1. Follow the money David D. Clark Communications Futures Program

2. Motivation A recurring conversation centers on the sources of revenues for ISPs. – Today the consumer pays essentially all the costs of the access provider. Is there an alternative frame in which other parts of the ecosystem contribute to the cost of access? – Advertising? – Paid content?

3. Ad revenue data From Interactive Advertising Bureau (IAB) unless otherwise noted. Data gathering and analysis: Israel Valentin Vinagrero. (Thank you.) – Also doing some industry interviews. US interactive ad spend 2012: $36.6B. – Per HH: $34.63/month

4. A lot or a little? Am I really worth that much? This pays for all of the “free” Internet experience. – All the web sites based on ads and behavioral profiling. – From this point of view, it seems like a little.

5. Online advertising per BB household (2012) 5

6. Google The x00 pound gorilla in advertising. Revenues (worldwide 2012): – Google sites: $31,211 – Ad partners sites: $12,465 Partner share: $10,956 – Net Google: $1,509 – Total Net:$32,720 – US share: 46%$15,05141% of total

7. Total consumption and online adv/total ratio 7

8. Explanation? Consumer wealth is not the (only) explanation. Perhaps it is privacy policies? – Hypothesis from Catherine Tucker, MIT Sloan. – One estimate is that removing behavioral tracking information cuts the value of an ad by 75%.

9. Internet expenditures per BB household Total excluding CDN and advertising: $479.47 9 ($82,74 per paying customer)

10. eCommerce: Top 5 countries by B2C Sales

11. US eCommerce and mCommerce

12. US retail eCommerce 15% of total US retail eCommerce

13. Top online retailers Worldwide US billion $

14. Motivation A recurring conversation centers on the sources of revenues for ISPs. – Today the consumer pays essentially all the costs of the access provider. Is there an alternative frame in which other parts of the ecosystem contribute to the cost of access? – Advertising? – Paid content?

15. Speculate about Italy Per-household ad spend: $11.57/month. Speculate that Google is 41%-> $4.75 What could an access ISP manage to extract as a share? 5% of top line? ->$.23/month. Now think about the developing world.

16. Paid content Netflix: profitable but low margin. ESPN: profitable and (it would appear) higher margins. Unless ISPs imagine that they are going to price access differently based on the margins of the content provider, must price so as not to squeeze low-margin providers out. – Really hard for ISPs to capture value by pricing bits from providers. Only obvious approach is zero-rating.

17. Zero rating In a system with usage caps, an application that does not count against the user’s cap because the application provider has paid the ISP a fee. Allows a balance of payment based on value. – Content providers can pay if the flow is valuable to them. – Users can pay if the flow is valuable to them. Will raise regulatory concern about abuse of market power.