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June 27, 2011
Volume XXXV, Issue 8

Study Forecasts $32 Billion in OTT Video Revenue in 5 Years

Excerpted from Home Media Magazine Report by Chris Tibbey

The increase in over-the-top (OTT) video from consumer electronics manufacturers, pay-TV operators, DVD rental companies, retailers, and others will lead to a combined $32 billion in revenue through the next five years, according to a new report from IMS Research.

"Advertising-funded services and free videos make up an overwhelming share of online video traffic today, and this won't change dramatically over the next five years," said Anna Hunt, principal analyst for IMS. "But we will start to see some significant growth in pay-OTT transactions and revenues as more market leaders in pay-TV, media, and CE invest in exploring strategies for effective OTT video service delivery."

The report forecasts OTT endeavors and potential revenues for 10 countries, and says the amount of free OTT content being offered - including that from pay-TV operators and online distributors - will decrease in favor of paid-for content.

"Some of the main drivers behind OTT revenue growth are service providers and content providers' willingness to explore new paradigms," Hunt said. "Support for multiple devices and platforms, widespread partnerships and acquisitions and global expansion of successful services are some of the vital factors that will shape the market through the end of the decade."

Cloud Computing Trend Boosts Demand for Level 3

Cloud computing is highly appealing to today's organizations, not only because of its projected cost savings but also because of the cloud's flexibility. With cloud services requiring more bandwidth due to high quality media, content delivery networks (CDNs) find themselves in higher demand. The Bedford Report examines the outlook for companies in the technology sector and provides research reports on Level 3 Communications and other leading CDNs.

The Bedford Report releases regular market updates on the technology sector so investors can stay ahead of the crowd and make the best investment decisions to maximize their returns. Take a few minutes to register with us free at www.bedfordreport.com and get exclusive access to our numerous analyst reports and industry newsletters.

Level 3 Communications is a well-diversified company across 145 markets in service across North American and approximately 45 markets in Europe. The company holds approximately 6.9 million square feet of Gateway and transmission facilities in North America and Europe, and substantial transoceanic cable system capacity, primarily across the Atlantic Ocean.

The company recently announced that it is buying Global Crossing for $2 billion. The purchase of Global Crossing brings Level 3 cloud computing services, which deliver software, data storage, and other services over the Internet.

The Bedford Report provides Market Research focused on equities that offer growth opportunities, value, and strong potential, and is compensated by third-party organizations, other than the subject companies of its reports, for advertising services.

Report from CEO Marty Lafferty

Photo of CEO Marty LaffertyFor at least three years now, the music industry has publicly stated its intentions to abandon the principal strategy that it has followed since 2003 in attempting to address online copyright infringement in favor of a new approach.

Under the old regime, focused primarily on prosecuting mass litigation against Internet users accused of unauthorized file sharing, more than 35,000 US citizens were targeted for legal action over the course of several years during which online infringement steadily climbed.

The replacement program was to be similar to the "graduated response" or so-called "three-strikes" approach that had been pioneered in France, until recently, after proving to be ineffective. Under this system, Internet users accused of repeatedly engaging in sharing unlicensed music would receive three warning letters and then have their accounts terminated.

Broadband network operators generally did not agree to implement this approach when it was initially proposed in America by big music in 2008, instead agreeing merely to forward warning letters from suspecting music rights holders to those accused of unlicensed file sharing.

Current copyright laws do not require that operators implement such an escalating-threat program. For example, they are protected by safe-harbor provisions of the Digital Millennium Copyright Act (DMCA).

Nevertheless, certain state attorneys general, including New York's, have increasingly been applying pressure to network operators to adopt such a graduated response approach as the music industry has become increasingly frustrated by burgeoning levels of online infringement. Initially, the industry said it would still file individual lawsuits when applicable in addition to the three-strikes approach being pursued with Internet service providers (ISPs), and it would also like to see the addition of a surcharge of $5-to-$10 on subscribers' Internet access bills. But now, according to a report this week in CNET, several ISPs may soon voluntarily begin implementing a lower-impact graduated-response program.

CNET reports that AT&T, Comcast, and Verizon have been collaborating with music and other entertainment interests on such a new system that would have them imposing a range of punishments on file sharers.

Although actually terminating accounts reportedly wouldn't be an option, users could find themselves throttled to slower speeds - or unable to access popular websites - until they stop exchanging unlicensed files. Particularly in the absence of reasonable due process, the legality of these punishments would very likely be subject to challenge, however.

Adding to the complexity, participating operators would have considerable flexibility in determining precisely how to implement the plan. They could choose punishments from a menu of proposed responses, including limiting service in various ways and requiring participation in a program that educates users on copyright law and the rights of content rights-holders.

While there would be an exclusion of forced disconnections, the prescribed penalties are no laughing matter, and data used to target accused infringing file sharers has been shown not to be consistently reliable, especially with respect to intra-ISP traffic, and it's not clear how falsely targeted consumers could appeal accusations before having penalties imposed upon them.

This new approach, if deployed, would incur costs that would ultimately have to be borne by all subscribers, and would not be effective against sophisticated sharers who increasingly use anonymizers and virtual private networks (VPNs). Most file-sharing programs already provide randomized encryption by default and would therefore be undetected by these programs. The DCIA believes this new effort, although well-intentioned in its desire to protect the interests of content rights holders, is misguided in terms of its practicality and rife with serious legal problems.

It won't have much of an effect on curtailing infringement, but will have multiple negative consequences for broadband network operators and consumers.

As we have previously stated, the DCIA believes it would be much more effective to pursue advanced technological solutions - led by state-of-the-art filtering systems - and, above all, new business models.

There have been very promising developments over the past several years in both areas. Wouldn't approaches along those lines be more fruitful at this juncture? Share wisely, and take care.

The Cloud that Ate your Music

Excerpted from NY Times Report by Jon Pareles

Recent weeks have been filled with announcements about music taking residence in the cloud, the poetic name for online storage and software that promises to make lifetimes worth of songs available to anyone, anywhere, as long as those people and places have Internet connections. (Which of course is a long way from everyone, everywhere, but utopian tech dreams tend to ignore mere hardware.)

I can't wait. Ever since music began migrating online in the 1990s I have longed to make my record collection evaporate - simply to have available the one song I need at any moment, without having to store the rest.

But I have, as they say, special needs. In three decades as a critic I have amassed more vinyl, CDs, and digital files than I know what to do with. Periodic weeding can't keep up with the 20 to 30 discs that arrive in the daily mailbag; the overfull floor-to-ceiling shelves are already straining under thousands of CDs and LPs. Any affection I had for physical packaging, no matter how elegant or unique, has long since vanished; it's a reference library, not an art collection.

And it grows, and grows, because I never know what I'll need: the limited-edition 45, the home-burned debut CD. Yet I'd much rather have it in the cloud than in my apartment.

In recent weeks Amazon, Google, and Apple have announced services to store individual music collections in the cloud, ready for access online and for syncing to multiple devices.

Pandora Internet radio, which extrapolates individual playlists from users' likes and dislikes, raised hundreds of millions of dollars with a huge initial public offering (followed, however, by a steep drop in stock price; with operating costs and royalties to copyright owners, the company has never made a profit).

Dar.fm recently arrived as a free service that records radio stations - like TiVo for radio - and, as a bonus, conveniently indexes any music from those stations that has been electronically tagged. (Choose a congenial radio station and assemble a well-chosen collection.) Other companies - Rdio, MOG, Napster, Rhapsody - have been offering huge catalogs of music on demand (and transferable to portable devices) for some time as subscription services for a monthly fee, and Spotify, already online in Europe, is likely to join them in the United States soon.

That's not to mention the many unauthorized sources for music; virtually any album can be found for downloading with a simple search. Free or paid, the cloud is already active.

Dematerializing recorded music has consequences. On the positive side it hugely multiplies the potential audience, letting the music travel fast and far to listeners who would never have known it existed. It escalates music's portability, as it adds one more previously stand-alone function - like clocks, cameras, calendars, newspapers, video players and games - to the omnivorous smart-phone. That's instant gratification, but with a catch: Smart-phones aren't exactly renowned for sound quality. And the MP3 compression that has made music so portable has already robbed it of some fidelity even before it reaches my earphones.

The ritual of placing an LP on a turntable and cranking up a hi-fi home stereo disappeared - when? Perhaps with the cassette and the Walkman, the ancestor of the portable MP3 player. Now even the thought of having a separate music player is a little quaint. The smart-phone will do it all - just adequately, but convenience trumps quality. Baby boomers who remember the transistor radio, that formerly miniature marvel that now looks and feels like a brick compared to current MP3 players, can experience again the sound of an inadequate speaker squeezing out a beloved song.

Please click here for the rest of this report.

Amazon CTO: Cloud Computing Is Defined by its Benefits

Excerpted from ZDNet Report by Rachel King

There's a lot of talk that cloud computing is the next era of information technology (IT), but Amazon's CTO Werner Vogels argues that the cloud will only be successful depending on the benefits it offers.

Speaking at the State of the Cloud address at GigaOM's Structure conference in San Francisco, CA on Monday, Vogels argued that "the cloud has nothing to do with technology," and that in essence, "the cloud is defined by all its benefits."

Although many benefits are obvious to any average computer owner (i.e. being able to access documents from anywhere, etc.), we all know that cloud computing isn't perfect just yet and likely won't be for a long time. Just look at Amazon and Google's outages back in May.

If businesses are going to put their data and apps on the Web, they can't afford downtime. According to Vogels, there are several key points that cloud computing needs to accomplish now: Must lower costs; Eliminate capital investments and constraints; Reduce operational costs and time-to-market speeds; Remove the "heavy lifting" in moving data, apps, etc.;

Increase agility; and Leverage scalability, reliability and security.

These steps, Vogels proposed, should also lead the way to establishing "21st century" architectures that will allow developers to build higher-quality, more sophisticated applications for enterprises.

Many execs at Structure asserted that we are on the path to where enterprises are moving more and more of their businesses to the cloud.

Speaking specifically about Amazon Web Services (AWS), Vogels noted that AWS adds "the equivalent server capacity to power Amazon when it was a global $2.76 billion enterprise (circa 2006)" each day. AWS has also expanded to five regions worldwide, with a new base in Tokyo that was highlighted as businesses in Japan are more concerned about building "survival" apps following the earthquake and tsunami in March.

Additionally, Amazon is focused on building multiple availability zones on a global scale for backup purposes. Vogels offered the following (rather extreme) example): U.S. customers are normally served out of AWS's US region, and that data is backed up in the AWS European region. If the East Coast of the United States were to ever disappear off the map, their customers could still be served out of the EU region.

In comparison to corporations such as Amazon and even new, smaller businesses that are building their clouds from the ground up, Vogels noted that most enterprises are buying their way into the cloud with software help from mostly Microsoft, Oracle, and SAP.

Gaurav Dhillon, CEO of Snaplogic, said during the keynote that we're "seeing smart companies move their business tasks onto the cloud," and that these businesses want a "collection of services - not a stack."

Even going so far as to label the shift to cloud computing as a "phenomenal revolution," Dhillon explained that the cloud needs to provide an "allocation of services that comes together to solve overall business problems."

BitTorrent Launches uTorrent 3.0

BitTorrent, a leading innovator creating advanced technologies to efficiently move large files across the Internet, today launched uTorrent 3.0, the latest version of the popular software client that makes it easy for users to find, get and play massive files over the Internet.

In addition to uTorrent's core downloading capabilities, the new software (in beta since April) reveals a bevy of new features. Streaming, also known as progressive downloading, enables people to preview a file long before it's fully downloaded. 

Remote access empowers people to access their uTorrent client via a web interface or from uTorrent's Android app. Ratings and Comments aggregate the collective wisdom of the community to ensure the quality of torrent downloads. And a new drag-and-drop sending box makes it easy to share personal content, (e.g., large smart-phone videos and hi-res photos, directly with friends or social networks).

The company also released a beta of a new app called uChat (blog). It enables users of both uTorrent 3.0 and BitTorrent Chrysalis clients to easily communicate with other people from within the software, all leveraging a patent-pending distributed architecture. 

uChat is ideal for new users looking for help on how to use the software, for enthusiasts to share advanced tips with one another, for community tech support, and for users to recommend/discuss independent artists found in the App Studio. Also, uChat may pose an interesting marketing/social engagement opportunity for independent artists and creators to directly communicate with their fans.

"uTorrent's popularity lies in its simplicity and power. As a result, we're very selective in the features and apps we add, focusing on maintaining the lightness and speed our community expects," said Jordy Berson, uTorrent's Director of Product Management at BitTorrent. 

"As more artists embrace BitTorrent technology as a way to distribute large media files to a broad audience, and as personal content file sizes explode, we're evolving uTorrent to solve modern challenges and enable new use cases to thrive."

Here's a summary of what's new in uTorrent 3.0:

Streaming: Watch videos within seconds with progressive downloading - no need to wait for the entire file to download. This feature is especially useful for previewing a file before committing to the full download.

uTorrent Remote: Start, stop, and monitor torrent downloads on the go. Access the uTorrent client from any web browser. Visit https://remote.utorrent.com/ to sign-up or download the beta of the Android app.

Ratings and Comments: Ratings enables the collective wisdom of the community to ensure the quality and security of downloaded torrents. Join in and contribute by simply clicking on the ratings or comment buttons in the torrent manager.

Drag-and-Drop Sending: Easily send massive personal files - e.g., home movies, smart-phone videos, and hi-res photos - directly from uTorrent. Select a file on your computer, drag it into the uTorrent "Drop files to send" box and uTorrent will create a web link. Send the link via e-mail, social media post, or similar to share your content.

Simplified UI: Minimize parts of the uTorrent interface with a click. Perfect for anybody who wants a minimal interface, this feature cuts out distractions and focuses on the business of finding and playing content.

Portable Mode: Run the uTorrent client directly from a USB key and take it anywhere.

Stability: Under-the-hood improvements including a focus on stability as well as improved Web seeding to add speed and reliability to the process of finding the original source of a single-source file.

uChat app (beta): Chat with other uTorrent users around the world in real-time by installing this optional app.

uTorrent is a global phenomenon, with versions in 30 languages and over 100 million active monthly users. The software is downloaded on average more than 400,000 times every day. uTorrent 3.0 screenshots and additional details are available on the BitTorrent blog.

Usage-Based Billing Seen Being Introduced by US Wireline ISPs

Excerpted from Communications Daily Report by Jonathan Make

Charging wireline broadband subscribers for the amount of bandwidth they consume, instead of sending all who buy a certain product the same bill each month, will become increasingly prevalent among US ISPs in the coming years, executives predicted in interviews Monday.

They said few cable or phone companies in this country now charge broadband customers for how many megabytes they use, and that may take some time to change. US wireless carriers frequently charge customers based on usage, or impose bandwidth caps, as do wireline ISPs outside the US, executives said.

FTC Chairman Jon Leibowitz brought renewed attention to the issue when, speaking to the Cable Show last week, he called for more US wireline broadband providers to charge for consumption. He said he's puzzled that more ISPs don't charge based on consumption now, and doing so would give the companies money to help pay to expand deployment to those who can't now buy fast Internet service.

A CEO of a company that sells gear to ISPs so they can charge for usage, and executives representing small cable operators and companies whose products use broadband networks, agreed that consumers would accept consumption pricing.

Consumers probably will accept the pricing if it's rolled out over time, if they have adequate notice about it and if ISPs' policies are clear, easily accessible and don't favor content affiliated with the broadband provider over other traffic, the executives said. More US wireline ISPs haven't started usage-based pricing, or tested it in field trials, partly because of concern over irritating consumers, some of the executives said. There will be a certain amount of communication ISPs must do with consumers before widely introducing such pricing plans, they said.

At the show, sponsored by the NCTA, Leibowitz said adequate notice by ISPs of consumers is important. A spokesman for the association had no comment on usage-based pricing, nor did spokespeople for various cable operators.

Pricing based on consumption "seems to only make sense" from a business standpoint, said American Cable Association President Matt Polka, who heard Leibowitz's remarks at the show in Chicago. "Where else do we not buy things on consumption, other than broadband" where the use of the service takes up more capacity, he asked. Polka predicted that, "with time," more ACA members will "work toward that usage-based model."

Charging consumers that way in theory would give ISPs more broadband revenue, which they could use to invest in networks, Polka said. "There needs to be some transition" for consumers, and "I don't think any company that we work with would just flash-cut" to only a usage-based model, he said. "With proper notice, the implementation of usage-based billing may not be so disruptive or so much of a consumer concern as some might think."

"Paying for what you use is certainly something that resonates with consumers," said Marty Lafferty, CEO of the Distributed Computing Industry Association (DCIA). Member companies include Alcatel-Lucent, Amazon Web Services, AT&T, BitTorrent, Cisco, Comcast, Verizon, and VeriSign. "But the devil is always in the details: What is the pricing plan? Are the charges equitable?" and "Transparency - is it clear what you're getting and what you're paying for?"

A goal should be to keep separate the issues of what types of Internet content a broadband subscriber uses versus the amount of capacity used, Lafferty said. "People are ready to be charged for usage. They can adjust to it," with wireless carriers "already somewhat ahead of landline."

For ISPs, billing for usage isn't "about a short-term financial boost, it's about future-proofing the business model" for the long haul, said analyst Craig Moffett of Sanford Bernstein. "Customers have been trained to think of broadband as unlimited ever since the early days of AOL. Operators are going to have to offer some carrot as well as stick, with lower introductory rates to make it palatable."

There could be some initial confusion, Moffett said. Broadband usage caps, employed by some U.S. wireline telecom providers including cable operators, represent a step toward billing for consumption, said Lafferty, Polka and CEO Dave Caputo of Sandvine, which sells broadband monitoring gear to ISPs. "The leap from there to more of a usage-based platform is not that far," Polka said. "It's kind of a middle step among providers to true usage-based billing."

Cable operators, though not a majority, have caps on the amount of bandwidth a customer can use, before the customer either gets a warning that the limit has been exceeded, is charged a fee or must buy a tier with a higher cap, Polka and other executives said. Indicating the increasing use of charging for consumption, about half of the requests for information and requests for pricing that Sandvine sees are for some sort of related system, Caputo said.

Latin American wireless service providers increasingly charge subscribers for what type of applications they use, and in both the U.S. and internationally some carriers already use some form of usage-based billing, he said. Caps and tiers of service based on speed are "just another form of usage-based billing," Caputo said. The model makes sense because of the "massive investments that service providers have to make to improve their networks" and "the value that users get out of it," he said.

"Something's got to give," and when it does more ISPs will start introducing usage-based plans, Caputo predicted. "I think ultimately service providers feel that unless they handle the launch of it properly, that they might have an increase in churn." There will be, among wireline ISPs, "a progression of caps being imposed, and them going from soft caps to hard caps, to the place where it only captures the heaviest users" and so forth, he said. Caputo said that Time Warner Cable's tests of usage-based billing, which the company put on hold in 2009 after congressional and public outcry, were ahead of their time in some ways.

Verizon Wireless Confirms Tiered Data Plans Coming in July

Excerpted from All Things Digital Report by Ina Fried

Verizon Wireless, which has said it plans to move away from unlimited data plans for new subscribers, confirms that new tiered options will be the norm starting next month.

Verizon spokeswoman Brenda Raney told All Things Digital that the company is making changes to its data plans, including those for new smart-phone customers.

"We will move to a more usage based model in July," Raney said in an e-mail. "We'll share more later."

Enthusiast site Droid Life reported earlier on Monday that Verizon will offer plans ranging from $30 a month for 2GB of data to $80 a month for 10GB of data, with tethering to other devices available for an additional $20, including a further 2GB of data. The site says the new plans will go into effect July 7th.

Verizon has been offering unlimited data as a $30-per-month option for several months for 3G smart-phones, including the iPhone 4, but has always said that it was offering the plan for a limited time only.

Mobile data use has been growing at staggering rates in recent years, including an 89% jump in the past year. The increase has prompted carriers across the globe to look to alternatives to flat-rate unlimited plans.

"Unlimited billing on data is simply unsustainable for the industry," Verizon Vice President Nicola Palmer said at a conference earlier this year, a sentiment that has been echoed by nearly every wireless carrier. Sprint continues to offer unlimited data with many smart-phones, while AT&T moved away from unlimited plans some time ago. T-Mobile doesn't charge overages, but does throttle data rates significantly once users hit the data tier they have paid for.

Dutch Lawmakers Adopt Net Neutrality Law

Excerpted from NY Times Report by Kevin O'Brien

The Netherlands on Wednesday became the first country in Europe, and only the second in the world, to enshrine the concept of network neutrality into national law by banning its mobile telephone operators from blocking or charging consumers extra for using Internet-based communications services like Skype or WhatsApp, a free text service.

The measure, which was adopted with a broad majority in the lower house of the Dutch Parliament, the Tweede Kamer, will prevent KPN, the Dutch telecommunications market leader, and the Dutch units of Vodafone and T-Mobile, from blocking or charging for Internet services. Its sponsors said that the measure would pass a pro-forma review in the Dutch Senate without hitches.

Analysts said that the legal restrictions imposed in the Netherlands could shape Europe's broader, evolving debate over network neutrality, pushing more countries on the Continent to limit operators from acting as self-appointed toll collectors of the mobile Internet.

"I could also see some countries following the Dutch example," said Jacques de Greling, an analyst at Natixis, a French bank. "I believe there will be pressure from consumers to make it clear what they are buying, whether it is the full Internet or Internet-light."

Advocates hailed the move as a victory for consumers, while industry officials predicted that mobile broadband charges could rise in the Netherlands to compensate for the new restrictions.

"We support network neutrality," said Sandra de Jong, a spokeswoman for Consumentenbond, the largest Dutch consumer organization, based in The Hague. "We don't think operators should be able to restrict the Internet. That would be a bad precedent."

Luigi Gambardella, the Chairman of the Executive Board of the European Telecommunications Network Operators' Association, an industry group based in Brussels, warned that the Dutch legislation could deter operators from making needed investments in high-speed networks for fear of building expensive but unprofitable infrastructure.

"Any additional regulation should avoid deterring investment or innovative business models, leading to a more efficient use of the networks and to creating new business opportunities," Mr. Gambardella said. He said operators needed the ability to charge different tariffs for different levels of service, to recoup the costs of data-intensive applications.

Operators could still offer a range of mobile data tariffs with different download speeds and levels of service, but they would not be able to tie specific rates to the use of specific free Internet services.

Under the law, Dutch operators could be fined up to 10% of their annual sales for violations by the national telecommunications regulator, OPTA.

Patrick Nickolson, a spokesman for KPN, said that the measure could lead to higher broadband prices in the Netherlands because operators would be limited in their ability to structure differentiated data packages based on consumption.

"We regret that the Dutch Parliament didn't take more time to consider this," Mr. Nickolson said. "This will limit our ability to develop a new portfolio of tariffs and there is at least the risk of higher prices, because our options to differentiate will now be more limited."

Stephen Collins, the head of government and regulatory affairs in London for Skype, applauded the move by the Dutch lawmakers.

"Skype welcomes the sensible and fair approach the Dutch Parliament has adopted today," Mr. Collins said. "It sets an example for other countries in Europe and elsewhere to follow."

Please click here for the rest of this report.

comScore Launches New Measurement Service for Digital Devices

Excerpted from Broadcasting & Cable Report by George Winslow

The digital media and online measurement service comScore has launched Device Essentials, a new service that measures digital traffic for all digital devices, including computers, mobile phones, tablets, music players, e-readers, gaming devices, and other web-enabled devices. 

"Using comScore's proprietary global UDM data set, we have been able to develop an expansive profile of traffic patterns across device type, connection type and geography which delivers the critical insight needed by wireless carriers, OEMs, publishers and app developers to optimize their marketing strategies and customer experience," explained Serge Matta, comScore Executive Vice President of Telecom and Wireless. 

Early data from the new service provides some interesting insights into traffic by a number of devices around the world. The data showed the clear dominance of Apple's iPad in the table market, and the importance of the device for app developers, with the iPad accounting for 89% of the tablet traffic. 

In the US, the iPad at 21.8% of all non-computer traffic, and about 96.9% of total tablet traffic. In contrast, Android tablets accounted for only 0.6% of non-computer traffic. Android smart-phones, however, had a larger share, with 35.6% of non-computer traffic in the US, followed by iPhones, with a 23.5% share. 

Other smart-phones accounted for 6.7% and the iPad Touch had 7.8% of the non-computer traffic in the U.S. The Device Essentials service will initially report exclusively on page view activity. 

Data collected includes: share of smart-phone and feature phone usage by operating system; carrier share of smart-phone traffic; operating system share of carrier traffic; mobile HTML vs. standard HTML traffic by content by device type; WiFi versus non-WiFi traffic; traffic to various content categories by carrier, OS and device type; and other data.

Demystifying Cloud Computing for Consumers

Excerpted from USA Today Report by Scott Martin

Apple and Google are each rolling the dice on competing visions of cloud-based media, placing high-stakes bets on digital delivery of entertainment at a time when confusion runs high for such services.

The problem is, most of the people they want to market those services to only have a vague notion of what "the cloud" means.

"It's not just consumers and lay people who struggle with the cloud, it's experienced IT people who struggle with it," says Gartner Analyst David Smith. "The whole idea from a consumer perspective is it's supposed to be a magical cloud in the sky."

There's a huge digital disconnect. Only 40% of Americans understand such cloud services as Google Docs for documents, according to a report from market researcher Ipsos OTX MediaCT. Even fewer - 9% - actually use such services, according to the survey of 1,000 US respondents.

Stakes are high for technology companies to define the consumer cloud. The winner gets the keys to the digital media kingdom. Forrester Research forecasts the US market for personal cloud services will hit $12 billion and 196 million consumers by 2016.

For tech companies to reap benefits, they'll have to answer a nagging consumer question: What is the cloud?

In a way, the cloud is as old and simple as the Internet itself. The cloud is really just about accessing storage or software remotely from a computer via the Internet. It's a modern twist on an old concept of timesharing on giant mainframe computers dating back to the '60s, industry experts say.

Think of TurboTax online, the Internet-based tax preparation service from Intuit. Log on. Crunch numbers. File from TurboTax. That's a cloud service.

Or easier yet, consider uploading images on the photo-sharing sites from Google's Picasa or Yahoo's Flickr. "In some ways, consumers have been using the cloud for a long time. There's a million online photo galleries where you've been leveraging a Web-based cloud service," says IDC analyst Danielle Levitas.

Truth be told, the consumer cloud is simple. It's the many places we go on the Internet to access such things as Google's Gmail and Docs. That type of Web-based access is far different from using e-mail software such as Microsoft Outlook, installed on a PC, and Microsoft Word, which saves to a computer's hard drive.

The difference with Google is that you use its free online software and store your documents in the search giant's cloud. That's what keeps the brass at Microsoft up late at night, knowing that Google has given away online access to Docs, Calendar and Gmail - all software applications that mimic Microsoft's and is accessed over the Internet in the cloud.

Even Facebook is a cloud company. All those photos and comments that are uploaded via smart-phone or computer are nestled in its cloud, or armies of server storage. To the user, it's just a visit to a popular website. But behind the scenes, your Internet activities are shuttled to massive data centers. Nothing is stored or lives on a person's PC or smart-phone.

Think about those eggplants you recently harvested on FarmVille, the game from Zynga that operates on Facebook. Nothing about that game play lives on your PC. Your crops, your coins - it's all stored somewhere else: the cloud.

While consumers may unknowingly use a handful of cloud-based services, their concerns over privacy and security run high. The report from Ipsos said nearly 40% of Americans feel that saving to the cloud is not as secure or private as saving to a hard drive.

Apple, Google and Amazon have plenty of boilerplate security promises about their cloud services.

But that doesn't stop people from worrying about lost documents or privacy breaches that could nab credit card numbers on something as widely misunderstood as the cloud. Those concerns are only made worse by recent breaches of Amazon that left companies that rely on its cloud offline.

On the flipside, experts point out that there are risks to storing music, photos and other data on a laptop or PC. Devices are vulnerable to theft, loss or unrecoverable data damage.

"With the cloud, if your system does fry, there are copies out there," says Levitas.

The latest iterations of consumer cloud services promise to shuttle and store digital media for Apple, Google and Amazon. The cloud services come as use of smart-phones and tablet computers is on the rise and record amounts of photos and data are being shared across Facebook.

But these emerging services will have to find ways to embrace the cloud without ostracizing consumers. Thus far, there's a general consensus that marketers have done a poor job of explaining the cloud to consumers.

Hazy perceptions of cloud services may require these companies to hone their pitch to be understood.

Cloud marketers may need to either educate consumers or stop referring to the cloud altogether, the Ipsos report says. Apple chose to embrace the cloud in its recent iCloud debut, while Google downplayed the cloud in its launch.

Apple wants to "brand (the cloud) and own it for sure," says Ipsos analyst Todd Board.

Google, on the other hand, chose not to make cloud-specific references when it launched its cloud-based Chromebook tablet computers. The search giant instead focused on such language as "nothing but the Web" to describe the services.

Ipsos says that influential consumer cloud players - Apple, Google and Amazon - will have to stay focused on fixing user perceptions.

Here's a look at recently announced consumer cloud services from the three key companies:

Amazon was the first of the bunch to embrace the consumer cloud for digital media.

Its Cloud Drive is intended to help store music, videos, photos and documents at Amazon.com. The online retailer provides 5 gigabytes of free online storage. Those who purchase one album at Amazon's MP3 Store will be granted 20 gigabytes of storage for up to a year.

Customers can purchase up to 1,000 gigabytes of storage for $1,000 per year, capable of housing roughly 200,000 songs.

People can access content from the service across multiple gizmos.

It works on PCs, Android and BlackBerry devices, but not on Apple's iOS mobile operating system for iPods, iPads and iPhones.

Don't expect the service to sync content across all devices. "They're really not there yet," Levitas says.

What Amazon lacks in user-friendly synchronization, it makes up for in the sheer size of its cloud infrastructure, analysts say. But Amazon's cloud security has come under scrutiny of late.

Amazon is still recovering from the black eye of its cloud services crash.

The company's cloud-serving businesses went down in April, taking with it Foursquare, Quora and Reddit, among numerous other websites.

Worse, Amazon's EC2 cloud service has also been fingered for its use as a staging ground for the hack attacks that brought down Sony's PlayStation Network.

"There's a critical mass of that kind of concern for understandable reasons," Board says.

Google is taking a different tack. Last month, at its Google I/O developer conference, it announced its cloud services, touting Music Beta by Google and Movies on the Android Market. Google's Movies service allows Android users to rent movies, play them back on Android devices and keep copies for offline consumption.

Music Beta by Google allows people to copy digital music to the cloud, stream tunes to Android devices, and keep some songs locally for playback offline.

Google also bolstered its cloud-based office software presence, detailing Chromebooks. Think of a Chromebook as a dummy terminal laptop. The laptop isn't intended for local storage of documents; rather, it accesses software and stores it on the cloud. For $20 a month, students can use a Chromebook that will have tech support and Google's online office productivity software among online applications. The service runs $28 per month for businesses. The notebooks are Wi-Fi ready, but 3G plans cost extra.

"For the foreseeable future, it's not a good product for the average consumer," says Levitas.

Google's Web-based laptop will likely concern consumers because it lacks internal storage and assumes that everyone has access to Wi-Fi at all times. Also, it gets pricey to add on a $30 per month wireless plan for those who want to be always connected and assured about storage concerns.

Still, Google was brave to "put a flag in the sand" with Chromebooks, Board says.

Of the three, industry experts say, Apple is poised to offer the best consumer services across devices.

Apple's iCloud is intended to house media and pipe it across devices wirelessly. The service will update applications running on Macs, PCs, iPads, iPhones and iPod touch devices. ICloud is set to start with updates to the iOS 5 mobile operating system in the fall.

Among other features, iCloud's Photo Stream will automatically upload to the cloud any photos taken on an Apple device and wirelessly push them to all of one's devices and computers. The service will put to work Apple's new $500 million data center. Apple's iCloud should be self-explanatory to use and automatic in sending and retrieving from the cloud.

Industry experts say iCloud will simplify management of music, videos and photos across Apple devices.

"ICloud is an enhancement that builds on top of what Apple is already doing, bringing together these disparate devices," says Levitas.

Apple wants to take the pain out of manually moving photos, videos and music among devices. It's "customer lock-in" for Apple, she says.

ICloud also makes a move into Google's online office sandbox. Apple's Pages (a Docs rival), Numbers (for spreadsheets) and Keynote apps will automatically push out changes made on one device to all devices. People will get 5 gigabytes of storage for documents, e-mail and backup.

Forrester noted in a report that Apple's iCloud "takes the lead" in personal cloud services.

Coming Events of Interest

TransmitCHINA Talks - September 14th-16th at the Great Wall of China. International leaders, thinkers, innovators, and creators will have an exclusive opportunity to hear a cross-section of preeminent thought leaders from some of the world's most innovative organizations in the digital and creative content ecosystem.

NY Games Conference - September 21st-22nd in New York, NY. The most influential decision-makers in the digital media industry gather at this event, now in its third year, to network, do deals, and share ideas about the future of games and connected entertainment. Lively debate on timely cutting-edge business topics.

Digital Music Forum West - October 5th-6th in Los Angeles. CA. Top music, technology, and policy leaders come together for high-level discussions and debate, intimate meetings, and unrivaled networking about the future of digital music. Digital Music Forum is known worldwide.

Digital Hollywood Fall - October 17th-20th in Marina del Rey, CA. Digital Hollywood (DH), the premier entertainment and technology conference in the country, once again welcomes the Variety Summit, which has been co-located with its past three DH events.

Future of Film Summit - November 7th-8th in Los Angeles, CA. An exclusive group of industry thought-leaders discuss the current state of the industry, and how film and transmedia deals will be struck in the coming years. This is a unique opportunity for creatives, producers, buyers, and film financiers.

Future of Television - November 17th-18th in New York, NY. Top television and digital media industry executives discuss the increasing importance digital media for the future of the television industry. Topics include viewer trends; programming for non-traditional platforms including online video, VOD, HD, IPTV, broadband and mobile.

Copyright 2008 Distributed Computing Industry Association
This page last updated July 1, 2011
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