AT&T’s CDN Offering Not Displacing Akamai or Limelight Anytime Soon

Yesterday, there was a lot of talk about AT&T and their CDN announcement and as usual, a lot of questions, mostly from Wall Street, on what this means to Akamai and the rest of the CDN industry. While many sites covered the news, I saw very few sites give more details on what, if any, impact this has on the market. Lots of re-hash of the press release with very little additional info or data to compare AT&T’s plans with the rest of the market.

To me, the important take away of the announcement was AT&T’s appointment of Cathy Martine as the executive vice president of Content Distribution. AT&T has had technical folks working on their CDN offering since last year, but to date, did not have anyone leading the business. It’s really hard to start any new product offering in the market if no one is responsible for it on the business side, which AT&T now has. A 25+ year veteran at AT&T, Cathy formerly launched and ran their VoIP product line but will now focus solely on the CDN business. Late yesterday, I had a chance to speak to Cathy and some of her technical team to get my questions answered.

A lot of news sites and blogs had some pretty big headlines about how AT&T is going to challenge Akamai and Limelight with their CDN offering, but those are just headlines, written to make noise. The fact is, Cathy and her team were very realistic in knowing that you don’t build capacity overnight and challenge the leaders in the market with a press release. They know it will take time to build out the right level of capacity and additional services around the product offering before you can compare yourself to leaders in the industry. At no time did Cathy or her team call out Akamai or Limelight in my conversation with them or make wild claims about dominating the market.

On the call, AT&T clearly understood what it’s limitations are today with their offering and how they will stack up against other competitors by the end of the year, when their initial build-out is complete. As I reported in May, AT&T plans to have 400Gbps of global capacity for all of their CDN offerings by the end of the year. To put that in perspective, that would be 20% of Limelights capacity today and less than 25% of Level 3’s CDN capacity. Wall Street analysts, I love ya, but please, keep things in perspective.

The idea that AT&T is going to put any of the other CDNs out of business or grab a lot of market share anytime soon, will not happen. That’s not my opinion, it’s fact, based on their current product offering and the amount of time it takes to really build out a competitive service. Could AT&T be a real competitor sometime next year? Yes. But to what degree, with what level of service, in what vertical markets and with how robust of an offering we don’t know, and won’t for a long time. And while today’s announcement talks to the enterprise market, there is no suite yet of solutions specifically tailored to media and entertainment customers and AT&T is not yet in Adobe’s Certified Flash Video Streaming Service provider program. It’s also too early to know what kind of pricing AT&T is going to offer in the market and how they will compare to the competition.

Too many people who watch the CDN market want to talk about capacity and say how easy it is to "turn up" capacity? They say why can’t AT&T build out the same amount of capacity Akamai has within a year? Capacity is needed on many levels besides the pipe. What about the volume of servers needed? For instance, how long do people think it would take to deploy 10,000 servers? That’s not a fast process. Ans what about the capacity for customer service and support? Capacity is not built out overnight and it’s only one piece of what is needed to have a true solution. How do you handle live events, ingressing streams, transcoding video, managing content, provide reporting and do authentication amongst other things. A lot goes into a CDN offering, especially if you want to target Fortune 1000 customers in the long run. AT&T knows that for awhile, they have to target smaller customers,
who have simpler needs and will stay away from any live streaming that
has the potential to have large traffic spikes.

Not to mention you also have to price, package, productize and market the service, something AT&T is clearly aware of. Cathy said that over the next few months, AT&T plans to make it easier for potential customers to contact AT&T and get CDN quotes out the door quickly. That being said, AT&T has a lot of work to do and realistically, in my eyes, it will be a good 18 months before we know if they can seriously challenge any of the top providers. Owning the network is a good first step, but it takes a lot more than
that to be a real competitor. Last year, we had only 3 companies (Akamai, Limelight, CDNetworks) who offer
CDN services doing more than $40 million a year in CDN

While Cathy would not give specifics on any potential acquisitions, she did say that AT&T was open mined on any partnerships or acquisitions that could speed their time to market. Now that AT&T has officially announced Cathy’s role, she’s getting a lot of inquires and requests, as expected, from companies who want something from AT&T. We also discussed the current state of the CDN market as it pertains to IP lawsuits and at this time, AT&T said they did not believe that their CDN product offering is infringing on any currently granted patents. That’s an answer I expect any company to give, but the real question, which we will find out at AT&T grows, is whether or not other CDNs think they are infringing.

For now, AT&T is not putting any growth numbers or projections on the CDN business for this year or 2009, which makes sense since they will be spending that time to build out the service. It’s very similar to Level 3’s approach to the market where AT&T wants to control the entire ecosystem for content owners and will have to spend a few years, and more money, to truly build it out. The bottom line is that AT&T is new to the market, just starting to offer their service and is not seriously challenging any of the CDN leaders for the next year.

While AT&T is one to watch, we should also all keep a clear head and not declare other CDNs to be dead just because telcos like AT&T and Level 3 are entering the market. Right now, the telcos are the underdogs and are behind in the market trying to play catch up to CDNs who have been building out and growing for years. The telcos have a lot of work to do, have a lot of money to spend and need to show real revenue before anyone can declare them a winner. It’s also crucial for the telcos to operate their CDN business like a quick and nimble startup if they want to be successful, which is something very difficult to do inside such a large company. It will be fun to watch.