This report is a collaborative effort between. Cisco, the global leader in Internet architec- ture, and Global Business Network (GBN), the.
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TABLE OFCONTENTSForeword . 1Introduction . 2Five Premises for the Future .. 5Axes of Uncertainty . 9The Scenario Framework 13FLUID FRONTIERS . 15INSECURE GROWTH 19SHORT OF THE PROMISE 23BURSTING AT THE SEAMS .. 27Using the Scenarios and Exploring Their Implications 31Conclusion . 39Acknowledgments .. 40Appendix 1 41INTERVIEWS . 41Appendix 2 44AXES OF UNCERTAINTY AND DRIVERS OF CHANGE .. 44
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is report is a collaborativ ort between Cisco, the global leader in Internet architec- ture, and Global Business Network (GBN), the world’s foremost scenario consultancy. It is o ered as a contribution to ongoing discus- sions an orts to harness the huge potential of Internet and IP networks to drive economic and human development around the world. is is of particular relevance to emerging-market coun- tries where the relatively low level of Internet use today reveals a wide opportunity gap in terms of economic productivity and social inclusion. We hope that our discussion of key driving ecting the Inter- net’s evolution and the scenarios that we’ve developed to illustrate how these factors may unfold by 2025 will be a useful source of insight for even the casual reader. But we had two primary audiences in mind for this report. One is business and technology lead- ers who are actually constructing the Internet as vendors, suppliers, service providers, device manufacturers, and application developers. e other is a broader group of stakeholders, especially policymakers who are shaping the ect the Internet in order to best serve their constituents. e measure of a successful set of scenarios is twofold: by getting us to erent paths that the future may take, they help us to be better prepared for long-term contingencies; by identifying key indicators, and amplifying signals of change, they help us ensure that our decisions along the way ar exible enough to accommodate change. With this report, we have attempted to meet these objectives in ways that are far-sighted and provocative on the one hand, and practical and action-oriented on the other. We hope these scenarios will inspire broader conversations and wiser choices so that broad- band and the Internet realize their potential to enhance global prosperity and well-being. FOREWORD1THE EVOLVING INTERNETDRIVING FORCES, UNCERTAINTIES, AND FOUR SCENARIOS TO 2025
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It’s 2025. Imagine that the Internet has under- pinned a new wave of global prosperity. It is now as central to the lives and opportunities of peo- ple in the outskirts of Mexico City and rural Sri Lanka as it is to people in Tokyo, New York, and London. Myriad new applications cater to most of the world’s population and to businesses of all sizes and shapes. Or maybe not. Maybe the Internet has become a victim of its own success, with the explosion of Internet products and services now a source of frustra- tion as much as satisfaction and networks over- burdened and unreliable in many parts of the world. Or maybe the Internet has hit a wall, so plagued by hackers and cyber attacks that it’s given rise to a new digital divide between those with access to expensive security measures in gated Internet enclaves and those who tread warily across the free but dangerous Internet. Or maybe prolonged economic stagnation and protectionist policies have drastically dampened demand for new devices and eroded people’s willingness to pay for applications and services. All of these worlds are plausible. All of them could happen. Are you prepared? Today, in 2010, the Internet is already an integral part of existence in many parts of the world. It’s easy to forget the incomparably large strides that the Internet has made since th rst email mes- sages were sent over the ARPAnet in 1970, and the massive changes it has triggered in how we live and work. Yet despite its explosive growth, especially in the last 15 years, the Internet is still in its youth, maybe even its infancy: only one- third of the world’s population has ever ”surfed” online (almost 5 billion people haven’t) and fewer than on h of those who use the Internet do so regularly. Just as the architects of the ARPAnet never antici pated the Internet of today, it’s equally hard for us to predict the Internet’s evolution— its future and its impac at billions more people are poised to come online in the emerg- ing economies seems certain. Yet much remains uncertain: from who will have access, how, when, and at what price to the Internet’s role as an engine for innovation and the creation of commercial, social, and human value. As users, industry players, and policymakers, the inter- play of decisions that we make today and in the near future will determine the evolution of the Internet and the shape it takes by 2025, in both intended and unintended ways. Hence the need for scenarios—a set of diver- gent stories about the future—to help us explore and prepare for possible futures of the Internet. To make sure that our scenarios are both rele- vant and logically related, we’ve organized this inquiry around two related questions: INTRODUCTIONWhat forces will shape the Internet between now and 2025?How might the use of the Internet and IP networks (particularly with regard to emerging countries) evolve? 2THE EVOLVING INTERNETDRIVING FORCES, UNCERTAINTIES, AND FOUR SCENARIOS TO 2025
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For purposes of this report, we look at the Inter- net broadly, from both the mechanical and value creation perspectives. Technically, the Internet can be thought of as a mesh of digital impres- sions, storage system ber, radio frequencies, transmissions, switches, screens, and terminals. But it is the complex array of relationships across technologies, applications, players, and policies that nes the Internet as a creator of economic and social value. At its base are policies and standards that shape Internet build out, interoperability, and secu- rity e next tier, network infrastructure or backbone, comprises the cables, switches, rout- ers, and towers that are the essential transmis- sion grid for all Internet tra c. Next there are the connections—the on-ramps through which individual and enterprise users plug in—and the enabling technologies like individual PCs, PDAs, phones, and IP networks that allow users to tap the Net. Layered on top of that is con- tent: streaming media, data, peer-to-peer (P2P) communications, games, voice communica- tions using Internet protocol (VOIP), and text, including e-mail. Finally there is usage, the ever- changing ways in which both individuals and enterprises chose to consume Internet content. e four middle tiers of the stack (applications and content, enabling technologies, connections, and network infrastructure) generate about US$3 trillion in annual revenue, more than two- thirds of which comes from advanced markets today. is includes (under applications and content) the margin attributable to the Internet from “e-commerce,” the enormous and rapidly expanding volume of purchases and services delivered over the Internet, from book sales to tax preparatio e volume of e-commerce is estimated at US$8 trillion annually, but we estimate the margin attributable to the Internet as a retail channel to be roughly on the order of US$0.5 trillio erefore, the grand total for Internet-related revenue adds up to roughly US$3 trillion—and counting. In contrast to this transaction-based value, the Internet’s social value remains immeasurable. But we do know it is creating a whole new world of opportunity—transforming human interac- tions while at the same time challenging many existing social and political structures. Although this is not the primary focus of our report, it is an inevitable and powerful force for change. FRAMING THE$3 TRILLION INTERNETUseApplications and ContentEnablingTechnologies ConnectionsNetworkInfrastructurePolicies and Standards $0.7tr$0.6tr$1tr$0.7trINTRODUCTION3THE EVOLVING INTERNETDRIVING FORCES, UNCERTAINTIES, AND FOUR SCENARIOS TO 2025
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FIVE PREMISES FOR THE FUTUREThe future of the Internet will be driven, at least in part, by many dynamics that can already be seen today. Hence, we believe that there are features about its evolution that we can count on with confidence. Below, we offer five premises about the future of the Internet, drawn from our research, interviews, and analysis. These themes appear repeatedly in the scenarios, leading to quite different implications when combined with other possible developments that are more speculative in nature.BY 2025:Most growth in the Internet-related market will have occurred outside of today™s high income, or fiadvanced,fl economies.Global governance of the Internet will remain substantially unchanged.fiDigital nativesfl will relate to the Internet in markedly different ways than earlier generations.Today™s keyboard will not be the primary interface with the Internet. Consumers will pay for Internet connectivity in a much wider range of ways.Each premise is described in greater detail below. 1Growth in the global economy and middle class will occur primarily outside today™s fiadvanced marketfl countries. Transactions for Internet- related products and services will increasingly take place in countries that we now characterize as fiemerging.flA majo in global market structure will result from three factors that have compound- ing and accelerating ects. e rst will be economic growth: th erential between GDP growth in advanced and emerging countries overall will be cant and persistent—in excess of 3 percent per year. Second, the pattern of growth in many of these emerging countries will result in rapid expansion of their middle classes—both in numbers and in purchasing power. ird, Internet usage and, fast on its heels, broadband connections will grow quickly in emerging countries, but will reach a plateau soon in the advanced countries, characterized by slower growth and aging populations. e impact of these three factors is represented by a metric we call the “Internet economy,” which approximates purchasing power in the hands of Internet users. Advanced market countries accounted for about 85 percent of the Internet economy in 2005; their share is esti- mated to have fallen to 70 percent in 2010. Our premise is that emerging countries will account for more than half of the Internet economy by 2025, re ecting their extremely rapid economic 123455THE EVOLVING INTERNETDRIVING FORCES, UNCERTAINTIES, AND FOUR SCENARIOS TO 2025
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growth, compounded by the desire to “catch up” in Internet use. is will be true not just in places like China or Brazil, but in a wide range of countries small and large. Yet the drama in the composition of the Internet economy is just a quantitative proxy for an even greater qualitative impac is will be caused by the dynamics triggered as the poten- tial of networks to improve productivity reaches virgin enterprise territories and as consumers of content from everywhere are located every- where. Although Internet tra c will continue to be heavier in advanced markets with higher per capita levels of expenditure in and around the Internet, the dynamics and global composition of the market will be dramatically changed by emerging countries. While our scenarios incorporate variations on this premise, especially in terms of erential growth rates between advanced and emerg- ing economies, they all have in common a profound shi in the global geography of the Internet economy. 2Governance of the Internet will remain substantially the same. It will retain the loose structure that has characterized it all along, despite pressures for greater control that will arise from occasional Internet disruptions, including malicious ones.Willful disruption and illicit use of the Inter- net—electronic fraud, th , and deception— will be as common in the future as they have been in the recent past. Brown-outs and black- outs will happen as a result of sabotage, vandal- ism, terrorism—or system malfunction ese breakdowns will elicit sporadic and sometimes loud calls for enhanced international control of the Internet. ere will also be forceful arguments against any such attempts on the grounds that they are likely to do more harm than good. But the absence of any viable global governance formula or persuasive alternative in terms of institutional structure will keep the set of rules currently gov- erning the Internet fundamentally unchanged between now and 2025. e evolution of the Internet in the past 40 years has underscored the notion that it is in the net- work’s nature to evolve organically and co g- ure freely as opposed to being determined by strict, static design is will remain a powerful assertion going forward, leading governments to focus th orts on preventive measures a ect- ing the use of the Internet in their sovereign ter- ritories and possibly producing disparities not unlike those observ nancial regulation. e bodies that have so far been involved in proposing and promoting Internet standards will remain a feature of the landscape, but they will not acquire a more formal mandate than they have today. In large measure this premise re ects the lack of alternatives and the hurdles that would impede progress toward anything more binding on the international level. 3fiDigital nativesflŠwho have been raised on the Internet since the late 1990sŠwill relate to the Internet in markedly different ways than do most of today™s adults. Members of these web-savvy “Net generations” will tend to view the Internet as an extender of their own cognitive capabilities and as a portal to virtual experience. (Whether this also leads to cant in brain function, as some studies suggest, is beyond our purview here.) ey will interact with the Internet as part of the ambient environment in which they live; indeed, grnrt2rectteal nen ad, th e futu uts and b tive c errne NNeof lhis pthont vatedonernd ill , a re as d black- apabil liassageen(Wh ile our , espetthofnsonwpti of ecept have their own and a nddernsWhh ur scen ecialn agytuderis, he I on— wr own cog s a po of hhi narios y in vaal nshe roudter- will te n cognitive orta alils incor erms d ngwie.assgMemb nd to nitive capa ldorporat of d d mys oders o viewcapabilitie date var ren ern hatrke s athes the I bilities and riation ialtm3r99y dults web ntern s and as a ns on rolllyecwbiigedŠere-savv t as as a porta ne binmaehed ngntl rway “Ne n exportal dies niaykpethvesnttetht gen endehat rormlltprnte Šwetthdoratio ofave titatesati hcntemosns” o faInnmsuaowl lbe et ofbeeneapahthinv anuereurhved rdeyneandal function porad cedtitl ; ive; t anetour bra nbexperienc ion ic and ter tovirtualexpe eddeeart paurv fuinrience. (W ese d som tion to virtual experienc the ftw htionct e. (Whethe etime co virtual experience. (W re.) as nahether thi esrol al experience. (Whethe to a s meomr this also erience. (Whether this cstualso leads ce. (Whether this also cant s dies leads er this also leads in brai t, is inte nt e is also leads ain fun beyon act w viro o leads unction nd ou th th menn, as so r pur Inte in wsome viewnet aich par ey l here of th e; in)eed6THE EVOLVING INTERNETDRIVING FORCES, UNCERTAINTIES, AND FOUR SCENARIOS TO 2025
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FIVE PREMISES FOR THE FUTUREthe Internet is likely to become much more deeply embedded, even invisible. e notion of “connecting” could disappear almost entirely. ese digital natives will be less inclined to dis- tinguish between suggestions made to them vir- tually by Internet peers and suggestions made by peers with whom they have had face-to-face contac ey will also be more likely to respond comfortably when the Internet asks them unso- licited questions or invades their privacy. But most importantly, digital natives will think about the Internet as a general service platform, like conversation or thinking—part of what makes us who we are and something we just do. As they reach the labor force, these digital natives will accelerate the trend among enter- prises of all sizes toward relying on networks as the multi-dimensional platform for business. One question that remains in the scenarios is the extent to which there will be cant lags in the emergence of these digital natives across the world: how large a minority of young people raised alongside the Internet will be required to trigger a Net generation ect, especially in countries with lagging adoption rat e sequencing of Net generations emerging in countries that today have low Internet penetra- tion will have cant impact; the relative size of those in the overall population will also matter and compound th ect of demographic erences across the world. 4Today™s QWERTY keyboardŠand the language and interface hurdles it representsŠwill no longer be the primary means of relating to the Internet as new technologies transform that relationship. e QWERTY keyboard is a relic of another era. Its logic (minimizing jams in the hammer arms of mechanical typewriters for English language typists) became obsolete long before the start of the twen rst century. Yet English-language computer keyboards still feature QWERTY and nothing else. e keyboard, however, is about to be over- thrown by a combination of voice recognition, bio-sensing, gestural interfaces, touch-screen versatility, and other technologies that will allow us to input data and commands without keys. e keyboard will fade away gradually as the people who learned to type on it age. One major consequence of this change will be an explosion in the number of people who can use the Internet, as well as in the types of things they can do with it. A post-QWERTY world is a future in which we don’t have to put something else down in order to pick the Internet up e Internet will be a constant parallel processor— without QWERTY’s implicit Western bias. 7THE EVOLVING INTERNETDRIVING FORCES, UNCERTAINTIES, AND FOUR SCENARIOS TO 2025
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FIVE PREMISES FOR THE FUTURE5Consumers will pay (or not) for Internet connectivity in a much wider range of ways, both direct and indirect, compared to today™s predominant flat-price subscriptions. As high-bandwidth applications explode, the need to allocate available network capaci -ciently across time and users will be a major e spread of wireless connectivity will also open up many new pricing models for network access, such as easily bundling con- nectivity and services. Capacity management considerations will force a major reshuf- ing among pricing models (indeed, similar thinking by service providers is already quite advanced). For the Internet, price elasticities have not yet played the role that they have assumed in virtually every other market. Avail- able bandwidth or network capacity will have to be allocated more ciently—and pricing is a well-proven tool for that. Rapid proliferation of new tolling and mon- etization schemes will also respond to increas- ingl ne consumer segments appearing across geographies, age groups, genders, and personal desires. Pricing preferences—and highl er- entiated competitive o ers—will appear around the full range of transaction variables: bundling, a la carte, as you go, o peak, tiered, introduc- tory, balloon, pay for quality, pay for mobility, billing cycles, publicly supported pricing, terms and conditions, guaranteed, banded, bulk, spe- cialty, and so on. Almost everything that can be variably priced will be. ts-all bandwidth options will be the exception rather than the norm. Current at-price plans will seem quaint in retrospect. e presumption that content delivery and connectivity should be considered as separate value propositions will also be subject to experimentation. We see the demise of one-pr ts-all, usage- impervious pricing for connectivity as a given, but the extent of technical progress on the wireless front and the nature of capacity con- straints in the network (sporadic or sustained, widespread or spotty, policy-driven or sponta- neous) will have major implications for how this plays out. 8THE EVOLVING INTERNETDRIVING FORCES, UNCERTAINTIES, AND FOUR SCENARIOS TO 2025
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