The evolving Internet value chain

The Internet value chain combines various previously unrelated industries together on one platform, not just within a country but globally. To give just a few examples:

• Telephony started as voice calls, were enriched with texting, and now may be video calls over the public Internet.
• Shopping started at farm gates, moved to local markets, and now to online marketplaces.
• Shows and plays started on stages, moved to television and DVDs, and are now content on demand.
• Bookkeeping is increasingly automated via mobile apps and online services.

Traditionally, TV and movie content had their own delivery channel. Today, the Internet is the unifying content delivery platform. The broadcasting business model remains the same, based on subscriptions or advertisements, while the mode of delivery is increasingly shifting to the IP platform. This has advantages for consumers who are now able to control what, when, and where to watch, instead of having to plan their entertainment time around the programming schedule of broadcasters.

Kearney^[1] compiled an Internet value chain analysis in 2010 and the study was updated in 2016 for the GSMA (GSMA 2016). The study distinguished five segments of the Internet value chain. The Internet value chain in the figure below has been extended to include the demand for digital services and user-generated content. Now the Internet value chain is seen not as a traditional set of sequential components but rather as a self-reinforcing circle.

Internet Value Circle

These six components are:

• Content rights: Includes premium rights with content that is produced professionally. It also includes user-generated content which is made available via social media platforms, such as YouTube, Twitter, Instagram, Vimeo, and Facebook, amongst others.
• Online services: Covers a wide range of services provided over the Internet, including e-commerce; entertainment (gaming, gambling, video, music, publishing); search and reference services (Wikipedia, Google, Yahoo); social media and cloud services.
• Enabling technologies: Consists of essential services for the smooth running of the Internet, such as the design and hosting of websites; payment platforms (credit cards, PayPal, MPesa), platforms enabling machine-to-machine (M2M) based services; advertisement platforms (ad exchanges and brokers).
• Connectivity: The connectivity segment can be distinguished between first, middle, last, and invisible miles. The first mile refers to international data connectivity, i.e. how a country connects to the rest of the world via the Internet. The middle mile encapsulates national data connectivity including fibre networks and data centres. The last mile represents wireless or wired end-user access. The invisible mile captures regulatory and legislative factors that impact the ICT sector.
• User interface: Devices used by the end user to access the Internet include smart and feature phones; PCs, laptops, and tablets; as well as digital TVs or digital set-top boxes. Operating software (OS) for these devices also falls into this segment as well as applications that run on top of the OS.
• Use of digital services: The demand for digital services depends, apart from disposable income and availability of connectivity, on skills of users, the desirability of content, and functionality.

In the past, the data flow was from content owners to the end user via the public Internet. Today, users create content through social media applications and other ways of uploading data, thus contributing to the content that is being consumed.

Cloud computing, big data, blockchain, and AI enable value creation from the self-reinforcing Internet value circle. These technologies can profile users in terms of the content they consume and the content they produce, allowing online services to be individually targeted. The ability to provide targeted content, services, and advertising provides opportunities for a customized usage experience and new services and new business models.

Endnotes

1. Internet Value Chain Economics, available here. ↑

References

GSMA. 2016. The Internet Value Chain: A Study on the Economics of the Internet. London: GSMA. https://www.gsma.com/publicpolicy/wp-content/uploads/2016/09/GSMA2016_Report_TheInternetValueChain.pdf.