[Updated June 29th: Part two of this post is now online: "A Closer Look At Akamai's Strengths & Weakness For A Licensed CDN Offering"]

Over the past few months, multiple telcos have told me that Akamai has discussed with them the possibility that Akamai may get into the software licensing business by providing telcos and carriers with Akamai's own CDN technology to enable telcos to build out their own content delivery services. The product, which Akamai has named LCDN (Licensed CDN) is still being developed and while Akamai couldn't comment on the details of future product plans, the company did go on record with me to say that "we can confirm that this is an area we're exploring." Two carriers I spoke to said Akamai actually pitched them as early as last year on licensing Akamai's CDN platform, but that Akamai quickly realized they needed to build a specific product for service providers before they could come to the market.

From those I have spoken to, including at least a few individuals who have interviewed at Akamai for positions within this new group, it appears as if Akamai might be further along with the offering than I originally thought. For Akamai, offering a new product like LCDN as a software license would be a very different business model for a company that has historically always been a services based organization. Like all CDNs, Akamai has deep roots in software, but I don't ever recall the company offering any of its own technology as a straight software license.

It makes sense that Akamai is looking at offering an LCDN product as all of the major carriers are now partnering less with pure-play CDNs and working to add their own content delivery solutions and transparent caching platforms to their network. Carriers, telcos and ISPs now want to control their own CDN and not partner with or resell a third party. Three years ago content delivery vendor EdgeCast came to the market with an approach to license their CDN software to carriers and to date, had been very successful. The company has signed up ten carriers as customers including AT&T, Deutsche Telekom, Telecom New Zealand and Telus amongst others.

Last month, at the Content Delivery Summit in NYC, I discussed the idea of Akamai getting into the CDN software licensing business with a bunch of carriers at the show and the vast majority of them told me they see it as more of a defensive strategy on Akamai's part than anything else. While Akamai is right when they told me that, "there would be obvious benefits for network service providers in terms of cost savings and even new business opportunities" for such a product as LCDN, service providers paint a different picture for Akamai wanting to enter the market. 

With many carriers starting to spend serious CAPEX dollars on their own content delivery build-outs, some are telling me that they don't see the need to allow Akamai to take up more space inside their network. If you're Akamai and you want to stay inside the last mile, the best way to do that is to give carriers and ISPs an incentive to keep your servers around. Akamai has always provided a benefit as the carriers never wanted to get into the CDN business themselves, but that's quickly changing. As soon as carriers and ISPs build and deploy their own CDN solutions, which we have started to see them do thanks to the success of services like Netflix, (see: Netflix Viewers Consume Almost 10 Hrs Of Video A Month, Do Last-Mile Providers Have A Strategy?), Akamai's servers become less important for some of these carriers.

Back in 2009 I blogged that I was starting to see come ISPs that were early in building out their own content deliver solutions denying requests from CDNs to place servers in their network or were kicking out CDNs who previously had gear in their facilities. Some carriers and ISPs have told me that this practice has only accelerated since then as we continue to see and hear about more carriers building out their own platforms for delivering video. I don't know what impact this has had on Akamai but some have suggested to me that Akamai's long standing marketing message of being inside the last mile could be at jeopardy in the future if enough carriers and ISPs build their own CDNs. So one way for Akamai to keep that from happening is by trying to license their own CDN platform to the carriers, thereby keeping Akamai firmly entrenched inside the last mile. Or they could do what Cotendo is doing and work to get their technology on network hardware and embedded into other platforms like from Juniper and others.

If Akamai doesn't offer some kind of LCDN offering, their strategic position inside the network is going to be affected and their value proposition won't be as strong. While Akamai does not always get free release estate from service providers, they get a lot of it and if that goes away, their business model is drastically impacted. How quickly it would be impacted no one knows for sure, but it's very clear that over the next 18 months, telcos, carriers and ISPs are going to drastically impact what the current CDN landscape looks like.

Added 6/22: Akamai currently has 5 open positions listed on their website that they are looking to fill for their new LCDN offering.

Today at 2pm ET I'll be moderating another StreamingMedia.com webinar, this time on the topic of how to deliver video to devices like the iPhone and the iPad. Whether you're just getting started to think about HTML5 or already incorporating it into your video strategy, this webinar is an opportunity to learn about best practices in HTML5 video delivery.

Join myself and Jeff Whatcott, SVP Global Marketing from Brightcove for a discussion on what you need to think about when incorporating HTML5 into your video strategy. You'll see how some companies are already leveraging HTML5 and learn the best practices for creating a holistic video experience. We already have more than 1,900 people registered for the event and Jeff's HTML5 presentation last month at the Streaming Media West show was one of the most popular. This is not a sales pitch for Brightcove but rather a very informative presentation on HTML5 and video.

The webinar is free so register here and bring your questions for the live Q&A portion of the event.

This morning, web and application acceleration provider Cotendo announced they have raised $17M in a third round of funding, adding Citrix Systems and Juniper Networks as new investors and partners. The company has raised a total of $39M and now counts 75 employees around the world. In addition to the funding announcement, Cotendo also announced a new mobile acceleration suite to speed up the delivery of mobile websites and mobile applications.

When Cotendo launched in the market two years ago, nearly all of the content delivery networks in the industry were fighting over the video delivery business. At the time, Akamai was really the only CDN that had started to diversify their revenue away from just delivering bits and they started coining the term "value add services" to refer to products and services outside of just video delivery.

With the price of delivery video dropping for the average content owner by about 30% over the last three years, (45% in 2009, 25% in 2010, 20% in 2011) today, every CDN talks about value add services and is working very hard to try and shift their product portfolio over to offer higher margin services. With Cotendo, the company decided from day one that they would not focus on video and instead, offer product suites specifically around app acceleration, dynamic site acceleration, cloud applications, advanced DNS and SSL features and products all classified in today's market as value add services.

Clearly, the company's strategy is paying off and while still small when compared to someone like Akamai, Cotendo is challenging and disrupting the value add services market and competitive landscape. In just over two years the company has signed up more than 200 customers including Facebook, HTC, Conde Nast, Answers.com, Vistaprint, DIgg, Mashable, Bayer, Bluecoat amongst others. Some of these customer names have not been announced by Cotendo, but I have been getting a lot of calls lately from customers about value add services and who they are using. In addition to the growing customer count, Cotendo also has partnerships with AT&T and Google and now adds Citrix and Juniper to that list.

With content owners I have spoken to, Cotendo is quickly becoming known as an alternative to Akamai for some value add services and every quarter, the number of customer I hear from who have made the switch from Akamai to Cotendo continues to grow. While it's still a small number when compared to Akamai's overall market share and customer count, Cotendo is clearly a growing threat to Akamai in the market. And with Cotendo's recent deal with AT&T and Akamai suing Cotendo, thereby giving them more exposure in the market, Cotendo is growing their customer count nicely each quarter and gaining more visibility in the market.

With the Juniper announcement, it also interesting to see that Cotendo is working to get their platform embedded into devices, something I don't see other CDNs working on too much. As for Cotendo's new mobile acceleration offering, they are taking a different approach than Akamai by going directly to content owners, while Akamai is going to the carrier with their partnership with Ericsson. (I'll talk more about mobile acceleration in a follow up post.)

With Cotendo having success in the value add services business, and by success I mean a healthy list of growing clients and partners buying services with high margins, the logical thing to think about is the impact Cotendo will have on pricing overall in the market. Make no mistake, pricing for value add services will come down and pricing pressure is already being applied in the market. But, it's not the kind of pressure we have seen from video CDN as value add services are in no way commoditized the way video is. AT&T has already said that with their partnership with Cotendo, they could charge 50% less than Akamai charges and would still be "extremely happy".

Of course you have to be comparing specific services one to the other though to talk real numbers and you have to talk performance of the services, which can only be judged by talking to customers. But content owners have shown the market that they are not willing to pay more for Akamai's video delivery services as they don't see Akamai offering better performance with video delivery, especially as of late. For value add services, Akamai has to show that they can perform better and if they can, customers will be willing to pay more because unlike video, fractions of a second in better performance can and do impact the bottom line. So there will be pricing pressure in the market, but it won't be as severe as we have seen with video.

From customers I have spoken to, the average content owner switching from Akamai to Cotendo pays 35-40%% less, which is a pretty big number considering we are talking about services that have high margins. For me, the immediate thing to watch is not how many customers Cotendo can take from Akamai, or the market share they grab, but rather how fast they drive pricing down in the market, for all vendors, just like we saw Limelight Networks and Level 3 do in the video space. How severe that pricing pressure will be applied in the value add services market is too hard to know right now, but it is happening and it has picked up since the beginning of the year.

If you want to see more details about Akamai, Cotendo, Limelight and Level 3's app acceleration and DSA offerings in the market, you can watch a video presentation from all of them at the CDN Summit last month and download their presentations from the CDN Summit website.

Related Posts:

– 11/10/2010: Akamai Files Patent Infringement Lawsuit Against Cotendo, Acquisition On The Way?

– 10/18/2010: How Dynamic Site Acceleration Works, What Akamai and Cotendo Offer

– 10/4/2010: AT&T Partners With Cotendo For App Acceleration, Will Challenge Akamai

– 5/4/2010: CDN Cotendo Raises $12M, Has 120 Customers For DSA and App Delivery

– 3/5/2010: CDNs Will Challenge Akamai For Value Add Services: CDNetworks The Latest

– 3/11/2009: New CDN Cotendo Launches: Focusing On Application Delivery, Not Video

Tomorrow at 2pm I'll be moderating another StreamingMedia.com webinar, this time with RealNetworks and ViewCast on the topic of "Internet TV: Live Streaming for the Campus and the Enterprise". Learn how to set up a live streaming infrastructure to get your education, training and video communications to every employee and student – and to do it quickly and effectively. RealNetworks will discuss several case studies that demonstrate just how simple it can be to implement a professional-grade solution. Learn how to:

• Select which system components are necessary to stream to any type of playback device, including PC, Mac, iPhone/iPad, Android phone/tablet, and BlackBerry
• Set up a YouTube-like service for your enterprise and campus for on-demand delivery of your archived video content
• Use the best all-in-one solution to do your live Internet TV broadcasting

Register here and bring your questions for the presenters for the live Q&A portion of the event.

For Netflix customers like myself that have a lot of Netflix enabled devices, it use to be a real hassle having to constantly go into your account to active and de-activate devices for Netflix streaming. If you had more than five devices, Netflix would limit how many you could activate at one time and many consumers have already gone over the limit of five Netflix enabled devices in their home. A single user with an iPad, iPhone/iPod, game console and connected Blu-ray player or TV would already be close to maxing out the limit of five devices per account.

So it's great to see that Netflix has removed the limit of five streaming devices and now allows customers to watch instantly on up to 50 unique devices per account. While I'm not the average user, and currently have about 30 unique devices I stream Netflix from, it's not crazy to think that many families that use Netflix already have ten devices in their home today that stream Netflix content. Between a family of four you could easily have six mobile devices (phone/tablet/iPod), three computers and two to three other devices like game consoles/Roku/Apple TV and broadband enabled TVs/Blu-ray players/STB. I'm willing to bet that a large percentage of Netflix users, who use the account within a family of four, already have ten Netflix enabled devices in their home today.

Think about that number when many in the industry are quick to say that Blockbuster, Redbox, Amazon or even Apple can easily dominate the living room. Getting on so many devices that are connected to the TV is not easy. It can be done by others, but it takes time, a lot of money and lots of development. Netflix has a huge install base today that just keeps on growing.

Currently, Apple is only available on one box that connects to the TV, that being their Apple TV and is not available via any broadband enabled TVs or Blu-ray players. For stand alone boxes, Amazon is only on the Roku, TiVo (VOD not Prime), Logitech Revue and Sony SMP-N100 and those four devices combined have sold less than 3M units. Amazon is getting on more Broadband enabled TVs from Vizio, Sony, LG, Samsung and Panasonic and is slowly getting a larger footprint which is good to see.

Redbox is not currently on any devices with any kind of digital offering and while Blockbuster is on a lot of broadband enabled TVs and Blu-ray players, it won't come to game consoles till late this year and currently is only on stand-alone devices from TiVo and players from Western Digital. Like Blockbuster, Hulu Plus, while growing, has a similar small footprint on devices today. Clearly Netflix won't be the only game in town for streaming content, but they sure do have a huge head start in the number of Netflix enabled devices already deployed inside the home.

For all the hype leading up to Apple's iCloud announcement today, it sure was a big let down. While Apple has no problems letting users store content in the cloud, users have no ability to stream that content from the cloud. All content has to be downloaded to each iOS device which in my mind, defeats the whole purpose of the cloud when it comes to rich media content. Apple's iCloud service is only being used for storing content (and a small amount at that) and syncing it, but not actually streaming it. Apple had the chance to really move the industry forward today with a cloud based streaming offering and they didn't. Huge disappointment.

Over the past few days I've been getting a lot of emails from individual Akamai shareholders as well as some Wall Street money managers, asking me what Apple's iCloud service might be worth to Akamai, if Akamai is doing the delivery for the new streaming music service. While I don't know if Akamai will be supporting the new iCloud service, my initial guess is that they will be. They are already the exclusive CDN for all of the iTunes content and back in January, I reported that Apple had renewed their contract with Akamai for additional volume for new services.

If Akamai is doing the delivery of content for the iCloud service that's good for the company, but the value of the delivery business won't be big since as far as we know, iCloud will only be for music and not for video. Trying to estimate the exact value of this new service to Akamai or any other CDN is hard, since we don't have any historical traffic data to go off of. Also, Apple's contract with Akamai is priced based on per Mbps sustained, not per GB delivered and all of Apple's other traffic determines the final price per Mbps paid. But if we run some calculations using per GB delivered pricing, we can get a rough estimate of what the contract could be worth.

Apple sells on average about 250M songs per month and that rate is only growing. If we estimate that users will stream 100% of the number of songs Apple sells per month, a three and a half minute song transfers about 1MB which would be 250,000 GB of transfer a month. If Apple was paying a penny per GB delivered, the cost to Apple would only be $2,500 a month.

On the flip side, if users stream more music with iCloud than they buy, which is highly possible, and did 4x what Apple sells each month, then the delivery value for iCloud content would be worth $10,000 a month to Akamai. Of course, these numbers don't take into account additional services Akamai might be providing to Apple to support iCloud, for instance security services or other solutions termed "value add" by the company, and the 250M stream numbers per month to start could be low. We just don't know since we don't have historical data to go from.

But the bottom line is that the delivery of audio content from iCloud is not worth that much to Akamai or any other CDN. The other services around iCloud could be worth more and if iCloud ends up supporting video content down the road, then the value of the delivery business would be much higher.