Amazingly, the number of new content delivery providers in the market continues to climb with three new CDNs launching in the past few weeks. The new entrants, which I will cover next week are Jittr Networks, SimpleCDN and EdgeStream. I think it’s great that more companies are offering services in the market and that investors seem to have no qualms in pumping more cash into the industry. But we’re now looking at over 40 content delivery networks and it’s just too many. There is not enough business out there today to support so many providers, all offering different variations of the same service. On Monday I will be updating the list of CDNs that I track in the industry at www.cdnlist.com

I think choice is great and why not have as many choices as possible for any product or service? The problem being, in the long run, many of the CDNs are not going to be able to grow their revenue to meet their investors expectations. I keep hearing almost everyone say how they are going to give Akamai or Limelight a run for their money, but nearly all of the new CDNs, or those who have been around for a year or so, will do at most, 5-7% of Limelight’s projected 2008 revenue. So far, only Level 3 is showing any signs of really growing their CDN revenue, based on the data they gave out last week during their earnings call.

That’s not to say that all CDNs are trying to go after Limelight or Akamai or even want to become that big. A rare few of the CDNs make it clear that they don’t want to be the size of Limelight and if they do $15 million this year they will be happy. Kudos to them for not giving into the market pressure of a new company thinking they have to launch to the market saying how they are going to take down the number two provider. What’s wrong with being a smaller, profitable company not in the top three based on revenue? Nothing. Better you set expectations properly, your own and your investors, and survive for years to come in the market.

I hate to say it, but we’re going to see a lot of cracks in the CDN sector starting 18 months from now. The market simply can’t sustain so many vendors. If the market size was five or ten times what it is today, then all of these providers would have a shot, but it’s not that big and won’t be that big 18 months from now. For all the new CDNs, none of them seem to really have any idea what percentage of the market they think they can grab. While many of them say how they can take business from other providers, rarely do they say what percentage of the market they think they can get. I also don’t hear from any of them what they think the market size is for CDN services in the U.S.

I’m all for new players in the market, giving everyone a fair chance, providing customers with more options and having the industry grow as a whole. But when you have so many providers in the space, all saying the same thing; we are cheaper than Akamai and/or our delivery is better quality, especially for high-bitrate video, then you can’t expect to grow your business for the long run. And with more CDNs in stealth mode still waiting to launch, and telcos like AT&T and others taking more of an interest in getting into the CDN market, the number of providers for CDN services is going to take a real hit when the VC money starts to run out.

Taking it easy for the next few days. Be back with some posts hopefully later in the week.

On April 11th, Colorado based Two-Way Media filed suit against Akamai, Limelight Networks and AT&T over a series of patents entitled "multicasting method and apparatus". (patent description below) While this is just one of many patent suits taking place in the content delivery sector, there are a few unique details about this one to watch. For starters, Two-Way Media first filed suit against AOL and after a successful Markman ruling in their favor, AOL settled out of court for an undisclosed amount. That by itself does not mean anything as it may have been easier for AOL to settle rather than pay legal costs, but the fact they settled after a ruling is a bad sign.

Even more interesting in my eyes is that the main patent, number 5778187 was filed in 1996 and was licensed by Two-Way Media to Cable & Wireless in the early days of the content delivery market. For those that remember, Sandpiper and Digital Island were some of the original CDNs that were acquired by Cable & Wireless. There is no way to know if Cable & Wireless licensed the patents because they felt they were valid or not, but the fact another CDN even licensed it makes this suit even more interesting.

Some may wonder why other CDNs are not mentioned in the suit and my guess is that it’s the same reason most suits like this only name those showing a lot of revenue. Until a company is doing a certain level of revenue, there is no reason to really go after them. But you can expect that as more CDNs see revenue growth and the content delivery industry turns into a multi-billion dollar market over the years, CDNs are going to be inundated with patent suits. It’s also interesting to note that once again, Level 3 seems to have a very clear strategy with regards to CDN patents and has no exposure to this patent either. Level 3 is covered under the original Cable & Wireless licensing deal with Two-Way Media through Level 3’s acquisition of the SAVVIS content delivery business, which included their intellectual property.

Other CDNs aside from Level 3 could be in the cross hairs of companies like Two-Way Media, but at this time it’s too early to know exactly who Two-Way Media and other patent holders may go after. And for those who say that some CDNs have no concern as they have made public statements saying they are not worried, what do you think they are going to say? No CDN is going to come out and tell Wall Street or investors, yes, this patent worries us. So unless a company comes out and address a specific patent and provides details as to why they feel they are not infringing, you really can’t believe the corporate line of "we’re not worried", unless of course you are Level 3.

Patent Abstract
A scalable architecture is disclosed for delivery of real-time information over a communications network. Embedded into the architecture is a control mechanism that provides for the management and administration of users who are to receive the real-time information. In the preferred embodiment, the information being delivered is high-quality audio. However, it could also be video, graphics, text or any other type of information that can be transmitted over a digital network. Preferably, there are multiple channels of information available simultaneously to be delivered to users, each channel consisting of an independent stream of information. A user chooses to tune in or tune out a particular channel, but does not choose the time at which the channel distributes its information. Advantageously, interactive (two-way) information can be incorporated into the system, multiple streams of information can be integrated for delivery to a user, and certain portions of the information being delivered can be tailored to the individual user.

I have been getting a lot of requests for an update on the Akamai and Limelight patent suit, so here are the latest details I have. Last week, April 17th, Akamai filed a motion for permanent injunction against Limelight Networks. It’s expected that a ruling on the injunction will come in the next few weeks and there is a pretty good chance that the motion will be granted. If that happens, Limelight is expected to file for and be granted a stay of that motion. Once that happens, it basically means that this suit will go on for at least another year, if not more, unless both parties come to an agreement, which I don’t see happening.

While none of this is really news as this outcome has been expected since the jury ruling, I think that once all of the motions relating to the injunction are done, the two companies most interested in purchasing Limelight, AT&T and BT, could once again resume negotiations. In my eyes, it is just a matter of when Limelight will be acquired by a telco and not if. Shortly after the jury ruling, Limelight was offered a buyout for about $8 a share by a telco, which is a pretty good offering in my eyes. (I don’t own any shares in Limelight or any other public company) Even at that price, Goldman, which owns just over 35 million shares last I checked, would still walk away with well over $100 million.

Limelight needs the resources of a larger company to really take their business to the next level and to accelerate revenue growth. They can still grow and maintain business as a stand alone company, but the resources of a larger company would give them a better shot in the market for the long run. Limelight is facing at least three patent suits by Akamai, Level 3 and Two-Way Media (more on Two-way later in the week) and at this rate, the lawsuits will take their toll on the company in terms of resources and focus, in addition to cash.

I hope for their sake and for the industry that Goldman isn’t going to be too greedy and a deal can be worked out sooner rather than later. There is a huge gap between Akamai, Limelight and the number three CDN in the market in terms of revenue, and I think it’s best for the industry to have as many top players as possible.

About a year ago, I wrote a post about how content owners who wanted to deliver Flash streaming could use Amazon’s Elastic Compute Cloud (EC2) and Simple Storage Service (S3) along with a CDN to deliver streaming media based content. In the past few months, Amazon has made some new product announcements that over time, lead me to believe that more content owners are going to look to Amazon for video delivery needs, particularly those who are only delivering video via progressive download.

Last month, Amazon announced some new features with their cloud computing product including new functionality for Elastic IP Addresses and EC2 Availability Zones. Simply put, Elastic IP allows you to associate static IP addresses with a unique EC2 and Availability Zones lets you deploy your apps into different regions. Amazon is effectively allowing content owners to replicate apps in different data centers and in different regions, thereby also protecting them from outages. While only a limited number of U.S. based locations are available today, more locations, including those outside the U.S. will be added in the months ahead.

When the new locations are added, then this offering is something to really watch. Amazon is offering faster performance between servers in the same EC2 zones and one would expect they would then offer some level of performace guarantee across all zones. When this happens, they essentially become a content delivery network. We’re already starting to see some companies like Digital Fountain build an entirely new CDN offering around Amazon Web Services, and there are more to come.

It’s also interesting to see how much of the internal workings of Amazon’s cloud computing service they are willing to share with developers and everyone else. Most delivery networks are so closed and Amazon has wisely taken a different approach, primarily due to the size of the customer using their service. Wired has a great article from yesterday that talks about Amazon’s cloud computing service and the best line in it is the response from Amazon’s CEO when asked about cloud computing becoming a commitized service. "Commodity businesses don’t scare us," he says. "We’re experts at them. We’ve never had 35 or 40 percent margins like most tech companies."

While Amazon’s cloud computing service will have more of an impact over time, especially as it evolves into more of a traditional CDN offering, it still won’t be a big disruptor to the major CDNs like Akamai and others. For some customers Amazon could be a viable option with reliable and cheap services. But for many content owners, and in particularly those who have video, their needs are getting more complex each year as they struggle not to deliver bits, but rather solve the entire workflow problems associated with ingestion, transcoding, authentication, meta data, content management, syndication, tracking and reporting and traffic analysis.

That being said, anyone as smart and as big as Amazon is one to watch.

The program for the Streaming Media East conference in May closes today and is being shipped off to the printers. I have three speaking spots that have opened up last minute and are accepting all speaking requests. The first two sessions are panel spots, the third session is a moderator position. Please don’t submit for the moderator position unless you are willing to do the work that is required of being a moderator. Originally I was going to moderate that session myself but am now looking for someone to take it over. If you are interested in any of these three spots, contact me ASAP as they will be filled today.

All submissions for any of the three spots MUST include full details of the speaker including name, title, company, full mailing address, phone number and e-mail. In addition I also need to know how the subject of the panel is relevant to the speaker as there has to be a fit subject wise. Please don’t send me an e-mail simply saying, "I want the spot". That will not suffice.

Tuesday May 20, 2008 (panelist)
Effective Advertising Models For Short-form Video Marketing
Some advertisers see user-generated video sites as a free way to distribute their message, but this has rapidly evolved into a significant paid business, where sites charge based on video placement and search keywords. Learn the relative ROI of going to a major site (i.e. YouTube) vs. a smaller site (i.e. Metacafe) vs. a plethora of tiny sites. Learn what methods are successful for getting viewers and the importance of content vs. placement. This panel will discuss and show video examples of effective business models for both advertisers and publishers.

Wednesday, May 21, 2008 (panelist(
Independent Content: Creating New Revenue Streams
In the wake of the Writer’s Guild strike, what does the landscape look like for writers, content producers, and video creators who want to use the Internet as the next broadcast medium? What are the non-studio/traditional revenue streams on the Internet, and who’s in the best position to profit from them? Hear from some traditional broadcast producers who have created new content companies focusing on unique web-based video and hear what types, genres, and lengths of videos are getting the most traction. Attendees will also learn what kinds of content are going to generate the most dollars online and hear where those dollars are expected to come from.

Wednesday, May 21, 2008 (moderator)
Evaluating and Choosing The Right Methods Of Video Delivery
With all the various means of distribution and protocols available for video today-CDN, P2P, streaming, progressive download-there is still no single solution that will meet all customers’ needs perfectly across all platforms and devices. Learn the various methodologies for content distribution, as well as the pros and cons of each type. Speakers will also discuss which methodologies apply best to which platforms and geographic locations based on type of content, length and format of video, and target audiences. Panelists will also provide you with guidelines and formulas for determining the best single and/or hybrid solution for your online video distribution needs.

In my day long meeting at Akamai’s HQ a few weeks ago, one of the products we spent a great deal of time talking about is their application delivery service. Of the numerous people I speak to about Akamai, their application delivery product is the one that is least understood in terms of how it works, the type of content that is delivered and the types of customers that use it. It is also the product that I receive the most questions about in terms of the size of the market today and what Akamai’s potential market growth opportunity is down the line. I’ll cover all of that here in part one and give real customer examples in part two next week.

Traditionally, over the past fifteen years, I have only covered products and services that have included some form of video. But moving forward, application delivery is a product and industry I am going to start to track very closely as it is a market that is just starting out, yet over time will become very important to some of the content delivery networks in the industry. While there is no way to know how big the market is today and what the market will be next year, Akamai has publicly stated that their application delivery product had a run rate of $40 million for 2007.

Through the acquisition of Netli, Akamai is well poised to offer a product that they have been developing for at least a year and have real customers using the product today. When other companies begin to go look at and develop an app product, Akamai is already going to be ahead of them in development, real customer feedback and revenue. While I don’t think application delivery is going to make a huge impact on Akamai’s revenue in 2008, I do predict that come Q4 of this year and moving into next year, Akamai’s application delivery product will be one the fastest growing products in the company.

After talking to customers and seeing how content will need to be delivered down the road, my personal opinion is that Akamai’s application delivery product is one of the most underestimated products in their portfolio in terms of revenue growth, for multiple reasons. For starters, the market for these services is just starting out and already, Akamai is considered the only game in town for this service based on an outsourced model. I don’t know of any other CDN who offers application delivery today and while some vendors offer hardware based application delivery or acceleration products, I’ll cover later why those are not a real threat to Akamai’s service. And as the only CDN currently offering the service that I know of, application delivery is a fundamental building block that lets Akamai service their current customer’s needs, while exploring new markets.

So how exactly does application delivery work and what types of content is delivered through the service? For starters, there are a lot of similar terms used to describe these products and the market and the two most commonly used are application delivery, and application acceleration. While the terms are pretty much interchangeable, what is very different, however, is the approach to application acceleration. For example, a network managed service approach such as Akamai’s in-contrast to an appliance-based approach such as Cisco’s.

From a high level, the problem that application acceleration solves is around content that cannot be cached at the edge, and therefore must be accessed at the content owners’ origin. This type of content can be as simple as a base page that calls media or personalized content that cannot be cached, or enterprise data coming from an SAP application and an associated database. In the case of consumer applications, application acceleration drives more page views and video views, and in the case of enterprise applications it enables application adoption and usage.  Because the content cannot be cached, the delivery of that content must be accelerated due to Internet protocol inefficiencies.

For example, users type in www.danrayburn.com and are sent to an Akamai edge server 5-10 milliseconds away, where their request is accelerated across the Internet to an Akamai edge server close to the origin, where the request is past on. The origin fulfills the request and responds to the Akamai server closest to it and it is again accelerated back over the Internet to the user through the local Akamai server for delivery. To accomplish application acceleration you must control both ends of the network connection, the one close to end users and the one close to the application/content owner’s origin.

In order for Akamai to accomplish this, there are three main network components to their application acceleration architecture. An Akamai edge server region close to the end user and an Akamai edge server region close to their customer’s origin infrastructure. In both cases, the goal is to get within 5 to 10 milliseconds away from both the origin and user, thereby essentially creating a bi-nodal overlay network over the public Internet. In addition, application traffic is bi-directional opposed to uni-directional like most traditional CDN traffic so optimizations need to happen both ways. From what Akamai tells me, this also illustrates the importance of a large distributed network for application acceleration and to them, highlights why CDN vendors with a large data center approach will have a fundamentally difficult time entering this space.

So exactly what kind of content can take advantage of application delivery? For enterprise employees, they come into contact with many of types of web applications on a daily basis including expense management systems such as Oracle, contact management systems like Siebel or Salesforce.com, learning management systems and even web-based e-mail. For industry specific applications you can look at things like ad campaign management tools such as DoubleClick DART for online publishers and advertising agencies, supplier/distributor inventory management apps, and project management software like Autodesk.

On the consumer side, they are also heavy users of web apps including online commerce, doing your taxes through an online site like H&R Block, booking online travel with expedia.com and facilitating user generated media for online photo sharing and video sharing. An example of this would be Adobe’s recently launched online version of Photoshop (Express). Akamai’s application acceleration technology also works with a wide range of application architectures such as service oriented architecture (SOA) applications where the communication is machine to machine with no browser rendering and Web 2.0 AJAX/FLEX class applications.

Another question people constantly ask me is how Akamai’s application delivery service is priced and what it costs. I’m not sure yet of the cost as I need to collect more data from customers before I can talk real numbers. But I do know that the service is charged as a monthly subscription per functional application and that Akamai stated that most of their application delivery contracts are 24 months in length and include performance SLAs.

Some will say that hardware and software based application delivery products like those offered by Cisco, Citrix and Juniper will compete with Akamai for those who want to deploy it themselves. For a small percentage of customers, that is true, just like it is for those who may want to do their own video hosting or content delivery. But for the majority of customers who need application delivery, it isn’t practical or in most cases even possible to put an appliance close to everywhere an employee, business partner and customer can access a web browser. By controlling both ends of the network (both near the data-center AND near application users), the optimizations Akamai provides to improve application availability and response times extend far beyond those which are limited to a footprint within the data-center.

Next week in part two, I will give examples of who some of Akamai’s application delivery customers are and talk about the different types of content and applications they are delivering. Please add my RSS feed to your reader to get the new post as soon as it is up.

Note: As I have said before, I have never bought, sold or traded any stock in ANY public company, ever.