-ROM ordering, pay-per-play– Video enhancements to Internet and on-line services– Videoconferencing and video telephony– Multi-player games– Advertising– Home shopping– Direct marketing– Distance learning– Software distribution– Government information and transactions
Slide 10Copyright © 1996 System Dynamics Inc.
Outline
Data applications have high potential for cable operators
Data services business very different from video services–Different user expectations
–Both content- and communications-centered applications
–Different business model
Customer expectations hard to meet
Profitability will be a challenge
Recommendations
Slide 11Copyright © 1996 System Dynamics Inc.
Two Different BusinessesSubscription Video Data Services
Platform TV PC
Applications Entertainment andadvertising
Information,communications,transactions
Market Consumer Consumer and business
Pricing Flat price Usage based (above baseprice)
Who pays Advertiser pays part Customer
Expectedreliability
Not very high Very high
Presentation Video Text and graphics, audioand video coming
Data rate Very high Low, but getting higher
Network One way Two way
Applicationbasis
Purely content Content andcommunications
Slide 12Copyright © 1996 System Dynamics Inc.
Two Kinds of Applications
Content CommunicationsContent Paradigm One to many One to one
Networkrequirement
Connect users tocontent
Connect users to oneanother
Data rate High Lower
Symmetry Highly asymmetric Fairly symmetric
Expectedreliability
Not very reliable Highly reliable
Expected pricing Flat price Usage based
Slide 13Copyright © 1996 System Dynamics Inc.
Continuum of Electronic Applications Content Communications
Telecommuting
Broadcast radio and TV
Software distributionVideo telephony and
teleconferencing
Information on products and services
Transactions and supportElectronic Commerce
WorldWide Web Electronic mailInternet
TelephonySubscription video services
Interactive gamesDownload Play
CD-ROM “pay per play”
Commercial online services (AOL, Compuserve, Prodigy)
Proprietary content
Email, chat, forums
Slide 14Copyright © 1996 System Dynamics Inc.
Value Chain - Content-centered Applications
ContentCreator
Aggregator/ Packager
ApplicationHost
Inter-network
TransportProvider
LocalAccess
Provider
EndUser
MSOs
LECs
InternetAccessProviders
IXCs
On-lineServices
Web Sites
On-lineServices
Internet“Malls”
MediaCompanies
PrintPublishers
Advertising Agencies
Slide 15Copyright © 1996 System Dynamics Inc.
Value Chain - Communications-centered Applications
ApplicationHost
Inter-network
TransportProvider
Local AccessProvider 1
EndUser 1
EndUser 2
Local AccessProvider 2
InternetAccessProviders
IXCs
Email hosts
Video TeleconferencingBridge services
MSOs
LECs
Slide 16Copyright © 1996 System Dynamics Inc.
Outline
Data applications have high potential for cable operators
Data services business very different from video services
Customer expectations hard to meet
Profitability will be a challenge
Recommendations
Slide 17Copyright © 1996 System Dynamics Inc.
Customer Needs and Expectations...
“I get it when I want it”–“I don’t have to wait for my modem to dial”
–“I don’t have to wait for the screen to paint”
“I get it when I need it”–“I don’t have to keep looking for something I’m
waiting for”
“I can depend on it”–“It connects every time”
–“It doesn’t cut me off”
“Someone will hold my hand if I run into problems”
Slide 18Copyright © 1996 System Dynamics Inc.
...Implications: Cable data delivery should satisfy expectations
of initial customers–Early adopters–Fast connect time (seconds, not minutes)–High data rates (megabits per second, not kilobits)–Little contention for available bandwidth
May be hard to keep customers satisfied– Internet neither fast nor reliable today–Performance likely to degrade over time with more
users and higher bandwidth needs–Ongoing reliability requires network management
infrastructure –Later subscribers require informed and attentive
customer support
Slide 19Copyright © 1996 System Dynamics Inc.
Outline
Data applications have high potential for cable operators
Data services business very different from video services
Customer expectations hard to meet
Profitability will be a challenge
Recommendations
Slide 20Copyright © 1996 System Dynamics Inc.
Profit is Harder than Revenue
Pressure for flat-rate pricing–Strong customer preference–Much simpler recordkeeping, billing
Data services cost structure very different from subscription video–Video has known margin, independent of usage–Data services margin depends on many factors
Number of usersSimultaneous useApplication mixBandwidth per userUser tolerance for performance variations with load...
Slide 21Copyright © 1996 System Dynamics Inc.
Decreasing Margins Will Force Repricing
Online services have been prone to “run-away” applications–Prodigy examples
Data services will quickly absorb valuable cable bandwidth–More users
–More simultaneous use
– Increasing bandwidth as applications include multimedia elements
Operators will need to balance pricing against costs–Higher flat rate
–Usage-based pricing
Slide 22Copyright © 1996 System Dynamics Inc.
Outline
Data applications have high potential for cable operators
Data services business very different from video services
Customer expectations hard to meet
Profitability will be a challenge
Recommendations
Slide 23Copyright © 1996 System Dynamics Inc.
Recommendations for Cable Operators
Consider tomorrow’s applications when choosing today’s technologies
Install supporting infrastructure along with modems–Network management for reliability–Traffic management to understand usage patterns
Pay attention to SOHO potential–High penetration and willingness to pay
Avoid promising long-term flat-rate pricing–“Run-away” applications will force change
Assume you’ll have to fulfill customer expectations to succeed–Reliability–Customer support
For More Information:
18 Beaver Ridge Road, Morris Plains, NJ 07950-1901
(201) 644-4739
Fax (201) 538-6003
Dave Waks: [email protected]
Sandy Teger: sandy @system-dynamics.com
http://www.gti.net/davewaks
(after 9/1/96: http://www.system-dynamics.com)
System Dynamics Inc.
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