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.

All of the sessions from last month's Content Delivery Summit have been archived and are now available below for viewing. We've also added all of them to our conference video archive at www.streamingmedia.com/videos and presentations from the event are available for download from the CDN Summit website.

Keynote: Chris Osika, Senior Director, NA Lead IBSG SP Practice, Cisco

Read a recap of this keynote on StreamingMedia.com

Keynote: Barry Tishgart, VP, Comcast Cable

Read a recap of this keynote on StreamingMedia.com

CLICK HERE FOR ALL THE VIDEOS

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Updated June 8th: After getting some feedback from vendors and carriers in the market about this post, I have updated it with additional thoughts. My intention with the post was to help educate the market on how the architectures work and I was not trying to say one architecture is better than another since I am not a network engineer and don't operate a carrier network. I don't think the post was neutral enough and will be correcting that so I have re-written some of it and removed the references to performance. Also, in talking with both carriers and MSOs for the piece, it's clear that the two kinds of companies should not be combined in terms of how they deploy these solutions as MSOs are very different than carriers. I have also updated the title of the post so that it is simply talking architecture and not performance.

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Two weeks ago, at the Content Delivery Summit, one of the biggest topics being discussed was the technology of transparent caching (definition). Telcos, carriers, MSOs and ISPs are hard at work building out CDN and transparent caching services inside their network for the delivery of video. Over time, these carriers and ISPs plan to compete with SaaS based CDNs and take over more control of the delivery of content to their users, since many of them own the last mile. (See CDN Summit video: Transparent Caching: Cost Center or Business Opportunity?)

There are differences in the approach of many types of carriers in how transparent caching platforms are deployed. Some own vast libraries of video content and want to provide it to their subscribers on as many devices as possible, others are squarely involved in providing Internet services as a business and are focusing on network optimization. I hope to cover the differences in operators in future posts, but that will be for another day.

Recently, I wrote a post entitled "An Overview Of Transparent Caching and Its Role In The CDN Market", and this post looks to suppliment that with more technical details on the features and functionality required for the successful various architectures used during the integration of a cache system into an operator network.

When evaluating cache systems available on the market, operators typically consider two main the following parameters: impact on network costs and subscriber quality of experience, ease of deployment and operation, how the solution affects Internet application delivery and the larger Internet video ecosystem, and lastly, how it fits into the operator’s long-term content delivery network strategy. Before undertaking a deployment strategy, operators spend a great deal of time testing and evaluation the system's architecture and basic design, which will dictate its overall behavior and determine its ability to meet the operator's requirements. There are two three main transparent caching architectures currently on the market: called in-line and out-of-band two leverage an in-band architecture and one architecture uses an out-of-band approach.

In-Line Cache Architecture
In-band cache systems use a mechanism where Internet traffic is redirected to the in-band system. The user request is analyzed near the point of redirection, and based on an algorithm decision, specific content is cached or served from cache. The storage and analysis are typically collocated.

The two in-band architectures differ in the way they manage sessions and make decisions on what content is stored and served from the cache. One in-band architecture is a traditional cache proxy, in which every TCP session is terminated by the cache from the subscriber and a new session is created with the origin. The other approach is a transparent in-band cache, in which the session between the subscriber and origin is preserved, but requested objects are cached or served from cache based on analysis performed by the cache system.

Internet traffic is can be redirected to in-band cache systems by various methods: 1) policy-based routing (PBR) on currently installed network equipment; 2) from a deep packet inspection solution (existing or newly installed); 3) via Web Cache Communication Protocol (WCCP) or 4) through application load balancing equipment (existing or newly installed). The cache engine can also be embedded in the redirecting network element such as a BRAS, CMTS or DPI engine. The deployment method chosen depends on the resources available at the deployment location and the goals of the operator.

Out-of-Band Cache Architecture
In an out-of-band cache architecture the control plane and data plane of the caching system are separated. A route advertising protocol, such as the border gateway protocol (BGP) or static routing, is used to direct user Internet request traffic to a cache manager. At the cache manager, the user request is analyzed and based on an algorithm decision, a specific content request is directed to a cache server that has the object in storage to serve the object. In the event that the requested content is not available, the cache manager forwards the subscriber’s request to the origin and the content can flow directly from the origin to the requester. If the algorithm decides the content should be cached, it tells a cache server to retrieve the content from the Internet for the next user.  Cache managers are typically located in a centralized network location.

Cache servers are the file storage and delivery elements used in an out-of-band architecture to serve content to subscribers and to retrieve content from an origin. They are connected to both the cache manager and the Internet and may or may not be collocated with the cache manager.

The above descriptions are extremely simplified descriptions architectures used by operators to manage the explosion of OTT content on their networks. Operators are all bringing different goals to their CDN and caching network deployments and depending on exactly what the short and long-term objectives are, any of these architectures may be relevant. In my earlier post, I should not have stated that one architecture was better than another, as it all depends on what the carrier is trying to accomplish. There are various value propositions presented by vendors in the transparent caching space and as I mentioned in my earlier post, there are some key factors to consider when evaluating each of these architectures and vendors.

Eighteen months ago, almost no one was talking about transparent caching as operators were not yet serious about deploying these kinds of content delivery technologies inside their network. But if there was one thing we heard loud and clear from the carriers and telcos who spoke at the Content Delivery Summit last month, it's that they are now heavily investing the time and money to deploy transparent caching architectures, amongst other CDN platforms, and that the market for these services is going to grow very fast. I recently completed a study at Frost & Sullivan and we expect the market for transparent caching services to grow to nearly half a billion dollars in the next three years. I'll have more details on those numbers in a future post.