Over a year ago, we linked to an article entitled "Unleashing the 'Exaflood'" by Bret Swanson and George Gilder, which discussed the ramifications of the probability that internet traffic will likely surge one hundred fold by 2015.
According to data presented in that article, the volume of data sent over the Internet in the year 2006 amounted to about 10 exabytes of data. A single exabyte is 1 x 10^18 bytes, or the amount of data present in the entire Library of Congress multiplied 50,000 times (a single 400-page book amounts to about a million bytes of data, or a megabyte). By 2015, the data volume is predicted to reach 1,000 exabytes.
The "pipes" that handle the traffic of the internet are simply not big enough at present to handle that enormous volume.
Now, signs of the strain are starting to become evident -- for example, in the recent hullabaloo over the decision to deny access to Google Voice over the iPhone. Google Voice is an application in which voice data** is routed through the internet, similar to other voice-over-IP services such as eBay's Skype, with a variety of distinguishing features including the ability to initiate and receive calls from regular landline telephones and mobile phones, rather than from computers or special computer devices*.
Recently, AT&T and Apple denied iPhone users the ability to access Google Voice from Apple iPhones and iPod Touch devices, fueling speculation that the restriction was enacted because AT&T is having trouble handling the enormous bandwidth strain created by iPhone users*.
That may or may not be the actual explanation. However, AT&T and Apple also recently limited iPhone users' access to SlingPlayer Mobile, a service from Sling Media which enables users to consume video on their mobile devices, suggesting that bandwidth usage by iPhone owners may indeed pose a problem for AT&T's "pipes." We interpret these developments as validation of some of the themes we have been following now for many years.
The implications of the enormous increase in internet volume are critical for investors to understand. Currently, most voice data is not sent over the internet -- if all voice data today were sent over the internet, it would amount to a volume of about 30 exabytes per year all by itself. Video data, which is much more bandwidth intensive, is also flooding the internet, and promises to create massive changes in the way we consume visual entertainment.
The demand for such services -- not only by consumers but also by businesses -- is going to create a "Bandwidth Revolution," as we argued in a previous post called "The Unstoppable Wave." That demand will necessitate an enormous expansion of the existing network infrastructure -- the "pipes" that will route this greatly expanded volume of data traffic. In spite of this, much of the discussion you hear from financial channels about "technology" is still focused on makers of PCs or on technology names that were in focus in the 1990s.
Investors who understand the classic growth stock philosophy of investing that we have articulated in this blog will understand the significance of these developments.
* The principals of Taylor Frigon Capital Management do not own securities issued by Google (GOOG), Apple (AAPL), AT&T (T), or eBay (EBAY).
** Special technical note added 07/30/2009: Some readers have expressed the view that Google Voice is not actually a VoIP service. They are correct that there are some important differences between Google Voice and traditional VoIP services. We in fact noted in our post that it has "a variety of distinguishing features" from other VoIP services. However, Google Voice does use voice-over-IP technology. A user's call goes to a carrier with which Google has an agreement, and at that point the voice call is transferred to data packets, which are then routed using Internet Protocols (IP). Thus, it is technically correct to describe Google Voice as a service which routes voice traffic over IP. The larger point is that it adds to the volume of data traversing through the "pipes" of the network infrastructure (immaterial of AT&T's and Apple's actual reasons for dropping Google Voice, which may have had to do with any number of business-oriented decisions other than pure bandwidth, since Google Voice calls actually come into an iPhone the same way that any other call would, and use minutes purchased by the user just the same as any other phone call). The significance of the projected massive increase in this traffic volume is the important point for investors to understand.
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For later posts on the same subject, see also:
- "Another wake-up call" 11/29/2010.
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