Level 3’s New CDN Strategy: Integration Will Make Or Break The Service

In the nearly two years since Level 3 first got into the CDN business, they have managed to accomplish a lot with their CDN offering in a very short period of time. From both a revenue perspective and from a product feature set, Level 3 has done in two years what took Limelight four years to do when Limelight first started offering their CDN services in the market. It took Limelight from 03' to 06' to break the $50M revenue mark, something Level 3 achieved after its second year. And if we estimate that Level 3 does at least $75M in CDN revenue this year, they will already have done more than half of what I expect Limelight's revenue to be this year, around $150M.

Much of Level 3's success with their CDN offering has been a result of the CDN group being treated like a startup. For all of the internal politics and red tape that all large companies have, from day one the CDN group has moved quickly, executing their product road map and operating outside much of the confines of the rest of Level 3. For any telco wanting to get into the space by way of building out their own service, this is the only way to grow a CDN offering in the market. The CDN market is very competitive, you have to be able to turn on a dime, get proposals out the door fast and roll out product upgrades every quarter. The business is lost or won based on speed and how responsive you are to customers. Most telcos don't have the mentality for this, they can't do anything quickly and as a result, they can't nurture a new product like content delivery to the market.

Level 3 has done the opposite, but only because the CDN group has been able to operate like a startup inside the larger company. With Level 3 announcing their restructuring plans last week, they are basically saying it's time to move the CDN product out of startup mode and into the rest of the company. While that makes sense if they really want to grow the business and ramp the revenue, it's also a surefire way to kill the business if not handled correctly. If the integration of the CDN offering is not done right and the product road map, marketing, sales and delivery side of the business gets bogged down internally and no longer operates with the speed needed to win in this market, Level 3's CDN offering could lose all momentum.

While I am not saying that will happen, we have seen it take place in the market before and it should be a concern to Level 3. With the company restructuring internally, it also means they are now losing at least three of the key executives who have helped bring the service to the market and were responsible for helping to integrate other Level 3 services like Vyvx into the CDN offering. While losing some key people does not mean Level 3 can't move forward and doesn't still have a lot of smart people working in the CDN group, it's to be seen what the strategy and vision is going forward. Level 3 has appointed Peter Neill as the new SVP of the Content Markets group for the company, which the CDN product falls under. And while I don't know Peter at all and have not had the chance to speak with him since his new role, his background is not in the broadcast or contents market, something that all three of the former executives were very strong in.

In trading emails with Jim Crowe yesterday, he made it very clear that their "views on the strategic importance of CDN have not changed" and that they "are not backing away from our determination to be a leader in CDN." That's very good to hear, but I think the point needs to be driven home stronger in the market. As I mentioned earlier in the week, I got a lot of calls on Monday from Level 3 customers when Level 3 made these restructuring changes. Many wanted my opinion on what was happening, how that would affect them and what this means to Level 3's commitment to the CDN product line. While I don't doubt Level 3's continued commitment to their CDN offering, they also need to realize that they created a lot of this turmoil in the market. Nearly five month ago Level 3 started talking about the changes, but really only executed on them last week. That means that in that time, they let their competitors use the prospect of change against them and it opened up doubt with some of Level 3's customers. In my opinion, the changes took too long to make and should not have been discussed so far in advance. Customers should not be wondering for months what is going to take place.

Level 3 has been a hot topic this week and I've traded e-mails with a lot of industry folks who think this is now the end for Level 3's CDN offering. I don't think that is the case and I still continue to hear from Level 3 customers who are very happy with the service and the support they receive. Level 3 is not charging the lowest price in the market just to give this stuff away and they still have the momentum. But Level 3 needs to manage the integration of the CDN product into the rest of the company very closely and in my opinion, needs to share with the market and customers their CDN strategy moving forward. When you lose three key execs who to date have been responsible for sharing that vision with everyone, you can't go months before you decide who your CDN evangelist is going to be. You need to get them out there immediately, talking to everyone, explaining the vision, laying out the product road map and showing everyone that while change sometimes brings uncertainty, it won't impact the success of Level 3's CDN offering.