The Yankee Group Research Notes


 Covering the week of March 12, 2002

The Yankee Group's Weekly Analysis of the Hottest Topics in the Information Technology and Communications Industries
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Table of Contents

1.   Macromedia's Release of Flash MX and Flash Player 6 Promises to Significantly Affect Market

2.

  Sun Jumps on the Antitrust Lawsuit Bandwagon
3.   Sony Ericsson Announces First Devices Under New Brand

4.

  The Right Moves: TiVo Adds Well-Chosen Partners, Features to Support DVR Penetration
5.   Shin Sat's iPSTAR Gets $250 Million in Credit Support
6.   Nortel Switches Focus

7.

  Troubled ntl

8.

  Dominion Telecom: Adding Value by Connecting the Dots

9.

  MIAKO Net Project to Start Wireless Internet Connection Based on IPv6

10.

  Enterprise Portals Open Doors to Business Users

11.

  Australia's Pay-TV Deal: Broadband Panacea?

12.

  Data-Driven Enterprise Applications Move to the Forefront

13.

  Integrated Services: Driving CLEC Revenue, Attracting RBOC Attention 
     
    Publications for the week of March 12, 2002
    Audio Conferences
    Conference Information
    About the Yankee Group

1. Macromedia's Release of Flash MX and Flash Player 6 Promises to Significantly Affect Market

Internet Business Strategies
by Lisa Melsted and Paul Ritter

Event

On March 4, Macromedia announced a new version of its ubiquitous Flash rich media player, Flash Player 6, and a new development tool, Flash MX. Flash MX represents the first of a series of anticipated product upgrades that the company plans throughout the year.

Market Impact

Prior to this upgrade, Flash had been known as a tool that proliferated showy graphics and animations all across the Web. Macromedia's latest release is beginning to mature from a graphics tool to a full-service site-building application. Since more than 98% of online users can view Flash content, the potential market impact is significant. The built-in media player is based on Sorenson Media's Spark codec, which allows video content to be displayed as part of Flash-created Web pages and does not require users to launch external players such as RealPlayer or Windows Media Player. This will result in more users seeing the content that is created. The new development tool provides developers with the ability to create easy-to-use forms on Web sites that will greatly improve user experiences online. Enterprises that have been reluctant to move forward with Web initiatives that incorporate streaming or rich media content due to the high costs involved will see financial benefits from both reduced development costs and increased consumption of content by users, thereby increasing the potential return on investment in such initiatives.

Conclusions

With an estimated 1 million developers already utilizing Flash products to create Web sites and online content, the use of the new development tool and the media player are likely to result in the following:

The ubiquity of Flash plug-ins on user systems, as well as the existing popularity of Flash among the development and design communities, sets up these new offerings to take the market lead in the development and application tools space.

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2. Sun Jumps on the Antitrust Lawsuit Bandwagon

Application Infrastructure & Software Platforms
by Neal Goldman

Event Summary

On March 8, Sun Microsystems filed a private antitrust lawsuit against Microsoft seeking: a) damages from what Sun claims is anticompetitive behavior toward Java; b) to have Microsoft ship a current Sun Java Virtual Machine (JVM) in Windows XP; and c) to stop Microsoft from distributing Microsoft's own JVM. Sun claims that it believes it will be able to justify damages in excess of $1 billion.

Market Impact

This lawsuit is primarily a non-issue for enterprises and will have minimal impact on the adoption of Java technology by enterprises and developers in the next 6–12 months. The largest impact will be the extended publicity in the popular press that continues to be a thorn in Microsoft's side. The fact that a JVM is not bundled as part of Windows XP is hardly a barrier to Sun's success with Java. Windows XP is not setting the world afire, and any halfway-savvy consumer, enterprise, or developer who wishes to use Java can easily download a JVM. The significant penetration rates—well in excess of 50%—for popular add-ons such as the RealPlayer, ICQ, AIM, Flash, and Shockwave show that users can and will download extensions that add value. Additionally, client-side Java is a very small percent of Java usage compared to J2EE on the server, and any enterprise that wishes to have a compatible multiclient JVM will not choose Microsoft's.

The Sun/Microsoft settlement agreement of January 2001 currently prohibits Microsoft from shipping current versions of Sun's JVM, even if it wanted to. The Yankee Group expects the lawsuit will ultimately be settled by Sun licensing the Java JVM to Microsoft with a commitment by Microsoft to ship the certified JVM for some period of time.

Recommendations

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3. Sony Ericsson Announces First Devices Under New Brand

Wireless/Mobile Europe
by Philip Taylor

Event Summary

On Tuesday, March 5, Sony Ericsson, the joint venture between consumer electronics giant Sony and Swedish telecom equipment vendor Ericsson, announced the first fruits of the companies' collaboration by unveiling six new handset models—three of which target the European market. To be launched commercially the week of March 10, the T68i is MMS-compliant and contains an integrated digital camera. The P800 smartphone, to be launched in the third quarter, is EPOC-enabled and will compete against Nokia's 7650.

Market Impact

Since Sony and Ericsson announced their joint venture in October 2001, the industry has been split as to whether Sony's undoubted consumer design credentials could be successfully married to Ericsson's expertise in wireless telephony. The series of announcements on March 5, which extended beyond device announcements to encompass content offerings, bode well for Sony Ericsson as it attempts to meet some extremely bold profitability targets.

Conclusions

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4. The Right Moves: TiVo Adds Well-Chosen Partners, Features to Support DVR Penetration

Media & Entertainment Strategies
by Adi Kishore

Event Summary

TiVo has announced a string of key initiatives in recent months, capped by an exclusive distribution agreement with leading electronics retailer Best Buy, announced on March 5. The new deal follows a software licensing arrangement with Sony, an increase in the monthly fees for the service, the introduction of the new TiVo-built "Series2" unit, and an agreement that makes TiVo the primary provider of digital video recording services for DIRECTV.

Market Impact

TiVo has been successful in building brand recognition, but not so successful in convincing consumers that digital video recorders (DVRs) offer substantially higher value when compared to the VCR. TiVo currently has 380,000 subscribers. These agreements signal TiVo's recognition of the problems in educating consumers and will provide additional marketing muscle to the push for DVR adoption.

Analysis

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5. Shin Sat's iPSTAR Gets $250 Million in Credit Support

Convergent Communications Asia-Pacific
by Agatha Poon

Event Summary

On March 5, Thai satellite operator Shin Satellite announced that the company has secured a $250 million loan from U.S. Export-Import (Ex-Im) Bank as part of the financing for its iPSTAR project. The new broadband iPSTAR satellite has been viewed as the company's growth engine, providing high-speed data capacity for Internet and multimedia applications. The satellite is scheduled to be launched in 2003.

Market Impact

The iPSTAR project comes as the concept of broadband begins sweeping the region, and ISPs begin looking for new revenue streams amid increased market competition. The U.S. Ex-Im Bank's approval of $250 million in credit support might not bring about a revolution in Asian broadband circles, but it goes a lot further in guaranteeing that at least one dedicated two-way satellite broadband offering makes it to the market.

Indeed, the idea of bypassing the already congested terrestrial network via two-way broadband satellite has already been accepted by a number of regional and local telecom veterans. Prior to the approval of project financing, Railcom in China and Baycom in Malaysia signed MoUs with Shin Satellite to utilize iPSTAR-1's capacity, offering broadband satellite services to areas where DSL and cable modem deployments are nonexistent.

Recommendations

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6. Nortel Switches Focus

Communications Network Infrastructure
by Marian Stasney

Event Summary

On March 6, Nortel Networks announced that it was discontinuing development on its photonic core switch, the OPTera Connect PX. The all-optical switch, based on 3-D MEMS technology, was intended for long-haul transport applications along with the OPTera Connect HDX grooming switch. The Connect PX was based on technology obtained through the acquisition of Xros in March 2000 for Nortel Networks common shares of stock equivalent to $3.25 billion.

Market Impact

Nortel is not the first vendor to cease development of an all-optical core switch. On April 5, 2001, Cisco Systems announced it was discontinuing the ONS 15900 due to lack of acceptance from the service providers. Currently available optical switches, such as Lucent's WaveStar LambdaRouter and Corvis's CorWave OS, are massive, consume power, and are expensive to deploy. All of this bodes well for start-up vendors, like Calient and AcceLight, as well as incumbent vendors Alcatel and Tellium—all of which have plans to ship second-generation optical core switches that are an order of magnitude improved due to advances in components and subsystems.

Conclusions/Recommendations

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7. Troubled ntl

Convergent Communications Europe
by Justin Neville-Rolfe

Introduction

Set-top manufacturer Pace Micro halted product shipments to ntl, the UK's largest cable operator, during the week of March 4. Pace, which generates 28% of its annual revenues from ntl, will only resume shipments if the troubled cable operator's credit rating improves. In the same week, the UK's other major cable player, Telewest, pulled out of merger talks with ntl.

In recent weeks, ntl's market capitalization has fallen to a mere $50 million (or just over $10 per subscriber) from its January 2000 peak of $33.5 billion. With $17 billion in debt, it faces a serious threat of insolvency.

The company has responded by attempting to raise average revenue per user (ARPU), with an upgrade of its residential cable modem package from 512 Kbps to 1 Mbps for $70 (£50) per month. All this is in the context (over the last three months) of small-scale disposals, significant redundancies (especially in marketing), and the contracting of financial consultants to advise on future funding possibilities.

Analysis

New customer acquisition would seem very difficult, as is increasing ARPU. Voice revenues are hard to raise in the short term, and dial-up Internet is already provided for free. Cable modem revenues can grow if existing users of the Pace integrated set-top box and cable modem decide to order the broadband access option, which does not require a supplementary truck roll. However, the Yankee Group is skeptical about consumers' willingness to double their cable modem bill for 1-Mbps access without compelling content to leverage this speed.

Recommendations/Conclusions

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8. Dominion Telecom: Adding Value by Connecting the Dots

Wholesale Communications Services
by Seth Libby

Event

On March 4, Dominion Telecom (DT) announced that it has completed a 1,000-route-mile dark-fiber connection between Chicago and Washington, D.C. Along this route, DT will sell both dark fiber and capacity, with the latter expected to be fully available by the end of June. DT, a subsidiary of Dominion (a major U.S. utility), is a super-regional carriers' carrier serving the eastern and mid-Atlantic United States.

Market Impact

Overcapacity, heavy debt loads, and a slowing economy have inflicted substantial pain upon the wholesale telecommunications market. The severity of the pain varies by firm, however, and most industry assessments fail to reflect this fact. While national carriers' carriers like Global Crossing, Williams Communications, and Level 3 fight for survival, regional players like DT, Progress Telecom, Fibertech Networks, Florida Power & Light, and Norlight are faring better. One of the key advantages for these firms is their ability to provide facilities-based services within Tier 2 and Tier 3 markets, and to connect them with Tier 1 markets. On the upstream side of the market, DT will benefit from demand for dark fiber and capacity by national carriers, including carriers' carriers and incumbent IXCs, seeking to support off-net connections or to build-in network diversity. On the downstream side, DT will see increased local demand for its services as ILECs, MSOs, and wireless service providers push to introduce wireless, long-distance, and broadband/cable in these typically underserved markets.

Conclusions

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9. MIAKO Net Project to Start Wireless Internet Connection Based on IPv6

Convergent Communications Asia-Pacific, Japan Market Strategies
by James Walsh

Event Summary

On February 28, MIAKO Net Project—a group consisting of the nonprofit organization Sustainable Community Center Japan as well as various industry and university cooperative bodies and individuals—started trials of a wireless Internet service based on IPv6, in cooperation with the wireless equipment maker Root Inc. The field test is being held in Kyoto Prefecture and is expected to continue through the end of March.

Market Impact

Already, MIAKO Net Project has built about 70 base stations, mostly around "hot spots" such as train stations, conference halls, and universities in Kyoto. The number of base stations is expected to reach at least 100, which will make the experiment the largest-scale implementation of IPv6 in Japan.

Globally, the migration to IPv6 is still in its early stages. However, with strong government mandates, Japan and other Asian countries are leading the way. Several Japanese operators are showing strong commitment and are deploying networks that carry IPv6 and IPv4 traffic.

Also, a number of key trials, which point the way to how the technology may be used in the future, have been conducted. As with similar wireless Internet service deployments at hot spots in other Japanese cities, trials have been carried out that use IPv6 devices in ITS and home-networking applications. A powerful feature of MIAKO Net Project's wireless Internet service is that, because Root's router has a hand-over function based on the Mobile IP standard, users can remain connected while moving between the service areas.

Recommendations/Conclusions

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10. Enterprise Portals Open Doors to Business Users

Application Infrastructure & Software Platforms
by Robert Perry

Event Summary

Epicentric announced its Foundation Builder on February 19, followed by Plumtree's announcement of its Portal Studio Server on March 4. Plumtree's Studio Server provides an easy way for users to connect applications, and Epicentric's Foundation Builder lets business groups deploy and manage new portal applications to meet the specific needs of their department or constituencies. With these products business users can now meet their changing requirements without competing for scarce IT resources.

Market Impact

Portal frameworks have achieved considerable success as a platform for rapidly creating and deploying Web-based applications. This success has attracted infrastructure providers BEA and Oracle, which now offer portal components with their J2EE application servers. Underlying these moves is the battle for the mind share of the corporate developer. IT developers are comfortable with scripting languages and Visual Basic, and are not system architects writing C++ and Java. These skills are easily applied to ready-built frameworks and tools for basic self-service applications provided by the portals.

BEA WebLogic Workshop and Oracle JDeveloper are designed to bring Java within reach of the corporate developer, enabling IT departments to deliver Java applications that run on J2EE application servers and utilize the new infrastructure components.

As the infrastructure providers have reached out to corporate developers, Plumtree and Epicentric have moved on to the more numerous systems analysts and business users. Portal vendors have succeeded thus far due to their ability to market and sell business value. These agile vendors are now wisely empowering business users to extract the value from their tools themselves.

Recommendations

Two recent Yankee Group Application Infrastructure & Software Platforms Reports—"Door Remains Open in Rapidly Maturing Portal Market" (February 2002) and "Where Does the Corporate Portal Go Next?" (November 2001)—explore these and other trends more deeply.

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11. Australia's Pay-TV Deal: Broadband Panacea?

Australasian Market Strategies, Internet Strategies Asia-Pacific
by Rob Padgett

Event Summary

The week of March 4 saw the announcement of a historic solution to the structural problem of too-high content costs, which has plagued Australian pay TV since its inception in 1994. A proposal has been submitted to the Australian Competition and Consumer Commission (ACCC) to approve the creation of an effective wholesale content purchasing monopoly by FOXTEL (50% Telstra, 25% News Corp., and 25% PBL).

Market Impact

This proposal represents the culmination of eight years of bitter competition fought by unprofitable entities as they duplicated infrastructure, paid high prices to Hollywood studios, and wasted fortunes trying to create unique sports programming (e.g., Murdoch's ill-fated and reputation-damaging "Super League").

Change became likely following SingTel's purchase of Optus (complete with its fixed-cost underperforming multimedia division); easier with the demise of One.Tel, a potential News/PBL telephony competitor via FOXTEL; and certain with the appointment of Sam Chisholm (BSkyB veteran and chairman of FOXTEL) to the Telstra board. Chisholm has catalyzed a solution that apparently solves everyone's problems. FOXTEL, now able to negotiate with higher subscriber numbers, will handle content purchasing for both Optus and FOXTEL. Telstra and Optus will retail the content on their respective cable systems—now bundled with telephony and Internet.

Herein lies the opportunity to boost Australia's flagging broadband fortunes. The offering of attractive service bundles will greatly assist the introduction of broadband Internet access to a wide consumer audience via cable. The timing is perfect given recent efforts by both industry (Broadband Exchange) and government to stimulate broadband takeup beyond Australia's relatively low 2% of households.

Recommendations

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12. Data-Driven Enterprise Applications Move to the Forefront

Business Applications & Commerce
by Lisa Williams

Event Summary

Enterprises are beginning to build rich "content networks" that drive enterprise systems for electronic commerce, supply chain and manufacturing, and distribution:

Market Impact

For enterprises: Most IT and line executives know that their existing applications treat important sources of data pretty badly—cramming all product attributes in a single field and rendering them unsearchable, duplicate, or incorrect. It is difficult to modify those existing applications to provide important reporting functions that inform users of significant business events. With e-commerce as a daily reality, it's also difficult to aggregate product information and then syndicate it to different "stakeholders"—customers, distributors, and even internally to a company's own Web site. The market impact of data-driven applications is to separate the two domains of rich data and task-driven applications so that each can receive its fair share of development resources.

For vendors: Data-driven applications will introduce a new type of enterprise application into the market—one that is concentrated on a large data store with a relatively lightweight application component that enables users to have personalized access to this data and that supports some amount of necessary workflow. For traditional enterprise software vendors, this means having strategic partnership teams sharpen their information about data aggregators and portal/business intelligence solutions.

Conclusions

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13. Integrated Services: Driving CLEC Revenue, Attracting RBOC Attention

Small & Medium Business Technologies
by Mike Lauricella

Trend Summary

Integrated access service, the combination of voice (8 to 18 voice lines) and data over a single T1, is proving to be the key revenue-driving product for many CLECs that target small and medium businesses (SMBs). We estimate that currently there are 685,000 SMBs that are ideal candidates for an integrated access solution. Allegiance Telecom, XO Communications, NuVox, and ITC^DeltaCom all report strong growth in integrated access sales, and many other CLECs are playing aggressively in this market. Further benefiting from this trend are equipment manufacturers, primarily VINA Technologies and ADTRAN.

Market Impact

The ability of the CLECs to effectively sell and take market share away from the RBOCs in the business market has not gone unnoticed. Recently, Verizon has entered the market with its FlexGrow product (using Alcatel equipment) and VINA Technologies has announced a contract with BellSouth. Integrated access service has great potential in the SMB market, and as CLECs lower the bar on the number of voice lines a customer must have to qualify for the offering, the market opportunity increases dramatically.

Recommendations

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Publications for the week of March 12, 2002

2001 High-Speed Internet Year in Review
cmsv6n3, Report, March 2002, by Mark Quigley

SS7 Market Update 2002: Signals of Uncertainty
cniv1n7, Report, March 2002, by Mindy Hiebert

Web-Based Customer Care: The Gradual Move to Second- and Third-Generation Solutions
crmv4n3, Report, March 2002, by Devon Shea

Migrating to IP-Enabling Technologies: Identifying Critical Consumer Applications
ctsv1n5, Report, March 2002, by Aurica Yen

Cable MSOs: Ready to Take Off in the Small and Medium Business Market
smbtv1n4, Report, March 2002, by Michael Lauricella, Michael Speyer, and Lindsay Schroth

Security Industry Predictions 2002: Where the Money Will Go
sssv2n2, Report, March 2002, by Matthew Kovar, CFA and Anil Phull, CISSP

North American IP VPN Services: The 22 to Watch
tsv1n3, Report, March 2002, by David Rohde

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Audio Conferences

March 14, 2002

A Consumer Technologies & Services Audio Conference
Is Voice Going Silent? Residential Long-Distance Market Outlook

March 18, 2002

A Technology Management Strategies Audio Conference
Assessing IBM's Capabilities as an IT Service Provider

March 19, 2002

A Wireless/Mobile Europe Audio Conference
More information will be available shortly.

March 21, 2002

A Media & Entertainment Strategies Audio Conference
On-Demand Content: Building the Business Case for Distributing Audio and Video Online

Please Check Our Web Page for the 2002 Audio Conference Schedule

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