The shifting mix and management of worldwide Internet traffic will make services such as Internet hosting and content distribution increasingly important and put traditional information technology players such as AT&T, IBM, and EDS back in the driver’s seat—leaving behind smaller upstarts that have specialized in such offerings.
This power shift is the result of unexpected changes in the nature and growth of Internet traffic.1 World Wide Web pages, which drove Internet usage in the past, now represent a rapidly diminishing share of total traffic. Consumers and corporate users will increasingly turn to rich media and to streaming live audio and video.2 In addition, server-to-server traffic should become the single largest category of Internet traffic in both the United States and Europe by 2005 as businesses come to rely increasingly on extranets and other kinds of Internet-based communication (Exhibit 1).
Meanwhile, the volume of Internet traffic is increasing at a slower rate, which is bad for new companies that gambled on reaching profitable scale on the back of continued explosive growth. In the United States, such traffic will grow at a compound annual rate of 88 percent through 2005, according to a study by McKinsey and J. P....