Posted by : Randy Cooper in (CDN)

Content Delivery Networks have much to be thankful for

What’s next for CDNs?
By Pete Wylie

All the predictions I’ve seen lately have broadband access rapidly increasing under an Obama administration. Everyone is also almost universally pronouncing that online video will drive major increases in traffic and bandwidth usage over the next few years.

That’s made me take a close look at the players in the space that will handle the explosion of traffic, enable larger audiences to watch longer live streaming events, and deliver a company’s video assets globally. Of course, I’m talking about content delivery networks.

Currently, Akamai is the leader in the space, followed by Limelight and Level 3. Akamai has generated more than a quarter billion dollars in cash flow since the beginning of the year, and it has nearly $800 million in cash and cash equivalents on hand. However, the company just announced it was cutting 110 jobs, so there are questions as to how the economic downturn is affecting the CDN space.

Limelight, which operates at large losses and lost an expensive patent infringement case to Akamai, has narrowed its negative margins but still looks wounded. At press time, Limelight’s stock was trading at around $2.50, a far cry from its $24 IPO price.

Level 3 is in slightly better position, as its CDN business has been growing and offsetting losses elsewhere in its holdings. It acquired Savvis’s CDN properties in Asia, completely retooled them, and now has a significant, top-class offering in that growing space.

But the Big 3 CDNs are sure to start feeling pressure from upstarts in the space.

James Segil, president of EdgeCast, said his company is the fastest growing CDN in the industry, and that it has added 325 customers since it exited stealth mode about 16 months ago. He noted that EdgeCast had managed to gain a significant foothold in the market due to the fact that it is taller, better looking and more charming than the other major CDNs. Those attributes are a big plus in Los Angeles, where EdgeCast is based, but Segil, this time on a serious note, said the position near Hollywood is a unique opportunity for his company to work with the major studios on their growing content delivery efforts.

Segil said the lack of legacy dead weight allows EdgeCast to offer full CDN services at half the price of other full-service players — he criticized Limelight for the costly buildout of its fiber network. Segil and his original team built the technology behind EdgeCast themselves without outside funding. The company then got a $6 million round of funding from Disney’s Steamboat Ventures shortly after announcing itself to the public in 3Q 2007. Sales are now 75 percent direct and 25 percent indirect, through resellers and companies that bundle EdgeCast’s CDN offering with other telecommunications and bandwidth needs, according to Segil. EdgeCast leases fiber capacity from incumbent telcos, which Segil said is a much more cost-effective way to deliver content, because there is a glut of dark fiber buildout.

He doesn’t think cloud offerings from Amazon and others pose a true threat to top level CDN players, either, because they can’t support the level of traffic and video formats, for instance, that the big CDNs can. While he feels smaller companies will benefit greatly from low-cost, use-as-you-need cloud content delivery offerings, he thinks anyone concerned with low cost, high quality, large-scale delivery will inevitably turn to a major CDN.


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