You probably by now all know to whom I was referring to in my last post, when I was mentioning rumors of video optimization vendors getting closer to policy vendors. Allot announced this morning the acquisition of Ortiva Wireless for an undisclosed amount.
This is the 4th consolidation in this space in 24months, after Ripcode was acquired by RGBNetworks, Dilithium's assets were sold to OnMobile in 2010 and Openwave products division was acquired by Marlin Equity partners earlier this year. Additionally, in related spaces, Avaya acquired Radvision and RealNetworks licensed its codec to Intel in 2012.
I had first heard that Ortiva was in advanced discussions with Allot on March 31st. At that point, Ortiva having allegedly lost future business with Sprint to Bytemobile was in a dire situation, as far as future revenue prospects where considered. Furthermore, one of its main investors, Intel does not appear on the last two financing bridges filed with the SEC. Allot, who had been rumored to have looked at many vendors in the space over the last 18 months, was the number one contender for a possible acquisition. Neither company wanted to offer comments at that stage, even when last week, the rumor became public in Israel and was commented on Azi Ronen's blog here.
Beyond the purely opportunistic approach of this acquisition, it makes a lot of sense for Allot to have tried and integrate video optimization functions in its portfolio. Bytemobile has strong announced ties with Openet and last week, at the Policy control and real time charging conference 2012, the core of many discussions revolved around how to monetize the tide of OTT video traffic.
I was appalled to hear that, when asked about the best way to price for video, a panel composed of Reliance India, Vodafone Spain and Telefonica Czech, was mostly concerned about congestion and looking at pricing based on time of day. This is a defensive, cost-containment strategy that is sure to backfire. Many vendors who have been selling cost reduction as the main rationale for video optimization have backpedaled in the last few months. As it happens, many operators found out that in peak periods, managing aggressively the size of the feeds to reduce costs is not working. They see that a reduction in 20 to 30% of the size of the individual feeds does not mean less cost, but 20 to 30% more users accessing the same capacity at the same time. Which leads in many cases to no additional revenue since they have not found a way to monetize OTT traffic and no cost reduction, since the network is still not able to meet the demand.
It is of course, one of many possibilities, but what strikes me, is that the industry has not yet agreed on what is the best way to measure video. Capacity (Megabytes), definition (HD or standard), duration, recentness, rights value or speed (Megabit per second) are some of the metrics that can be used for video charging, but in absence of a single accepted metric throughout the industry, many operators are hitting a wall. How is the industry supposed to monetize a traffic that it is not able to measure properly ? How can prices be shared and accepted by all the actors of the value chain if they measure the value of a video differently?
Costs for content owners and aggregators are measured in rights, geographies, storage, version control... Costs for CDNs are measured in geographies, point of presence, capacity... Costs for mobile carriers are measured in capacity, speed, duration, time of day, geography...
This is a conundrum this industry will need to solve. If the mobile network operators want to "monetize" OTT video traffic, they first need to understand what measures can be used across other mobile networks horizontally and vertically with the other players of the value chain. Only then, an intelligent discussion on value and price can be derived. In the meantime, OTT vendors will continue selling (and in most cases giving) video content on mobile networks, increasing costs with no means for a viable business model.
The video optimization market is still young, but with over 80 mobile networks deployed globally, I am officially transitioning it from emerging to growth phase in the technology life cycle matrix.
Mobile world congress brought many news in that segment, from new entrants, to networks announcements, technology launches and new partnerships. I think one of the most interesting trend is in the policy and charging management for video.
Operators understand that charging models based on pure data consumption are doomed to be hard to understand for users and to be potentially either extremely inefficient or expensive. In a world where a new iPad can consume a subscriber's data plan in a matter of hours, while the same subscriber could be watching 4 to 8 times the same amount of video on a different device, the one-size-fits-all data plan is a dangerous proposition.
While the tool set to address the issue is essentially in place, with intelligent GGSNs, EPCs, DPIs, PCRFs and video delivery and optimization engine, this collection of devices were mostly managing their portion of traffic in a very disorganized fashion. Access control at the radio and transport layer segregated from protocol and application, accounting separated from authorization and charging...
Policy control is the technology designed to unify them and since this market's inception, has been doing a good job of coordinating access control, accounting, charging, rating and permissions management for voice and data.
What about video?
The diameter Gx interface is extensible, as a semantics to convey traffic observations and decisions between one or several policy decision points and policy enforcement points. The standards allows for complex iterative challenges between end points to ascertain a session's user, its permissions and balance as he uses cellular services.
Video was not a dominant part of the traffic when the policy frameworks were put in place, and not surprisingly, the first generation PCRFs and video optimization deployments were completely independent. Rules had to be provisioned and maintained in separate systems, because the PCRF was not video aware and the video optimization platforms were not policy aware.
This led to many issues, ranging from poor experience (DPI instructed to throttle traffic below the encoding rate of a video), bill shock (ill-informed users blow past their data allowance) to revenue leakage (poorly designed charging models not able to segregate the different HTTP traffic).
The next generation networks see a much tighter integration between policy decision and policy enforcement for the delivery of video in mobile networks. Many vendors in both segments collaborate and have moved past the pure interoperability testing to deployments in commercial networks. Unfortunately, we have not seen many proof points of these integration yet. Mostly, it is due to the fact that this is an emerging area. Operators are still trying to find the right recipe for video charging. Standards do not offer guidance for specific video-related policies. Vendors have to rely on two-ways (proprietary?) implementations.
Lately, we have seen the leaders in policy management and video optimization collaborate much closer to offer solutions in this space. In some cases, as the result of being deployed in the same networks and being "forced" to integrate gracefully, in many cases, because the market enters a new stage of maturation. As you well know, I have been advocating a closer collaboration between DPI, policy management and video optimization for a while (here, here and here for instance). I think these are signs of market maturation that will accelerate concentration in that space. There are more and more rumors of video optimization vendors getting closer to mature policy vendors. It is a logical conclusion for operators to get a better integrated traffic management and charging management ecosystem centered around video going forward. I am looking forward to discussing these topics and more at Policy Control 2012 in Amsterdam, April 24-25.
