Lately, there has been a lot of talk in the industry about carriers and telcos getting together to connect their CDNs with one another, thereby creating a "federating" of CDNs. While this idea has been circulating in the market for many years, with little to show for it, carriers now appear to be more serious about the idea. Over the last few months, I've spoken to a group of carriers who are the founding members of a new group called the Operator Carrier Exchange.

While none of the founding members want me mentioning their company names yet, the OCX is getting close to making their initiatives public. The idea of the OCX is for carriers and telcos to share ideas, come up with some CDN standards and allow one another to connect their CDN networks, in a yet to be determined fashion. As we heard from carriers and telcos directly at last month's Content Delivery Summit, they now want to compete with traditional CDNs and take control of delivering video across their own network.

In principle, the idea of carriers taking over more control of video delivery makes a lot of sense since carriers own the last mile and right now, more than two dozen carrier and telcos around the world are actively building out their own CDNs. BT, France Telecom, Telstra, Telecom Italia, Telefonica, KPN, TeliaSonera, Polska Telekom, Bell and others are all starting to spending some serious CAPEX on their CDN initiatives and others like Verizon are already far along. I've heard some suggest that the carriers have been talking about building out their CDNs for years, so this is nothing new, but the truth it, the industry and Wall Street has been talking about it, not the carriers.

Three years ago, multiple carriers were out in public saying they didn't want to build out their own CDNs as the market was too small, a message they reiterated in 2009 and part of 2010. Instead, carriers decided to partner and resell solutions from the traditional CDNs and spent very little money on any kind of On-net buildout. So while we have been hearing for years that the carriers were going to dominate the CDN market, that message has been coming from Wall Street, not the carriers. Within the last few quarters, carriers are now delivering that message themselves, of getting into the CDN business, but one can't say that carriers have been talking about this for years and done nothing.

Exactly what model the OCX will put forth in terms of how their federated CDN model works is still not known. One model could be where the carrier has a direct relationship with the content owner and then uses the exchange to get access to many other CDNs and a wider footprint. Another model could be where one carrier or a group of carriers act as a broker for the CDN services of every company in the exchange. However the exchange works, carriers will obviously have to have some kind of bilateral agreements with each other and there are many different kinds of interconnection models that could potentially work.

Of course all of this makes sense on paper, but the carriers and telcos have to execute it properly in the market in order for it to work, which is no small task. I would agree with many who would say that the carriers won't move quickly and can't compete with the traditional CDNs in the short-term, but long-term, this is where the market is moving. It's part of the reason why Akamai is developing a licensed CDN offering (LCDN) and why companies like Cisco and others are speaking out on what they are seeing with regards to a federated CDN model.

Some have suggested that CDNs will never work with one another as they see each other as competition, but that's not usually the case. One thing many people forget is that carriers and telcos, for the most part, are regional and only care about their end-user eyeballs. They don't need to be global and build out their own footprint around the globe and this is where the federation model would allow for a larger footprint without more deployment. Also, this would reduce their local transport costs, complement IP transit and peering relationships and allow a regional carrier to sell Internet wide delivery.

As Cisco pointed out during their keynote at the CDN Summit last month, any federated CDN model would have to include a request-routing system, a way to distribute content from one carrier to another and the ability to move accounting data from one carrier to another for billing and reporting purposes. This is no small task, but it can be done. Part of the advantage that carriers have is that they have been working with or reselling CDN solutions mostly from Limelight and EdgeCast Networks for a couple of years, which has given them a good amount of time to get insight into the CDN business and learn about the solutions they will need to provide. That's a big advantage they have since they aren't entering the market blind.

So what's the short and long-term impact of a federated CDN model? In the short-term there is not much of an impact on the traditional CDNs business or market share. For most of them, it's still business as usual, but some like Akamai are thinking about how they might be able to leverage their software to help carriers building out their own CDNs. Long-term, meaning 18 months from now, the CDN market is going to look very different and we will have more carriers competing directly with CDNs. Just look at the deal HBO has with Verizon for streaming and it's clear that more content deals like this will happen in the near-term.

As for the OCX, it's too early to know if they can bring to fruition what their ultimate goal is, which is to try and sign up about 20 carriers to join their federated model. If they do happen to accomplish that, and I hear that they already have half that number of carriers who have agreed to it in principle, those 20 carriers combined would control roughly 85% of all the eyeballs around the world, which would change the current CDN landscape, for video delivery, quite a bit. It's too early to bet if they can do it or not, but with or without the OCX, make no mistake, carriers will play a much bigger role in the delivery of video in the near-term.

For those old school folks in the industry, the below images will probably bring back a few memories. In the early days when the many of us were just starting to put video online, video players weren't embedded into the browser like they are today. For a couple of years, every video was in a stand-alone pop-up player and the user experience for downloading and updating their player was nothing like it is today.

From the earlier days of Xing Streamworks, VDO.net, Netshow, RealAudio and QuickTime these little download icons covered websites. It's amazing to think how quickly that user experience changed when the competition between Microsoft and RealNetworks hit its peak between 1998-2000, when both companies were developing new players at a furious rate. Personally, I still think more advances and development took place in those two years in the industry than during any other two year period since.

Earlier today, Amazon announced that they have added 1,000 more movies and TV shows to their Prime streaming video service. This brings Amazon's total number of movies and TV shows available for streaming to just over 6,000, per the Amazon website. So while it's not the volume Netflix has yet, Amazon has already added 1,000 more titles less than four months after launching their service.

As I have already blogged about before, I expect Amazon's Prime streaming service to disrupt Netflix over time. (You can read more about how here: Amazon Prime Streaming Will Disrupt Netflix, Here's How) Add in the fact that we all know that Amazon will come out with a tablet some time soon, and Amazon is really positioning themselves to own the entire value chain. While they won't own the content, they will control the distribution of video thanks to their AWS services group and control at least some of the devices the content is played back on. Amazon also said that they now have over 300 devices capable of streaming Amazon Instant Video.

After Amazon announced their new service, many said that Amazon would never spend the kind of money Netflix is, more than $1B this year alone, to license content. The difference is that Netflix needs to spend the money today to get more content to continue their growth. But Amazon gets the vast majority of their revenue from non-streaming related services and is not under as much pressure to close content deals fast. Advantage = Amazon.

For more than ten years, AT&T has technically been in the CDN space but has not had a lot to show from it. Their legacy CDN platform, ICDS, never really worked well and even though the company announced in late 2007 that they were going to spend $70-$80M to build out a new CDN, those plans never came to fruition. So naturally when AT&T announced late in the day on Wednesday a new cloud-based CDN platform, many probably didn't take them seriously. This time however it's different due to how AT&T is coming to the market and the technology they are using.

While AT&T's release does not mention the technology they have deployed, their new cloud-based CDN platform is based off of technology from Cotendo and EdgeCast. In February of this year I detailed how AT&T was now using EdgeCast's CDN technology on the AT&T network and in October of last year, I detailed how AT&T had teamed up with Cotendo to deploy their app acceleration platform on the AT&T network. While AT&T still needs to prove themselves in the market, they have changed their mentality inside the company and have started relying on platforms that are proven in the industry, instead of trying to build it on their own.

While today's release by AT&T does not come right out an say it, what AT&T is essentially trying to convey to customers is that they are now serious about the CDN space. Using platforms from EdgeCast and Cotendo that have been in the market for years and are proven with hundreds of large customers, AT&T can slowly start to move the conversation away from the technology and start talking about solving business problems. AT&T won't be able to do this overnight and they still have a lot of work to do to take a large share of revenue away from Akamai, Limelight or Level 3, but their CDN platform is now built on proven, reliable technology.

AT&T is similar to Level 3 in that is owns the network, gets revenue from a diversified line of products and services, has a large sales force, spends a lot of money on marketing, has a good re-seller channel and isn't trying to own the market in the short term. This is a long-term play for AT&T. Another advantage AT&T has over all of the other CDNs, which is basically identical to Verizon, is that they already talk to the major content owners due to their U-Verse service and many of those content owners are already using the new AT&T CDN platform for U-verse related content. It's not a guarantee that AT&T can be successful, but it does give them a good running start.

I've always been very vocal about not seeing AT&T on CDN deals in the past and that I didn't take their CDN service very seriously. But now that they have a proven CDN platform, they do have a shot, and a good one at that, of competing in the CDN space. It won't happen overnight, they still need to execute and follow through on a lot of the product pieces, but at least they now have given themselves a chance at being successful. The real test will come the rest of this year as they go out to content owners and talk their value proposition and I'll be closely watching how well they do.

The last time AT&T talked about entering the CDN market in 2007 many on Wall Street went bonkers and started talking about how AT&T would push pricing down in the market and started a panic, downgrading Akamai on the AT&T news. Akamai's shares dropped over $2 that day, in my opinion, mostly due to investors who don't track the market very closely. In fact, I wrote a post the day after AT&T's news entitled "Analysts Covering Akamai Should Not Be Worried About AT&T", where I tried to put the news in perspective. This time around, things are no different. AT&T won't take a large share of the CDN market from Akamai, Limelight or Level 3 anytime soon, but they will have an impact on the pricing of value add services down the road.

As I wrote back in October of last year in my post about AT&T hooking up with Cotendo, AT&T, Cotendo, Lmielight, Level 3, CDNetworks and others, all combined, are applying pricing pressure to the "value add services" piece of the market. AT&T, Cotendo and Limelight have all gone out of their way to mention that they can charge half of what Akamai is charging today for some of the similar services. Of course, they all have to prove their services can compete with Akamai and so far, Cotendo has done a very good job of that earning them the notice of Akamai who filed a patent infringment suit (see www.cdnpatents.com) against Cotendo in November of last year.

So the real question is not how much business any of the CDNs take from Akamai, but what kind of pricing pressure they apply in the market, driving pricing down across the industry and how quickly we begin to see the impact from it. I'm already starting to see some signs of it today, but I think it's really another three quarters before this is very apparent in the market.

If AT&T executes properly, something they still need to prove in the market, we could have a fourth dominant CDN in the space to go along with Akamai, Limelight and Level 3. And by dominant I mean a CDN that could do $100M in CDN revenue within two years, if they are successful. The other thing to watch closely is the Akamai suit with Cotendo. With AT&T now betting the entire future of their CDN platform on Cotendo's technology, AT&T can't afford to see Cotendo have problems in court or worse yet, get acquired by Akamai. So it will be very interesting to watch what AT&T does when the time comes. These suits tend to take years to be settled in court, so I don't expect anything to happen anytime soon, but it does throw another twist into the AT&T CDN story.

Related Posts:

– 2/1/2011: AT&T Building Out Their Content Delivery Network Using EdgeCast's Software

– 11/10/2011: Akamai Files Patent Infringement Lawsuit Against Cotendo, Acquisition On The Way?

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

– 8/12/2009: Rumor Of AT&T Acquiring Akamai Appears To Be The Latest Of Many

– 6/25/2008: AT&T's CDN Offering Not Displacing Akamai or Limelight Anytime Soon

– 5/13/2008: AT&T Building Out CDN, Preparing To Push Into The Market

– 12/12/2007: Analysts Covering Akamai Should Not Be Worried About AT&T

Last week, when Cotendo announced their new mobile acceleration platform, I got more than a few emails from readers asking what exactly makes up a mobile acceleration service. Many have heard of application acceleration before, a service Akamai has dominated the market with, but mobile acceleration is still pretty new. In that light, I spent some with Cotendo talking about their service and here is a quick summary of how they think their technology can improve mobile content delivery in an era of increasingly dynamic and personalized content needs.

As anyone who has used a smart phone to visit a website knows, it takes much longer for that webpage to load as compared to a home broadband connection. In fact, load times for websites via a mobile device are typically four to ten times longer than loads over a cable or DSL connection at home. While there are some technology improvements on the horizon with wider deployment of LTE looming, no one expects mobile operators to be able to deliver sufficient bandwidth to alleviate these slowdowns any time soon. If anything, the opposite is happening with wireless carriers favoring data caps and restricting users. For carriers, putting up more towers is an arduous process and dropping more backhaul to the towers doesn't solve the spectrum bottleneck caused by the limited number of towers.

Beyond a few purpose specific tasks, such as optimizing video streams to mobile devices, most CDNs have struggled to deal with mobile content because it is, by definition, more personal, more dynamic, and harder to cache. An individual's social network information is unique to that user. Ads related to hyper-local location are tightly tied to a user. The same goes for your bank account and location based weather services and a long list of others. That has meant CDNs couldn't solve the last mile problem, either. While bandwidth is an issue, it is not the main issue. The latency and varying round-trip time (RTT) is the main challenge for mobile delivery today.

The most common concern raised around mobile data networks is the capacity and bandwidth, but actually one of the main reasons for delays and slowness on mobile networks is rarely discussed and this is the latency, or the mobile last mile round-trip time (RTT). While the typical time it takes a packet to go back and forth between an end-user to the carrier’s gateway on broadband is typically 10-15 milliseconds, for 3G networks, the round-trip-time from a mobile device to the carrier gateway (GGSN) is typically in the range of 80-200 ms. Moreover, while the broadband networks provide a reliable consistent RTTs, on a typical 3G network the RTT may vary during a specific request dramatically. The RTT value has significant impact on TCP efficiency and accumulates over a page, as typically a page consists of many different objects (each retrieved in a different request adding additional RTT to add to the page load time).

For their part, content providers still struggle to deal with mobile because they could not reliably predict the network conditions of the last mile. A square block in New York City could see huge variances in traffic conditions over the course of a single day. To deal with this problem, most mobile operators have decided to put in place caps, which is a solution that angers many customers. Those same mobile operators would love to figure out a way to decrease latency while increasing the amount of data that a customer can view on their mobile device and this is where some of the new mobile acceleration services in the market fit in.

Indeed, mobile is the fastest growing segment of the Internet and will likely continue to grow in importance. So CDN providers that want to keep content customers happy will need to address this segment aggressively. This is why the folks at Cotendo believe that content owners can leverage CDN and other technologies to improve last mile speeds for mobile devices by optimizing other parts of the transit process rather than expanding the last mile pipe. Cotendo breaks this effort down into three realms to address: the network layer, the content layer, and the business logic layer.

Network Layer: A critical part of the bottleneck is the HTTP protocol. It's more than a decade old and was never designed for mobile network topographies of limited bandwidth, variable round-trip times, and diverse display and processing capabilities of mobile devices. Problems with the HTTP protocol are numerous. A single request per connection is allowed, the equivalent of a phone conversation where only one party can be heard at a time. A first-in-first-out queue structure makes it impossible to use business logic within a single connection. Browsers work around the problem by using multiple connections, which means more origin server calls and greater latency for mobile page loads. The HTTP protocol does not allow many types of compression that would help speed mobile traffic. Further, the HTTP protocol insists on redundancies that result in the same request being sent repeatedly across a connection. This includes headers such as user-agent, host and accept that are generally static and should be cached.

Cotendo is working with Google to build a newer protocol dubbed SPDY into its CDN. SPDY solves all of the above problems and Google estimates it could decrease latency by 50%, which would have a big positive impact for consumers. Currently SPDY is supported only on Chrome, but likely it will be supported on Android on its next release, so Cotendo is positioning itself and its customers to benefit from this eventual and inevitable move away from HTTP. Because SPDY works over TCP (the default transport protocol for the Internet) disruption to the infrastructure will be quite minimal.

Cotendo is deploying a few other approaches at the network level to speed content, as well. Dynamic site acceleration (DSA), which I explained in an earlier blog post, involves a combination of improved TCP algorithms and route optimization along with more advanced DNS mapping to speed up transport of packets at the network layer. And Cotendo is rolling out a joint product with Citrix Netscaler that will offer direct integration between WAN optimization hardware devices on the origin side of the network with CDN POPs. The result should be significantly faster speeds from the origin over the first mile to the middle mile, and then faster transit through the CDN to POPs that connect to the last mile and mobile gateways near the end user.

Content Layer: Cotendo is using a number of tools to squeeze content into a smaller footprint without requiring alterations on the origin server. Adaptive image compression generates and caches various image sizes close to the network edge once a user session has started and serves up the image most appropriate for the end device and network conditions. By recompressing an image Cotendo can shrink its size to be 25% smaller or more of the original size. This is important because images attribute an average of 60% of overall page size on mobile sites, according to mobile.httparchive.org. Cotendo takes this real-time decisions with regards to device type and network condition to other decision on content serving, making smarter decisions on caching and delivery to accommodate the specific conditions of each request.

Business Logic Layer: This has traditionally been the hardest one to address for CDNs trying to improve mobile content page load times. That's because its the most personal, individual and dynamic and the most resistant to caching. Serving the right social network content, mobile commerce, mobile ads and coupons and location specific data all require some degree of logic. To address the logic side, Cotendo has built Cloudlet, an application platform that pushes logic that previously resided in the origin server far out to the edge of the network close to the end user.

For example, AccuWeather and AT&T use Cloudlet (video case study) to serve geographically specific weather data to end users and cache key parts of the data in the edge of the network. Once the initial data call has occurred, Cloudlet enables AccuWeather to locate significant chunks of content in the edge of the network based on the premise that, barring a major location change in a short period of time. So Cloudlet will pull in pages appropriate for the end device, connection speed, and adjacent page content that business logic dictates might be clicked on by the end user. In a similar fashion, Cloudlet would let a mobile ad network push to the edge ads that are close to an end user's location and then serve them the correct ads subsequently without requiring additional content calls back to the origin server.

Many of the CDNs in the market today have a mobile solution, but most of them are talking about the delivery of video or ad insertion and are not yet addressing the acceleration part of mobile content. In January, Akamai announced a "strategic alliance" with Ericsson to bring to market mobile cloud acceleration solutions and showed off a prototype at Mobile World Congress the same week. No further details have yet been anncouned about when the product will launch or exactly what it looks like, but it does appear that Cotendo and Akamai/Ericsson are taking different approaches with Cotendo targeting content owners and Akamai/Ericsson jointly targeting last mile providers.

These are just a few of the ways that Cotendo is looking at speeding up mobile content and the whole market for these services is just starting out. I'll be diving deeper into each of these areas in subsequent posts and welcome your comments or suggestions on what questions to ask and what technology topics to cover in this rich area of innovation.

[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.