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The Evolving Internet Traffic, Engineering, and Roles - A Study of Performance and Economic The Evolving Internet Traffic, Engineering, and Roles - A Study of Performance and Economic Models Joseph D Houle, K. K. Ramakrishnan, Rita Sadhvani, Murat Yuksel, Shiv Kalyanaraman September, 2007 © 2007 AT&T Knowledge Ventures. All rights reserved. AT&T and the AT&T logo are trademarks of AT&T Knowledge Ventures.

Internet Industry’s Challenge… Provide cost-effective Internet access while: • Applications continue to diversify relative Internet Industry’s Challenge… Provide cost-effective Internet access while: • Applications continue to diversify relative to demands on the network • The number of users continues to grow at an annual rate of 12. 5%. • The average traffic per user is expected to grow even faster at 25% per year. 2

Approaches to Consider Build Differentiated Networks Diff= g D Premium D D BE=(1 -g) Approaches to Consider Build Differentiated Networks Diff= g D Premium D D BE=(1 -g) D Best Effort Investigate Alternative Business Models 100% Advertising Driven 100% Consumer Paid Independent press Broadcast TV New York Times Broadcast Radio Advertising is a critical component and helps subsidize the subscription costs to the consumer. Cable TV Satellite Radio Internet Portals AOL XMRadio Time, Fortune Completely ad-driven Revenue model where the consumer pays only for consumption device. 3 Publications Advertising is important Subscription revenues component; Premium ad driven business model. -free channels, e. g. Advertising revenue an HBO. insignificant component.

Network Model Descriptions Best Effort model – Best Effort N D D BE=(1 -g) Network Model Descriptions Best Effort model – Best Effort N D D BE=(1 -g) D (e. g. priority) Diff= g D Scheduling Differentiated model – Premium (no partitioning of resources) D Best Effort Term D Total traffic. Assumed to be the same for both the Differentiated and Best Effort models. Assumptions are the same for Best Effort on unmanaged networks. g Proportion of differentiated traffic as a fraction of the total ( Diff =premium traffic arrival rate; BE = best effort arrival rate) D, N Total capacity of the differentiated and Best Effort model, respectively N - D Required Extra capacity = - ( N - D) / D *100 4 Explanation Required Extra Capacity (REC) = - / * 100

Single Link Analysis for Required Extra Capacity (REC) Analyze the Required Extra Capacity (REC) Single Link Analysis for Required Extra Capacity (REC) Analyze the Required Extra Capacity (REC) of a single link with differentiation vs. best effort using standard Poisson (M/M/1) and MMPP models: • Required additional capacity to maintain the same loss performance for premium traffic. • Required additional capacity to maintain the same delay performance for premium traffic. 60% Utilization, Link Delay 20% Premium ~1 k packet queueing delay 80% REC a=0. 5, r=4 (slightly more bursty than M/M/1) 5 20% Premium ~1 k packet queueing delay 160% REC a=0. 5, r=8 (even more bursty)

Network Delay Analysis for Two Topologies Build network models (based on Rocketfuel ISP Backbone Network Delay Analysis for Two Topologies Build network models (based on Rocketfuel ISP Backbone topologies) out of the link model • Use the more conservative MMPP assumptions of a=0. 5, r=4 • Averages the queueing delays and utilizations Network Delay 60% Utilization 40% Premium 4 ms Ave Queueing Delay 60% REC Abovenet Topology 6 60% Utilization 40% Premium 4 ms Ave Queueing Delay 70% REC Sprintlink Topology

Network Loss Analysis for Two Topologies Same Rocketfuel topologies as Delay Same MMPP burstiness Network Loss Analysis for Two Topologies Same Rocketfuel topologies as Delay Same MMPP burstiness assumptions (a=0. 5, r=4) with a buffer size of 60 packets Network Loss 60% Utilization, 40% Premium 0. 4% loss prob. 70% REC Abovenet Topology 7 60% Utilization, 40% Premium 0. 4% loss prob. 60% REC Sprintlink Topology

Engineering Summary Network Engineering Summary • • • Required Extra Capacity is useful to Engineering Summary Network Engineering Summary • • • Required Extra Capacity is useful to look at… In all situations the (REC) is significant for typical operational scenarios, more than 50% extra capacity. With continued growth in traffic and varity of applications, differentiation will continue to be important Results are sensitive to assumptions; most assumptions in this analysis are conservative. Different topologies produce the same shape curve and similar values. Even with small amount of video traffic, we still need lots of extra capacity. Internet Business Model Evolution Advertising Revenue - examples in content delivery markets • Multi-sided Markets - overview • Flows: • – – 8 Revenue Traffic

The Continuum Advertisement Driven Consumer Paid Independent press Publications Cable TV Broadcast TV New The Continuum Advertisement Driven Consumer Paid Independent press Publications Cable TV Broadcast TV New York Times Internet Portals Broadcast Radio Time, Fortune AOL • Advertising driven Revenue model. • Advertising is the major component of revenue model. • Consumer pays minimally for content delivery, they need to buy the radio or TV. 9 • Advertising subsidizes the subscription costs. Satellite Radio • Advertising is minor, • Advertising is very not insignificant, small component of revenue model. • Subscription • Premium channels revenues drive the such as HBO, that entire business model, are ad-free demand making it quite often, an additional fee. unsustainable business model.

Business Model Flexibility is Critical Advertising Driven Consumer Paid • AOL is moving away Business Model Flexibility is Critical Advertising Driven Consumer Paid • AOL is moving away from a subscription based model to an advertising model. • NYT is diversifying its revenue by growing its online edition which will be primarily advertisement funded. A blended mix of cost assignment between end user and content owner would serve the end user’s needs. Some proposed legislation would force the service provider to participate only in the rightmost side of the continuum. The Internet needs the ability to support different business models depending on the application or user to optimize the consumer value and continue investment in broadband infrastructure. 10

Multi-Sided Markets - Overview A multi-sided market has a mediation platform that enables two Multi-Sided Markets - Overview A multi-sided market has a mediation platform that enables two or more groups of customers who value the other's participation on the same platform in order to generate/receive value. Content Provider Content Consumer - The Internet A Multi-sided-Market Mediation Platform For Content Delivery Price structure of multi-sided markets tends to evolve to be proportional to the business value received. 11

Yesterday’s Internet Revenue Flows Consumers buy Internet access from their service provider • Content Yesterday’s Internet Revenue Flows Consumers buy Internet access from their service provider • Content providers buy Internet access from their service provider • But no revenue flow between ISP… interconnection agreements were set up as simple settlement-free peering • Content Provider’s ISP Traffic Flows (A quick look under the Internet covers) • Routing practice between ISPs is “hot potato”, i. e. hand-off as quickly as possible. B Content Consumer X Content Consumer’s ISP B’s ISP – Sending ISP provides short-haul transport over its network to nearest peering point with receiving ISP – Receiving ISP provides long-haul transport to final destination • 12 With relatively symmetrical traffic, transport burden on both ISPs are similar A’s ISP A

New Role of Today’s Internet Revenue Flows Consumers buy Internet access from their service New Role of Today’s Internet Revenue Flows Consumers buy Internet access from their service provider • Content providers buy Internet access from their service providers • Consumers buy content from their content providers (maybe subsidized by advertising revenue) • Content Providers use the Internet as the delivery vehicle for their product • Content Provider’s ISP Traffic Flows • 13 Now that content provider’s ISP is sending a lot more traffic than it is receiving, any Content Consumer’s ISP that it peers with will carry lion’s share of transport burden. Content Consumer Content Provider Content Consumer’s ISP Content Provider’s ISP Consumer's ISP Content Consumer

The Evolved Internet Based on Market Forces • A differentiated network that has evolved The Evolved Internet Based on Market Forces • A differentiated network that has evolved to meet the performance requirements and business model of the Content Providers. • Advertising revenue given an opportunity to play a role. • Multi-sided market economics given an opportunity to better align cost with benefit to the various parties. • A market-driven Inter-ISP settlement model. • Taken together these could provide a winning solution all around: < Applications can get the performance from the network they require < More value for consumers 14 Content Consumer Content Provider

“… if and when consumers switch their consumption of entertainment media from broadcast and “… if and when consumers switch their consumption of entertainment media from broadcast and broadcast cable technologies to IP-based delivery, we would expect that paid content - or advertiser supported content - will have to take up a larger share of the burden of maintaining the core of the Internet”. Dr. Shawn O’Donnell, “An economic map of the Internet, ” Proceedings of TPRC, September 2002 Thank You For Your Time and Interest 15