Microsoft Relying More On Third Party CDNs, Limelight Networks Getting More Business

In 2009, Microsoft detailed how they were spending hundreds of millions of dollars to build out their own enterprise CDN to deliver software, games and other Microsoft related content. By their estimates, third-party CDNs would only deliver 40% of their content in 2010, down from 95% in 2007. As anyone who followed the CDN market in that time frame knows, CDNs like Akamai and Limelight lost a lot of Microsoft traffic during 2008-2011 as Microsoft continued to bring more of their content delivery in-house.

However with the growth of Microsoft’s Xbox and Windows business in particular, Microsoft’s traffic has really exploded over the years and once again, Microsoft is relying on third-party CDNs to handle a large portion of their delivery. I don’t know the new split between how much Microsoft is delivering in-house versus third-party CDNs, but I would estimate that Microsoft now uses third-party CDNs to delivery 75% of their overall traffic. Over the past 12 months, I’ve been watching where Microsoft’s content has been coming from and it’s clear that they have made a big shift from their in-house CDN to giving more business to third-party CDNs.

Microsoft has always used a combination of third-party CDNs including Akamai, Limelight, Level 3, EdgeCast, ChinaCache and Highwinds for a portion of their delivery, but in the past 12 months, the volume of Microsoft traffic coming from some of these CDNs has really been growing. While Akamai still has the largest share of traffic, volume across Level 3’s network really grew in 2014. But within the past two quarters, Limelight Networks is now the one that is seeing lots of additional traffic from Microsoft, especially for large file downloads.

I’m not surprised that Microsoft is relying more on third-party CDNs as their in-house CDN is quite old and I hear, limited in its capabilities. When the Microsoft Azure team was looking to pick a CDN partner, they didn’t use their own in-house CDN available to them at Microsoft. Instead, they ended up going with Verizon’s EdgeCast CDN as their default delivery platform. I don’t know all the details on the selection process, but when you pass up your own in-house CDN to use a third-party, it’s pretty clear there are some severe limitations to what your in-house CDN can deliver.

It’s an interesting time to see Limelight getting more traffic from Microsoft as Limelight recently raised guidance for the year and projected better margins. Adding to Limelight’s benefit is the fact that third-party network measurement provider Cedexis shows the performance of Limelight’s network improving, which makes sense given Limelight has spent the past 4-5 quarters pumping money back into their CDN platform. Limelight seems to be getting back into the CDN market little by little and I see small signs they are making some progress.

It also helps all CDNs that there is very little pricing pressure in the market. For all of 2014, pricing amongst all the CDNs combined fell on average of about 20%. But some of the major CDN have told me that for them, they saw pricing decline by only 10% last year, and for the first time, have seen their¬†ARPU increasing, which is signs of positive price compression. I don’t see any trends on the horizon to change this in the New Year, so absent some major issue, 2015 should be a very good year for all CDNs. I’ve already said on Twitter that I predict that Akamai’s media business could grow 15-16% this year and Level 3’s CDN business could grow twice that. It’s too early for me to predict what Limelight’s CDN business might grow, but based on the fact that the big Microsoft business from Microsoft is still to come, (Windows 10) all the major CDNs look to be in good shape this year.