There’s no free lunch on the Internet

There’s no free lunch on the Internet. That’s the title of a research note that I wrote over a year ago, to explain the peering ecosystem to clients who wanted to understand how the money flows. What we’ve got today is the result of a free market. Precursor’s Scott Cleland thinks that’s unfair — he claims Google uses 21 times more bandwidth than it pays for. Now, massive methodological flaws in his “study” aside, his conclusions betray an utter lack of understanding of the commercial arrangements underlying today’s system of Internet traffic exchange in the United States.

Internet service providers (whether backbone providers or broadband providers) offer bandwidth at a particular price, or a settlement-free peering arrangement. Content providers negotiate for the lowest prices they can get. ISPs interconnect with each other for a fee, or settlement-free. And everyone’s trying to minimize their costs.

So, let’s say that you’re a big content provider (BCP). You, Mr. BCP, want to pay as little for bandwidth as possible. So if you’ve got enough clout, you can go to someone with broadband eyeballs, like Comcast, and say, “Please can I have free peering?” And Comcast will look at your traffic, and say to itself, “Hmm. If I don’t give you free peering, you’ll go buy bandwidth from someone like Level 3, and I will have to take your singing cow videos over my peer with them. That will increase my traffic there, which will have implications for my traffic ratios, which might mean that Level 3 would charge me for the traffic. It’s better for me to take your traffic directly (and get better performance for my end-users, too) than to congest my other peer.”

That example is a cartoonishly grotesque oversimplification, but you get the idea: Comcast is going to consider where your traffic is flowing and decide whether it’s in their commercial interest to give you settlement-free peering, charge you a low rate for bandwidth, or tell you that you have too little traffic and you can pay them more money or buy from someone else. They’re not carrying your traffic as some kind of act of charity on their part. Money is changing hands, or the parties involved agree that the arrangement is fairly reciprocal and therefore no money needs to change hands.

Cleland’s suggestion that Google is somehow being subsidized by end-users or by the ISPs is ludicrous. Google isn’t forcing anyone to peer with them, or holding a gun to anyone’s head to sell them cheap bandwidth. Providers are doing it because it’s a commercially reasonable thing to do. And users are paying for Internet access — and part of the value that they’re paying for is access to Google. The cost of accessing content is implicit in what users are paying.

Now, are users paying too little for what they get? Maybe. But nobody forced the ISPs to sell them broadband at low prices, either. Sure, the carriers and cable companies are in a price war — but this is capitalism. It’s a free market. A free market is not license to act stupidly and hope that there’s a bailout coming down the road. If you, a vendor, price a service below what it costs, expect to pay the piper eventually. Blaming content providers for not paying their “fair share” is nothing short of whining about a commercial situation that ISPs have gotten themselves into and continue to actively promote.

Google has posted a response to Cleland’s “research” that’s worth reading, as are the other commentaries it links to. I’ll likely be posting my own take on the methodological flaws and dubious facts, as well.

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Posted on December 5, 2008, in Industry and tagged , . Bookmark the permalink. 1 Comment.

  1. Thanks, I enjoyed reading your post. Keep up with the good work. I’ll definitely be back for more.

    Like

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