It’s no secret: ISPs feel ‘left out’ when it comes to taking their piece of the sweet, sweet pie called online advertising revenue ($42.8 Billion in 2013 according to IAB). ISP’s tremendous investment in infrastructure and their efforts to keep up with subscriber QoE leave them with little profit margins. They claim that content providers indirectly use their networks for free and are looking for compensation.
So which one came first: the chicken or the egg? Do ISPs enable content providers or is it the other way around? Without ISPs and their subscriber base, content providers would have no visitors to advertise to. Without content providers, ISPs would not have subscribers since there would be no reason for Internet access. I think you can’t have one without the other. For this reason, both players should get a part of the revenues.
As content providers refuse to share their advertising revenues with ISPs, ISPs started to advertise online themselves. To maximize their online advertising revenues, they are using their network traffic as a data source and Big Data Analytics for customer segmentation and then targeted advertising. In order to do this, ISPs have to “see” their customers’ actual content requests and content served. This knowledge allows them to create an anonymous list of subscribers and their commercial interests without hurting anyone’s privacy. For example, they may discover that subscriber X has been browsing sites related to cars and also mortgages. According to interest algorithms, they will create a preference list for that subscriber, which tells potential advertisers that subscriber X is interested in a pick-up truck, buying a house and getting a mortgage. ISPs partner with Ad Networks to allow them to sell targeted ad space to potential advertisers when their subscribers visit one of the Ad Networks’ content provider sites. The ad is displayed and the ISP splits the revenue of the ad impressions and clicks with the Ad network and the content provider. Such a business model allows them to take their well-deserved revenue share.
However, content providers don’t like such ISP initiatives and now “wage war”. They are gradually hiding the information that used to be open and available. The information that allows ISPs to create their subscriber interest and preference lists. They are encrypting their users’ traffic by turning away from the traditional clear text HTTP to encrypted HTTPs and SPDY (developed by Google and is suggested to be the standard for HTTP 2.0). What can ISPs do to retaliate? Using the same network traffic data source technology that allows them to target advertising, they can discriminate against encrypting content providers by giving them less bandwidth and lower priority for network resources compared to those content providers that aren’t encrypting. The only problem with this approach is that at least in the US, ISPs are bound by Net Neutrality, preventing them from doing just that.
The Open Web Alliance was formed mainly by service providers in order to seek technologies around SPDY that allow ISPs to continue providing content delivery optimization in order to prevent service degradation to consumers. In my opinion, this is only the official reason for the alliance. The underlying motivator was the ISPs’ fear of losing targeted advertising revenues just as they started enjoying them. I’m sure that the technologies and the standards that will rise from this alliance will include mechanisms to mark subscriber interests to allow continuous targeted advertising. Network Traffic Intelligence companies will most likely be the ones to implement such technologies and standards. I predict that we will soon see a few of those vendors joining the alliance.
I’m all for allowing ISPs to take a share of the revenues. I believe it will grant us consumers a better Internet service, which will gradually become cheaper and, eventually, maybe even completely free.