During Internap's second quarter earnings call yesterday, the company announced they would take a write down of $55.6M, with about 90% of that coming from the legacy VitalStream CDN business. Having already taken a write down of approximately $99.7 million for their CDN business back in October of last year, Internap has now written off around $150M of the $217M they paid for VitalStream in February of 07'. With this latest action, Internap has now removed the VitalStream acquisition from their books and is starting from a clean slate, so to speak, in regards to their CDN business.

With the VitalStream acquisition now out of the way, Internap also announced they would realign the company into two divisions, with their CDN services now falling within their IP services and data center services segments. The traditional CDN business will fall under the IP services group and the legacy manages services business from the VitalStream acquisition aligns under the data center business. On paper this makes a lot of sense and I think it gives us a clearer picture of how Internap's CDN offering will fit in with the rest of their business.

While Internap still needs to come to the market with a clear and concise CDN product offering and message on what exactly they offer, and still needs to fill the open vacancy's for their GM of CDN and VP of engineering, it sounds like Internap is now a lot more realistic on where their CDN product aligns with the rest of the company.

On the call CEO Eric Cooney mentioned that Internap is working to launch their "next generation CDN product later this year", which has some investors speculating that Internap is working on some kind of new CDN technology. In a conversation I had with with Internap last night, they explained that the technology they are working to roll out are things like support for Microsoft Silverlight and Smooth Streaming, not some kind of proprietary CDN technology.

Over the past two years, it's been start and stop for Internap's CDN business as they have made so many changes to their management and the focus of the company, that's it's been impossible for their CDN offering to get any traction or have any focus. With management changes now hopefully completed, the VitalStream acquisition off the books and the company realigned, hopefully Internap is now at a point where they can move forward once and for all with a very focused CDN offering. Only time will tell.

Following up on my earlier post today entitled "Google's Acquisition Of On2 Not A Big Deal, Here's Why", here's some more thoughts on the subject. While clearly no one, including me, truly knows what Google plans to do with On2, a lot of potential scenarios being discussed on the web revolve around facts that just aren't accurate. I'm all for having a discussion on what Google may or may not do with the On2 assets, but a lot of folks are using bad info to come up with their logic behind what Google may or may not do. Here are some of the "myths" I keep hearing or reading about:

• Google will no longer have to pay Adobe a license fee for using Flash on YouTube: The reality is that Google does not stream videos from a Flash server using the Flash streaming protocol of RTMP. Since all YouTube videos are delivered via HTTP, progressive download, Adobe is not getting any license fee from Google.

• Adobe has to pay On2 licensing fees for support of the VP6 codec: Adobe paid a one-time fee to license VP6 for Flash years ago. They don't currently pay any royalty for VP6 and there is no reason why Adobe would have to pay Google any kind of license fee to continue to support VP6.

• Google already uses VP6 for YouTube: YouTube has not used VP6 for their videos. They originally started off by using H.263, Spark, and added H.264 support for their HQ and HD videos. 

• Google will now be able to "speed up" YouTube videos: Being able to speed up the delivery of video primarily rest in how the content is delivered and the server and protocols used. While compression does play some role in this, the ability to "speed up" the delivery of videos primarily comes from the infrastructure side of the ecosystem, not the encoding. On2 has no server component so even if Googe adopted VP7 or VP8, don't expect the poor buffering times on Google to be fixed.

• Acquring On2 will allow YouTube to save on bandwidth costs: Again, while the rate of compression has an impact on the number of bits being delivered, it is not the biggest factor involved in the costs of delivering video. Yes, if you can compress the file smaller and have better quality, you might be able to save some money, but typically when that happens you increase the bitrate and end up delivering more bits at higher quality. And with YouTube moving to HQ and HD video, they are delivering more bits, not less. They didn't spend $100M to save on bandwidth costs.

• Because of On2's encoding products, it might save Google some money in electricity costs and server hardware: The reality is that On2's transcoding based service runs off of Amazon and I don't see Google cutting checks to Amazon over the long run to keep this service up and running. While On2's Flix encoding software could have some value to YouTube in helping them ingest and transcode videos, the savings they would see, if any, would not warrant the $100M price tag.

• On2 could have a big impact on video quality and delivery of YouTube: Again, it won't have much impact on the delivery aspect. Could it have an impact on the quality? Possibly. But until we see VP8 in action, no one truly knows.

As for the issue surrounding the quality of VP8, we don't know how good the codec is. I have been getting a lot of calls and questions asking me why I think the quality of VP8 is not as good as H.264. I never said the quality was not as good, I said, "Everyone is assuming the quality is better than H.264, but is it?" It may be, but the point is, we don't know. I have spoken to two content owners who were using VP8 under beta and told me there were not impressed. On2 announced VP8 back on September 13th of 2008 and nearly a year later, where is the adoption? Not to mention, the subtitle of the On2 release says "On2 video delivers over 50% bandwidth savings compared to leading H.264 implementations." That may be, but where is the data to prove it?

For nearly the past year, StreamingMedia.com has made multiple requests to On2 to let us get hands on with VP8 so we can compare it for ourselves, just as we did in 2006, when Jan Ozer produced a 100 page report comparing all of the Flash video codecs. To date, we've not been given anything to test with VP8 and it's worth noting that the H.264 sample clips that On2 uses on their website and at tradeshows as comparison to VP8, are not optimized H.264 videos, so the comparison is not fair.

Is VP8 really better than H.264 from a quality perspective? It may or may not be. The point is, let the industry get hands on with it and test it themselves. I'm sure many will say it must be better if Google is willing to acquire On2, but keep in mind we are all speculating that they even want to compete with H.264, which may not be the case. No on seems to be thinking about the potential live streaming aspect for VP8 which for low latency, real-time streams, could work just as good if not better than H.264 for bi-directional video chat applications like Google Talk.

Clearly we all have a lot of unanswered questions and hopefully soon Google will start to lay out a road map on what they plan to do, although considering they don't like to talk about things and the slow rate at which they move, I'm not holding my breath.

For more details on the subject of VP8's quality, see Tim Siglin's post from last year on StreamingMedia.com

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

Tomorrow at 2pm ET I’ll be moderating another StreamingMedia.com webinar, sponsored by Grab Networks, on the topic of Video SEO and how to get your videos discovered. Attendees will learn best practices for optimizing videos for search, including:

• Automating metadata extraction and analysis for SEO
• Creating search-worthy URLs, titles, tags, captions and MRSS feeds
• Exposing keywords to search engine crawlers automatically
• Leveraging search-friendly distribution outlets like YouTube
• Available solutions to help you maximize your video SEO efforts

From developing backlinks to automating metadata generation, this webcast will provide you with the know-how to successfully optimize your online videos for search and grow your audience. There will also be an extensive Q&A session after the presentation. Presenters will be Marcien Jenckes, Co-President of Grab Networks and Mark Robertson who runs a great blog dedicated to the subject at ReelSeo.com

You can register to attend this free webinar here

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!