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Does consolidation help or hinder the internet?

Consolidation in any sphere of business is not a new phenomenon. In many cases, it’s a natural evolution as industries and markets seize the opportunity to reduce competition, costs and make the most of economies of scale – and this is just as true online as any other market. However, as we explored in our 2019 Global Internet Report, consolidation in the Internet economy is a question of how new patterns of consolidating services, operations and functions impact the Internet and its use.  These patterns produce a complex set of benefits along with concerns that we believe deserve closer attention.

Today, a handful of actors play a significant role in our increasingly-connected societies. From the dominance of Facebook in social messaging, Google in search, and Amazon in online shopping, these companies are expanding beyond their initial service offerings. The largest Internet platforms are today dominating large parts of the Web and have become central to many of aspects of our daily lives.

Yet, the Internet economy is bigger than what we see on the Web. It’s not only about the services that rely on the Internet, but also comprises the businesses that support its very existence. To understand how a consolidating Internet economy may shape the Internet’s future is to recognise that this trend goes beyond products and services visible to the consumer. It also encompasses the plethora of businesses (such as DNS services, cloud hosting and transit networks) that enable the very networks upon which they depend.

Total service environments

What we see today is a trend towards a ‘total service environment’, where consumers’ communications, entertainment and productivity tools are all supplied by one provider, or party of providers. For example, it’s entirely possible that a user could spend a long time on the Internet and remain within Google’s services, using Gmail, watching YouTube or YouTube Red, collaborating with Google Documents and using an Android phone throughout the day. Similarly, Amazon has progressed from the online bookstore it once was to offering a broad set of streaming services and consumer electronics like Amazon Echo and the smart assistant Alexa.

This trend towards a “total service environment” is equally visible from the perspective of small and medium businesses. Today, the market for cloud computing is concentrated around a handful of large companies, notably Amazon Web Services, Microsoft, Google, IBM and Alibaba, which often offer a full suite of services ranging from content delivery networks to database management and AI capabilities. Taken together, they offer a compelling business case for smaller businesses or innovators that seek a high quality of service based on a global infrastructure of data centres. This type of infrastructure was not available even to the largest companies in the world just 5 years ago.

From a user’s perspective this means that only a handful of large companies are part of their online experience, whether they know it or not. Due to trends of consolidation in the cloud market or content delivery networks, it’s likely that your computer will predominantly communicate with servers owned by just a handful of large companies.

Scaling new platforms

Total Service Environments may sound restrictive, with users and businesses operating in a domain under the control of one entity --but they also provide platforms to users, businesses and entrepreneurs alike on an unprecedented scale. For example, authors self-publishing on Amazon’s Kindle Direct Publishing can gain access to an audience of millions, at virtually no cost. Similarly new innovators can build new applications that integrate services like Google Maps and functionalities like AI, drawing from some of the most advanced technologies of today.

While this consolidation of previously disperse functionalities and services onto large platforms brings many benefits, it’s also a trend that raises concerns. These include the presence of software monocultures, whereby the impact of security vulnerabilities are amplified throughout the system, and service failures have cascading effects across other businesses and services that depend on a particular functionality. In this case, consolidation raises issues of resilience as diversity decreases.

The key concern here is not that of vertical integrated providers, which is expected in layered technologies, rather the concentration around one or a few proprietary services raises questions of substitutability.

Changing topology

The trends of consolidation in the provisioning of service infrastructure like cloud hosting and content delivery also means that users can reach content in a much faster fashion, with more locally stored content and less international transit of traffic. In providing global services for billions of people, many of the largest companies have large datacentres across the world that exchange enormous volumes of traffic. As a result, many of the largest content and cloud providers are investing in their own infrastructure for international connectivity rather than purchasing transit from other network operators. In fact, estimates show that large providers like Google, Amazon, Microsoft and Facebook are on a path to overtake traditional Internet backbone providers when it comes to investments in infrastructure like submarine cables.

These trends of vertical integration, where the largest companies consolidate previously separate market activities under one globally connected service, are accelerating industry consolidation in the transit market. As transit prices continues to drop it creates a further need for scale among the largest network operators, including through mergers and acquisitions. From the perspective of the Internet as a network of networks this raises a whole set of questions around a changing network topology. More importantly, it raises the question as to how the open networking paradigm that is the Internet will evolve in an environment where investments in infrastructure is moving towards specialised services – and possibly away from general purpose connectivity.

In one way, consolidation could be argued to be simply another phase of the Internet’s long history and development. However, today we are seeing it on a relatively unprecedented scale, largely due to the size, innovation and sheer commercial savvy displayed by a number of the organisations in the market. It can be an extremely positive force but can also present a large number of challenges – the most important thing is to be educated about the potential knock-on effects, ensuring that decisions are made with all the pertinent knowledge available. 

Carl Gahnberg, Policy Advisor, the Internet Society (ISOC)Image Credit: Mediacom

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