This morning, Google announced they would acquire On2 Technologies for $106.5M. While the deal is not expected to close until sometime in the fourth quarter, many writing about this are already declaring that Google will now disrupt the online video industry by speculating that Google will open source On2's VP8 technology. While Google could go the open source route, there are a lot of reasons why that would not disrupt the industry and I think way too many people now want to say Google is going to win the online video war, when all the did was acquire a codec. (also see part two of my post entitled "Debunking Some Myths Of The Google/On2 Deal, Questioning VP8's Quality")

While many want to speculate that Google bought On2 so that they could use On2's VP8 codec instead of H.264 for YouTube and not have to pay licensing fees to MPEG LA, the cost to license H.264 is $10,000 per website. So even if Google had 100 websites, it would only cost them $1M a year. That's not the reason to go out and spend 100x that to buy On2. So H.264 licensing is not the issue. Also, some folks have written that by buying On2, Google now doesn't have to pay Adobe a Flash license fee for YouTube streaming. As anyone in the industry knows, Google doesn't pay Adobe any fee for Flash as YouTube doesn't deliver any of their videos via the Flash streaming protocol, (RTMP) from a Flash server. All of YouTube's videos are progressive downloads which come off of Google servers, so no license fee is paid by Google to Adobe.

While Google could very well switch YouTube over to VP8 and then force Microsoft and Adobe to include support for it, that would go directly against YouTube's own support of H.264 for their HD videos and more importantly, would kill any four screen strategy for the company. Like it or not, many industries have already adopted the H.264 standard for everything from set-top-boxes to video conferencing applications. I don't see Google trying to build up VP8 to try and disrupt H.264 when it's a standard that has been well adopted. Look at all of the devices like the iPod and others using H.264. If Google truly wants to have a four screen strategy for delivering YouTube outside of the PC, VP8 is not the way to do it.

In addition, VP8 is a codec, not a platform. Today, content owners are working to solve the problems of the entire video ecosystem and need a platform and third party solutions that tie into that platform. The codec is just one small piece of the entire system that's needed. Many hardware devices today have built in support for H.264, like encoding boxes, to help content creators solve problems with encoding. None of those boxes have support for VP8 today and very few even have support for VP6.

The other big thing to keep in mind that is that today, no one has seen VP8 in action. Everyone is assuming the quality is better than H.264, but is it? On2 has yet to prove that in the market and even if it is a better technology, you wont overcome the market standards already in place for devices. Also, while YouTube has a lot of power in the market, keep in mind that consumers don't know and don't care what codecs are. While one could assume that Google will do something with VP8 and Chrome tying into the new HTML 5 standard, is that the reason to spend $100M to acquire a codec? I don't think so.

While many want to automatically assume Google will always be successful in whatever they do, simply because they are Google, they have never done anything well outside of search and advertising, as far as generating revenue goes. If they want to challenge H.264, they'll lose. If they simply acquired On2 for their own use in YouTube and Chrome, ok, could work. But it won't have any major impact on the industry.

On yesterday's earnings call, Akamai once again said they were seeing more pricing pressure in the market and stated that they are being more aggressive on their CDN pricing. While this may sound like Akamai is finally waking up to the reality of what's taking place in the market, I don't think that's the case and they still aren't taking the necessary steps needed to grow their CDN business.

Back in December I wrote a post entitled "Akamai Getting More Aggressive On CDN Pricing, But More Steps Are Needed", and I detailed how I was seeing Akamai compete on some deals with lower pricing, but not on enough of them. Seven months later, Akamai's saying they are going to be more aggressive, but noticed they always followed that statement on the call with phrases like "with key customers" or "with key strategic customers". If Akamai has any intention of growing their CDN business again, they can't be more aggressive on pricing only with "key customers". If they have finally come to the realization that their CDN pricing is too high, then it's too high. That's the bottom line. It's not that it's only too high for "key customers", it's too high for everyone. And what every investor should be asking is, what percentage of revenue do those "key customers" make up? If those "key customers" are only responsible for lets say 20% of Akamai's CDN revenue, then lowering pricing for them really won't have much impact.

On the day of Akamai's earnings, I saw two deals where Akamai was charging a customer $10 per Mbps and that customer left Akamai for a competitor who was charging $6.50 per Mbps. This was a customer that was billing about $800K a year and Akamai wouldn't lower their pricing, but did offer to defer their payment until next year. I also heard from another major M&E customer who said Akamai charges them $0.15 per GB delivered, with no monthly commit, yet other competitors are at $0.10 per GB on the same deal. Akamai can't afford to be aggressive with pricing for only select customers.

Continue reading »

While I have been keeping a running list of CDNs for some time, back in January I had to add a section to the list just for all of the carriers and telcos who have started offering CDN services in the market. With the sudden surge of non pure-play CDNs now offering CDN services on top of their core business offerings, the list of non pure-play CDNs only continues to grow.

Here's an updated list of CDNs in the market, broken down between pure-play CDNs versus non pure-play vendors like carriers and telcos. (To make the list easier to find on my blog, all you have to do is go to www.cdnlist.com for the latest update)

Non Pure-Play CDNs

• Alcatel-Lucent (acquired Velocix 7/09)
• AT&T
• Bell (working with Limelight)
• Broadmedia
• BT (will launch by year's end)
• Deutsche Telekom (partnered with EdgeCast)
• Global Crossing (reselling Limelight and EdgeCast)
• Internap (acquired VitalStream)
• Level 3 (acquired CDN assets of SAVVIS, acquired Servecast)
• NaviSite (reselling EdgeCast)
• NTT Communications
• Pacnet (partnered with Internap)
  
• PCCW
• Reliance Globalcom (partnered with Internap)
• SingTel
• Tata Communications (partnered and invested in BitGravity)
• TeliaSonera
• Telecom Italia Sparkle (reselling CDNetworks)

Pure-Play CDNs

• Accelia
• Abacast
• Advection.net
• Akamai
• Amazon Web Services
• BitGravity
• BitTorrent
• CacheFly
• ChinaCache
• CDNetworks
• Cotendo
  
• Conviva
• Digital Fountain (acquired by Qualcomm 2/09)
• EdgeCast
• EdgeStream
• Grid Networks (merged with GMS 4/09)
• Highwinds
• Itiva
• Limelight Networks
• Mirror Image
• Move Networks
• Pando Networks
• Panther Express (acquired by CDNetworks 2/09)
• PEER1
• Real Broadcast Network
  
• Technicolor
• Velocix (acquired by Alcaltel-Lucent 7/09)
• Voxel.net
• Vusion (went out of business 5/09)

Before anyone starts saying it's not fair to put all these folks on a list, please read my disclaimer in my last CDN post which explains many of the differences between the CDN vendors in the market.

Related Post:

– Video CDN Pricing Drops Slightly In Q1, Other Contract Trends Noticed

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Vusion, a peer assisted content delivery network formerly known as Jittr Networks closed their doors about eight weeks ago and is shopping their assets.(Updated: Vusion's IP has been sold to Clarendon) Officially launching on May 5th of last year, Vusion burned through around $11M in VC funding in just twleve twenty four months. Like many of the CDNs who grabbed VC money at a time when it was being given out by the handful, Vusion was doomed from the start as they had no business model. While they were quick to point out the strengths of their technology, they were too late to the game and had no plan for how their technology would translate into revenue.

Vusion joins Panther Express and Grid Networks on the list of CDNs who in the past few months, have closed up shop or been forced to have to merge with others. Add today's acquisition of CDN Velocix, and you can see that the CDN market is starting to consolidate and not in a positive light for most of the VCs involved.

Vusion isn't the only CDN on the short list of those in trouble and we'll see a few more CDNs, mostly newer ones launched in the past twelve months, go under before the year is up.

Updated: Vusion's 14 paying customers were transitioned over to Ooyala.

Related Posts:

– Alcatel-Lucent Acquires CDN Technology Provider Velocix

– No Major Consolidation In The CDN Market Anytime Soon

– Three More CDNs Launch, Market Too Crowded

– What's The Barrier To Entry In The CDN Business? A Few Hundred Million

– New CDN Conviva Gets $20 Million In Funding: VCs, Stop The Insanity!

This morning, Alcatel-Lucent (ALU) announced it has acquired CDN technology provider Velocix. As I reported two months ago, Velocix had been in talks with various companies about being acquired and the deal with Alcatel-Lucent closed five days ago. Terms of the deal were not announced and while I have not spoken to anyone yet who can confirm my estimate, my guess would be the deal size was around $20-$25M. To date, Velocix, formerly known as CacheLogic, had raised over $50M spent about $25M, from at least four rounds of funding and was doing well under $10M a year in sales.

For Alcatel-Lucent, this acquisition was purely a technology one to get their hands on Velocix's Metro product line and they didn't acquire the company for their revenue. Velocix's Metro product will not be bundled into Alcatel-Lucent's offering and will directly target service providers like Verizon, who are some of Alcatel-Lucent's largest customers.

The Velocix Metro product will fall under the IP division at Alcatel-Lucent which reports into Steve Vogelsang, VP Of Business Strategy. I had a chance to speak to Steve yesterday about the deal and he mentioned that while it's too early for the company to comment on everything they plan on doing with Velocix's technology, they do see this as natural fit for their service provider business. Steve said that, "many of our customers and service providers have been evaluating their CDN strategy and the Metro is a really well thought out product for what the service providers need." Steve said the immediate goal is to take the Velocix product offering, productize it and start offering it to their largest customers.

When asked if Alcatel-Lucent plans to continue to operate the Velocix CDN and compete in the traditional CDN business Steve said, "we're not sure exactly how we will proceed with the CDN services but our focus is going to be providing solutions to our service provider customers." I don't see Alcatel-Lucent competing in the traditional CDN business with the likes of Akamai and Limelight since that's not what Velocix is truly setup to do and isn't a fit for who Alcatel-Lucent's customers are. That said, no current Velocix customers will be impacted and all of the licensing deals Velocix has in place with customers like Verizon simply stay as they are.

I also asked Steve how important Velocix's P2P functionality was to Alcatel-Luncent when they were evaluating the technology. Steve said that the P2P function is interesting but that most of the operators they are talking to today are looking at building out a CDN infrastructure that supports standard protocols and not P2P. He did say that when it comes to P2P, the operators are intrigued, but
are still wondering how to control, manage and exploit P2P traffic.

I'll post an update to my guess on the deal size if I get more concrete details.

Related Posts:

– Content Delivery Provider Velocix Close To Being Acquired, Telco Most Likely

– Velocix Launches New CDN Offering For ISPs With Support From Adobe and Microsoft

– Velocix Acquires Live P2P Technology From Rawflow, Announces Deal With Kontiki

– Q&A With John Dillon, CMO of Hybrid CDN Velocix

It's been two and a half years now since I started this blog and in that time, amazingly the blog has done over 2M page views. Traffic to the blog continues to climb and is on track to do 1.5M page views this year alone. None of this would have been possible without the continued support of many other bloggers and sponsors for whom I need to thank.

A lot of my traffic comes from other writers and websites who nicely link to many of my posts. Many thanks to Steve at Last100.com, Rich at DataCenterKnowledge.com, Rob at TelecomRamblings.com, Rafat and his team at PaidContent.org, the entire crew at NewTeeVee.com and GigaOM.com, Andy at Beet.tv, Dan at Silicon Alley Insider, the team at Engadget.com, Larry at OnlineVideoPublishing.com, Pete at FierceOnlineVideo.com, Ben at OnlineVideoWatch.com, Mark at ReelSEO.com, Dave at ZatzNotFunny.com and many of the other sites, including vendor blogs, who continue to link to my content.

I also need to thank all those sites that syndicate my content including SeekingAlpha.com, Yahoo! Finance, WashingtonPost.com, NewYorkTimes.com and BusinessInsider.com

In addition to those who have linked to the blog, many of the vendors in the industry have also supported the blog by coming on board as sponsors. My thanks to the sponsors I've had over the past two years including: Adobe, Akamai, EdgeCast, Ignite Technologies, Internap, Kontiki, Level 3, Limelight Networks, Microsoft, NaviSite, NetStairs, Ortiva Wireless, PEER 1, Skytide, Tremor Media and my newest sponsors coming on board, ChinaCache, The FeedRoom and Sorenson Media.

Also, while the TypePad platform is not perfect, I have to thank them as well for providing a blogging platform that has allowed me to host and run this site for only $99 a year.

I've had a lot of fun over the past two years, have written 804 posts and received 2,987 comments. Thanks to everyone who has contributed to the conversations taking place on the blog and I look forward to continuing to hopefully write about topics that are of interest to the industry and community.