The Internet is in for interesting times. Previously, I wrote about the engineering issues and about the policy issues facing us over the next five years. But there is at least one large issue still lurking. Most of you will not be surprised to learn that almost all of these issues are outgrowths of a single factor: money. The core of the Internet still doesn't have a sustainable business model.
Many people are getting rich on the Internet, and almost none of them are spending money to keep the interconnection infrastructure (the "Inter" in "Internet") growing and expanding. Look at it from a massively oversimplified perspective: Google make their money from the advertising they sell to search audiences. Comcast make their money by offering TV and Internet access on their local cable infrastructure. Amazon make money selling books and other stuff (including servers and storage space). Most datacenter companies make their money selling space and power inside of their buildings. Spammers make money filling up your inbox with useless crap. Organized crime makes money by launching attacks against profitable companies if they don't pay extortion. DNS squatters make money registering thousands (or millions) of domain names and sitting on them until someone else is willing to pay. And almost none of this helps the core of the Internet.
Look to the wholesale carriers if you want to see an income statement wasteland. Level 3 lost $1.1b last year. They lost $120m in the most recent quarter alone. Cogent is thrilled because they reported a tiny, tiny positive net income last quarter on top of a yearly loss of $30m in 2007. Global crossing lost $300m in 2007 and $88m in the last quarter they're reporting, which doesn't include much of the recent downturn. Other wholesale networks are in the same boat. Dan Golding suggested that it's more important to look at net cash flows rather tha income, but the result is pretty much the same: almost no one is making any money. The only wholesalers who do make money make it on other service offerings: wireless service, metro Ethernet services, VPNs, local phone service, video services and so on. Are there sustainable Internet backbone business models? Does anyone have one?