The likes of Meta (FKA Facebook), Google, Netflix and other hyperscale online service providers are becoming bandits of the content they stream over the internet and making huge profits at the expense of the telcos, who are spending huge sums on providing and improving the infrastructure that enables so-called ‘over-the-top’ companies to participate and exploit the market in the first place, according to the 54-page Internet Value Chain Report 2022 recently released by the GSM Association (GSMA), the powerful trade body that represents and lobbies on behalf of many of the world’s mobile network operators.
It is not a new thesis, but the 2022 report reiterates that the current unbalanced state of affairs between operators and online service providers, if not addressed, could soon affect the global growth of the Internet. If that eventuality were to happen, it would be a massive global problem and the GSMA is once again arguing that while the Internet value chain is currently growing at a dizzying pace, the benefits of that growth accrue primarily within services. online. sector, while those who provide the technologies that underpin the delivery of those services are not getting the returns and profits at the rate they deserve.
In 2020, the global Internet had 4.6 billion users, equivalent to 59% of the planet’s population. While much of the world still lacks basic connectivity, let alone broadband, the Internet has quickly become the most important global economic system in history. In 2020, the revenue generated by the segments that make up the Internet value chain totaled US$6.7 trillion, more than double the US$3.3 trillion recorded in 2015.
The most pronounced growth during that five-year period was in content rights at 23 percent annually, from an admittedly low starting base. The next largest sector was online services, which grew 19 percent over the same period, and today the two sectors account for 57 percent of the entire value chain in terms of revenue. Meanwhile, the enabling technology segment grew 13 percent and the user interface and Internet access connectivity areas grew, respectively, 11 percent and 6 percent.
The massive increase in online services between 2015 and 2020 was due to several factors, most notably the millions of consumers adopting online entertainment, including streaming video and gaming. The growing popularity of social networking platforms and services and search applications also played a role, as did the popular ubiquity of gig economy services and applications.
When it comes to the enterprise market, the global shift from on-premises IT to cloud-based services was a game changer, while entertainment services had a major impact on content rights revenue. Gaming content had a similar effect.
Technologies designed to enable advanced services grew. These included the rise of hyperscale infrastructure services that allowed more and more services to migrate online. The growth of payment gateways to support the growing volume of Internet transactions is also having a profound effect.
Internet access connectivity revenue has increased 11% annually since 2015 as more devices and individuals have come online. However, as the GSMA report points out, all of that growth was “a substitution of offline or private network services (voice, MPLS and VPN services, etc.)”.
The report identifies three key trends driving changes in the value chain:
1) The largest players are aggressively expanding their presence by launching new online services and using the sheer scale of their presence and influence in existing customer bases to break into new segments as they integrate throughout the value chain, acquiring competition rights companies and enabling technologies and investing heavily in end-user devices.
2) Most online services are paid for rather than supported by advertising or sponsorship, and ad revenue growth is still focused on search and social media services and ad-supported video services.
3) The online trend continues unabated and has been reinforced by the digitization of government, municipality, and enterprise as the migration of siled, stand-alone, and on-premises IT stacks to the cloud and innovative applications such as software continues. a (SaaS) become more and more popular.