The Impact of the IP "Box"

January 2007

Will you think I'm weird if I tell you that one of the most fascinating books I've read lately is about shipping containers?*

The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger, by Marc Levinson, reveals how the global economy was shaken to its core and completely transformed in just two short decades by a seminal change: a standardized container for shipping goods. Read the interview I conducted with Marc Levinson.

But second, it delivers an unnerving history lessonI was transfixed by two aspects of the book. First, it's a rollicking good story, with great characters and episodes. Visionaries press on amid general ridicule, union leaders cut shady deals to save dock workers, misguided governments use regulation to protect inefficient industries, armies battle to move materiel to the theaters of war. If you like Ayn Rand, you'll love what happens. for a similar revolution under way in communications today–the move to TCP/IP's packet-based protocols for all the bits that can use a digital network.

Parallels between the shipping container and the IP packet are easy to spot. Until each innovation was introduced, transportation networks and communications networks both used highly specialized methods and business models for transporting goods. And the standardized solutions introduced in both cases are equally sub-optimal for their purposes: The 20-foot steel container is no more or less suitable for bananas than bandsaws, while the seven-byte IP packet is not ideal either for burst-y low-bandwidth voice or for high-bandwidth streaming video.

But in the shipping world, the container's massive simplification of loading and unloading ocean liners sent labor costs crashing and sped up the delivery of goods, changing what was economic to send by sea. Similarly, IP has changed the communications industry dramatically already: The web, Skype and broadband television are just a few of the innovations that the standard data packet has brought us already.

But The Box suggests there's more ahead. Even the container's most ardent supporters failed to anticipate the longer-term consequences it would unleash. Ultimately, containers transformed the economics of ports, cities, industries and entire countries. The erosion of high transportation costs removed a trade barrier that had protected local factory workers while keeping their consumer prices high. As a result, Asian manufacturing took off and never looked back. Today, Levinson writes, "Distance [still] matters, but not hugely so." [To see a very quick link to a similar idea in telecommunications, read this.]

There's no doubt in our minds here at Yankee Group that we are just entering a new global connectivity revolution. We foresee the development of the Anywhere Network: seamless, far-reaching, high in capacity and highly capable. Some changes as a result:

    Global providers: How long will Western Europe's governments support the one-country, one-PTT model? Scandinavia was the first to move; look for the less debt-ridden European telcos to make a few acquisition plays in the next 24 months. Will the vaunted Telekom Austria/Swisscom deal be next?
    Seamlessness: In the transportation sector, the survivors became intermodal—rather than specializing in trucking to beat out rail, for instance, they saw their mission more broadly, and devised the best routes for end-to-end delivery. Likewise, the convergence of fixed and mobile networks is inevitable. Yankee Group predicts the first significant steps in a seamless network experience may come from British Telecom's so-called 21CN architecture.
    User-generated content here to stay: Asian manufacturing had always been a low-cost activity; high transportation expense held it back from its true market. IP packets plus broadband plus YouTube brings the same market expansion to a similarly low-priced asset: entertainment we make for ourselves.
    Higher-end experiences more difficult to position as premium: The reduction of shipping expense brought premium foreign goods within reach of the middle class—think Scandinavian furniture and Italian espresso machines. We can also expect a larger mass market for The Sopranos to make it feel less exclusive to its fans. Will the best, most tantalizing content be old-school analog, something held back from the Anywhere Network's endlessly globe-circling streams of packets?
    A low-regulation future: As governmental understanding caught up with the larger competitive landscape for rail and truck transportation that emerged from intermodal shipping, a looser regulatory approach eventually prevailed. With IP standardization allowing all sorts of variant network technologies to be pressed into service—coaxial TV cable, satellite, many forms of wirelessness—expect a relatively light hand.

A few months back, I gave The Box to Denny Strigl, COO of Verizon. I've ordered more copies since: It should be required reading for any network leader expecting his business to survive the global connectivity revolution. Yankee Group is relentlessly focused on charting this revolution with our deep global data, strategy research, and custom consulting. You'll see much more from us in the coming months.

Emily Green
January 2007

*I'm not alone in my weirdness, though: The New York Times Sunday Magazine’s annual Ideas issue at the end of 2006 included "Shipping Containers Explain Everything."