With VC funding for CDN and P2P delivery networks already topping $325 million in the past 18 months, it was no surprise to see Conviva, formerly known as Rinera Networks, announce this morning that it has raised $20 million in a series B round led by UV Partners with participation from Series A investors New Enterprise Associates (NEA) and Foundation Capital. This brings Conviva’s total money raised to date to just over $29 million.

Anyone who has read my blog long enough knows I am pretty straight forward when it comes to describing what I see in the market. The one thing I really dislike, more than anything else, is a company that talks a big game while delivering nothing more than marketing speak. Instead of Conviva quietly raising the money and not coming to the market and pitching editors on the company until after they have a real story, customers, and product to talk about, they make a big deal now about the company, even though there is nothing to talk about. Why would you want to be known as a company who has raised a lot of money and has no product they can talk to? Does anyone in this industry know how to do good marketing anymore? There is no story here, nothing to latch onto and simple saying we got a lot of money equals absolutely no creditability.

If it was just a press release with the basic info and was left at that, no issues. But what makes it worse is that the founder speaks to the media and gives ridiculous statements like, “The first generation of video delivery just doesn’t work”. Really? So what is all this video content that I am watching on the web? Seems to be working just fine for myself and many others. And considering that the worldwide market for CDN video services will be north of $400 million this year, I’d say it’s working quite well.

But then again, what do I know. I always thought I was watching live video over the past many years. But apparently I’m not since Conviva says they are the developers of the “FIRST live media platform that enables media companies to deliver an inviting, exciting and uniting online live experience.” So apparently, not only is the current Internet broken, but also Conviva is the first and only company who has a platform capable of delivering an inviting and exciting live event on the web. How bad does that make a company look, to make a statement like that, just after the Olympics finished being streamed live on the web.

And since you said it when describing today’s networks, what exactly is the “first generation” anyway? You mean the networks that have been around for ten years and have constantly updated their technology and infrastructure? That quote makes it sound as if companies like Akamai launched a CDN ten years ago and in that time, have never made any improvements to their technology and are running on legacy systems. The other interesting thing to note is that when Conviva was known as Rinera Networks, their focus wasn’t even on live video.

Looking at the very limited details of their offering on the Conviva site and it reads like a dictionary of the most popular buzz terms in the market today. They manage to get nearly all of them into just a few sentences including “greater brand loyalty”, “engage audience”, “site stickiness”, “monetize perishable content”, “target advertising”, “new platform” and “real-time Intelligence”. And while the site says they have a white paper on something, they don’t make it available on the site and say you can only get it if you contact them. Odd. They contact members of the media asking for coverage, but then don’t send us the white paper, which potentially could actually give us something to write about in our coverage. Great marketing strategy. Conviva won’t say how their platform works, what exactly it does, who the customers are, how it is priced, when it will launch, what video formats it will support, how the product/service will be sold or even give real details on what they are going to do with the $20 million that was just raised.

Now I don’t fault Conviva for taking the VCs money as they are simply getting their piece of the pie like the previous 20+ companies have in the last 18 months. But what I’d like to know from UV Partners, and would welcome their response in the comments section below, is how big is the market for live streaming on the Internet? And how much will it grow by over the next three years? Since none of the CDNs I speak to have ever broken out what percentage of their revenue is from just live streaming, how big do you think the market really is? And more importantly, what percentage of the market do you think Conviva can capture and how quickly? Live streaming over the Internet is a small market today and even with big growth, will always be small compared to video on demand.

My personal estimate is that less than $50 million a year in revenue comes from the delivery of live video. And right now, Akamai and Limelight combined have at least 75% of that market. So is Conviva saying it is trying to challenge Akamai and Limelight for that business? If so, you started on the wrong path. Lots of noise, lots of marketing terms, yet no info or story of any kind.

Note: Just as I was about to make this post live, someone from UV Partners returned my call. While they nicely spent a few minutes on the phone to hear my questions they were not able to give out any more details on Conviva at this time.

While I think it’s great that more folks are starting to write about the content delivery market as it pertains to video, lately, too many articles being published are full of inaccurate and just flat out wrong info. Earlier in the week, there was the ZDNet story about Limelight, the Olympics and Akamai which got many of the facts wrong on how Limelight and Akamai’s networks operate, requiring both companies to respond to the article to correct the info.

And earlier today, we had multiple bloggers reporting that Level 3 had signed up the BBC for business that had been taken from Akamai. The source for this info was from a blog posting by Anthony Rose at the BBC who heads their digital media technology. No where in Anthony’s post did he say anything about "switching" from Akamai to Level 3 or "replacing" Akamai for Level 3. Bloggers are implying that Akamai was the "previously chosen" provider and that Akamai has lost their BBC business, which is blatantly inaccurate, as confirmed by Akamai.

Where is the fact checking by these authors? How about speaking to the companies involved before you write the article? You’re trying to decipher what someone from the BBC said on his blog and implying things as "facts" which is inaccurate. I had no problem contacting both networks involved to confirm the accurate info as I read it from the BBC blog.

Yes, the BBC has signed up with Level 3 for a new trial using H.264. But as Anthony says on his blog, "we’re going to create our content in both On2 VP6 and H.264 format". So this is new business that Level 3 is getting and not the business that Akamai still has with the BBC. How did so many bloggers get this wrong? Clearly we know it is new business when Anthony’s says in his blog that "Initially the H.264 option will only be offered to people who have the latest version of Flash installed, and will be offered incrementally as new content rolls out through our encoding chain." It’s not a replacement for what the BBC is doing now; it is an addition that will be rolled out in phases.

Not all writers got it wrong. Like me, Rob at TelcomRamblings.com questioned the assumption that Akamai was "replaced" and instead he focused on writing an interesting post on what some of the issues are at the ISP level for the delivery of the iPlayer.

Bottom line, journalists need to do a much better job of fact checking and not run a story just for the headline or because they feel since other bloggers ran it, they have to also. Myself included am not above the responsibility we all have to get the facts right. I’m sure I have not gotten every single thing I have ever written perfect, but you have a much better chance when you speak to the companies involved before you publish an article.

My Frost & Sullivan webinar from yesterday entitled "Content Delivery Networks: Market Drivers & Challenges for Delivering Video" is now archived and available for viewing. You can also download the slides directly from the presentation.

We had nearly 50 questions presented during the Q&A portion of the event and over the next few days, I will be compiling all of the questions and providing written answers to them on my blog. Additional questions are welcomed and can be sent in via the feedback form on this post.

Yesterday, on my Frost & Sullivan webinar (stream archives here) (download audio here) about the video CDN market, we released preliminary data from the upcoming Frost & Sullivan report entitled "World Content Delivery Networks Market". Due out next month, this report will break out the worldwide CDN revenue, specific to video delivery in the North America, Europe and Asia Pacific regions.

The preliminary data shows that the worldwide video CDN revenue will be a little more than $400 million in 2008, increasing at a Compound Annual Growth Rate (CAGR) of more than 30%. As the slide below shows, we expect the worldwide video CDN revenue to grow to more than $1.4 billion by 2012.

These numbers are very specific to revenue obtained for video delivery services by CDNs and does not include revenue from P2P based networks or any type of content outside of video. While the report, when released, will also break out P2P based revenue and include additional types of content like gaming, these numbers are for video delivery only. To obtain these numbers, we spoke to every major CDN provider in North America, Europe and Asia and obtained revenue numbers or guidance, from nearly every one, on what percentage of their revenue came from just video and from what region.

While there have been a lot of reports put out lately on the CDN market, I had yet to see one that breaks out revenue for just video delivery, which as everyone knows, is one of the fastest growing segments of the overall CDN industry. Delivering video is a completely different animal than delivering other types of content and we think it is important to treat it as such and provide data specific to that market. When released, the report will also detail the market drivers, restraints, market share, competitive analysis, and industry challenges specific to the video delivery industry.

Eight months ago, I wrote a post on my blog that gave out numbers on the size of the video CDN market. These Frost & Sullivan numbers are more accurate and more specific since we spent a lot of time interviewing every CDN, including those outside the U.S. Also, my previous numbers from last year contained revenue from some P2P based services and other content such as gaming, which is not really classified as video and should be put in the application category. These numbers also contain more realistic growth projections based on having spent weeks speaking to every major CDN.

That being said, what factors going forward have the ability to affect and alter these numbers? Clearly, many forces are at play in the market and faster adoption of HD content, mobile video and other consumer facing content services have the ability to grow the market faster. While some may assume that the market will grow larger by the entrance of new CDN players, like carriers or telcos, that won’t change the market size, only the market share.

Putting exact numbers to any industry, let alone a specific segment of the industry like outsourced video delivery, takes collecting a lot of data and speaking with every vendor in the market on a regular basis as well as speaking to hundreds of customers. Once the report is finalized and ready for release, it will provide a lot more granular details on the data and will talk about market factors that could change the market sizing either way. Frost & Sullivan will be tracking the CDN market very closely over the next 12 months and we’ll update these numbers based on new data we collect. I will also be doing additional webinars on the CDN market so I can answer as many questions as possible about the market and the industry’s growth. You can always find the latest data we have on the size of the video CDN market at www.cdnmarket.com

Market sizing data from this post can be used by anyone as long as you credit Frost & Sullivan.

In trading some e-mails with Jim Crowe recently, he was nice enough to spend some time to answer questions about Level 3’s CDN business for publishing here on the blog. While Level 3 has been pretty quiet in regards to their CDN business and the customers they have been winning, make no mistake that they plan to be a serious competitor. And I’m not just repeating the company line. I see it from talking to customers, learning of new contract wins and by seeing all of the pieces of the CDN ecosystem they are finishing putting in place.

While Level 3 still has some work left to complete before they make the hard push into the market, even reading their Q2 Content Delivery Network Newsletter gives you a good indication of just how much they have gotten done. Their CDN is now running Flash Media Server 3 (FMS3), they added CDN footprint in Asia, they finished the buildout and launch of their origin storage offering, they added the ability to limit the download speeds for progressive files, added byte-range request functionality (which is seeking into a file even if it has not fully downloaded or stored on the Level 3 network), added geo-intelligence rules to block access to media and enabled reverse proxy ingest amongst other things. And shortly, they plan to roll out detailed URL-level reporting, support for Silverlight HD, enable better customer self-servicing options, implement live WM push functionality, improve their live reporting features and add the ability for customers to move content from hot to cold storage.

And if you look around, you’ll see that they are already pushing out their new CDN messaging. On their new recently launched website, the main message on their home page is "Connecting Content Creators to Content Consumers" and talking about their content ecosystem strategy. A new Flash based presentation on their website entitled "From Creation to Consumption", really lays out the strategy Level 3 is taking, and it’s a smart one. Don’t just push bits, figure out how to help customers create, ingest, store, manage, track and deliver the content. It’s a good presentation and come Q4 of this year, you’ll start to hear a lot more details about Level 3’s CDN offering. And come Q1 of 2009, I expect Level 3 will become a serious player in the CDN market.

The following were questions I asked Jim specific for posting on the blog:

Question: While Level 3’s CDN business does not contribute much to your overall revenue today, what impact do you see it having on revenue 2-3 years out? How big of a business can CDN become for Level 3? 

Jim: We anticipate that the CDN business will become a major revenue source for Level 3 over the medium term. We expect the delineation between our Internet Transit business and our CDN business to blur in the fairly near term. At the very least, we expect our CDN business standalone to compare in size to our Internet transit business within the next few years. 

Question: At what point do the economics of scale really begin to kick in for Level 3 in regards to owning the network and having a cost advantage for the CDN services? Many telcos say it is cheaper to own the network, specific to CDN, but can you quantify yet just how much cheaper it really is?

Jim: We benefited from the economic advantage of owning a network from the time we entered the business – we will enjoy our cost advantage from the first bit carried to the last. Consider that our network (all layers) has been operating at scale for some years now and we don’t need to wait for CDN traffic to grow materially to enjoy that advantage. 

Two things are useful in trying to quantify that; most CDN providers break out, as a percentage of their overall costs, what they spend on network services (usually comprised of collocation, power and bandwidth). That portion of their total cost is the differentiating element. The advantage to us comes from the difference between the retail rates they pay, on a recurring basis, and our internal costs. See the answer to a following question for a more detailed discussion of CDN economics.

Question: As you know, many CDNs are entering the market and focusing only on price, even if they say they aren’t. Since your costs should be lower, will you come to market anytime soon with a really cheap price, undercutting everyone else, so that you can grab market share faster. While others are trying that model and will lose in the long run, you own the network, so can you win on price and still make money, or at least break even? 

Jim: We will certainly be very competitive on price. However, we have two other major advantages over most of the new entrants; scale and quality. We expect that many of the newer entrants will struggle to achieve a sustainable business model and, at the same time, provide the large and rapidly growing capacity that larger object (i.e., video) CDNs require. The customers we talk to are increasingly concerned about a provider’s ability to scale – today and more importantly tomorrow. We have already answered the question of our ability to scale.  With regards to quality, we are use to building and operating very large IP networks. We know how to operate them while keeping the performance and availability levels very high. All of the independent performance measures on our traditional services as well as our CDN places our products amongst the best performing in the industry.

Question: When does Level 3 begin to really attack the market with more marketing and sales specifically around the CDN product, without bundling it into all of the other products and services Level 3 offers?

Jim: Making a full range of optical and IP services remains core to our strategy. This approach allows us to meet the complete needs of media and entertainment companies who generally purchase a range of services from CDN to waves and sometimes dark fiber for data center interconnection and other facilities. 

While we have an advantage in selling to a large, existing customer base, we also have sales people actively seeking and closing new customers, some of whom may only purchase CDN. Because we have a portfolio of services to sell, we can leverage our ability to sell CDN and Internet transit to those customers that need both. We can also provide our Vyvx Broadcast customers with the ability to encode, deliver and store content. Based on the customer’s solution needs, we can bundle a host of services that we believe no other CDN provider is able to do today. We will continue to increase both the sales people selling and the marketing effort to raise the profile. 

Question: To date, from what I know, most of your CDN business has come from your current customers for other services. When will Level 3 focus on going after the pure CDN customers who have no other needs like transit or colocation?

Jim: Clearly you want to sell as many products as possible, but there is a lot of just pure CDN business out there today. We have paid particular attention to our existing customers since we have many long-standing relationships and because many of them had been asking us to enter the CDN space. We also target new customers who we believe will value the scale and scope of our offerings. Funcom is a recent example of such a new customer.

Question: A lot of people want to compare the decline in IP transit pricing to CDN pricing. Since it is not an apples to apples comparison for most and since most CDNs don’t own the network and you do, what insight do you have on this?

Jim: We divide the cost of a CDN into four primary elements: the cost to develop and deploy technologies such as intelligent traffic management and server cluster load management; IP/optical transport (i.e., bandwidth); the cost of CPU/storage in server clusters; and the cost to develop, acquire and protect intellectual property. Of these, we expect bandwidth and CPU/storage costs to dominate with the former the largest element of long run incremental cost. Underlying bandwidth costs have been falling quite rapidly, which have enabled a decline in IP/optical transport pricing. CPU and storage costs have a long and generally well-understood price performance improvement rate. These price performance dynamics are a fundamental reason that it increasingly more cost efficient to transport larger objects such as video over CDN networks versus other channels such as optical disc/physical distribution. For a more detailed discussion of these fundamental trends, readers can refer to the “August Investor Presentation” which can be found in the Investor Relations, Presentations and Events section of the Level 3 website.

Question: Can you say how much money you will put in the network this year specific to the CDN product, not including any previous acquisitions?

Jim: I can’t comment on that specifically as we do not break out our financials to that level of detail; however, we continue to make significant investments in our platform. We have expanded into Asia and continue to make capacity augments on all three platforms (streaming, storage, and caching) in North America and Europe. In addition, we have been investing in the infrastructure within our Level 3 colocation space where we locate our CDN nodes so that we can do “just in time” capacity deployments to uniquely serve the growth needs of our customers.   

The From Creation to Consumption presentation that we spoke of really is at the heart of what we are trying to achieve and why we are different from other CDN providers you comment on. We are trying to simplify the distribution chain associated with using an IP network for the delivery of rich media content. For this part of the market we believe that, over time, the distinction between IP Transit and CDN goes away. We will simply talk about Internet delivery of content. It is all about efficiently moving bits increasingly dominated by video and other rich media.

Historically, Microsoft’s Windows Media technologies have always dominated the enterprise market for multiple reasons, the biggest being that the WM Player was bundled into the OS and the server is cheap to deploy. And while I think Microsoft still has the majority share of the enterprise market, Adobe continues to get more aggressive in targeting IT decision makers inside enterprise organizations.

With Adobe making the licensing costs for FMS3 a lot cheaper than they use to be, and the fact that live Flash is now considered stable in FMS3, I am beginning to hear from more enterprise customers who are now evaluating Flash. Previously, a year or so ago, I saw very few enterprise companies willing to even consider Flash for streaming inside their Intranet. And while Adobe has a long way to go before it displaces Windows Media anytime soon with the Fortune 500, it’s a clear sign that Adobe is trying to hit Microsoft where it hurts. The enterprise market has always been one that Microsoft has dominated and that other video formats have not tried to penetrate since RealNetworks stopped getting the majority of their revenue from server licenses almost seven years ago.

Another sign of this push by Adobe is the number of articles I see about video in the enterprise that quote Adobe or talk about Flash. (see: Streaming Media In The Enterprise) In the past, you rarely saw Adobe talking about the enterprise market or saw them quoted in enterprise focused editorial coverage. Seems that is starting to change.

While most people always talk about Adobe and Microsoft going head to head for all online video, I don’t think they really do. Microsoft has always been the winner for video that was live, needed to be downloaded, played on devices or needed DRM. And Adobe has always been the winner for video that was used for advertising, media and entertainment content, true cross platform for Mac users and content that require embedding and custom design. The new version of FMS3 is getting some traction to challenge Microsoft for live content and Microsoft is trying to challenge Adobe in other areas with Silverlight.

But Adobe starting to go after enterprise video is new and shows signs that they are really taking the gloves off. It’s too early to know if Adobe can displace or eat into Microsoft’s
share of the enterprise market, but it’s something to keep a close eye
on.

I am happy to announce that the keynote lineup for the Streaming Media West show is now complete. Miles Beckett and Greg Goodfried, the creators of lonelygirl15 and KateModern and co-founders of the social entertainment company EQAL, have been added as keynote speakers on Thursday, September 25.

The keynote lineup is now complete and consists of:

• Werner Vogels, CTO, Amazon.com
• Jordan Hoffner, Director of Content Partnerships, YouTube
• Albert Cheng, Executive VP, Digital Media, Disney ABC Television Group
• Anthony Wood, Founder, CEO, Roku
• Miles Beckett, Co-Founder, CEO, EQAL
• Greg Goodfried, Co-Founder, President, COO, EQAL

Streaming Media West will take place September 23-25 in San Jose and all keynotes are FREE and open to anyone who registers before August 22nd for a free exhibition pass. In addition, press registration is now open and all bloggers and other media are invited to register.