Originally, I had no plans to write up any type of post about the Microsoft (MSFT) and Limelight Networks (LLNW) announcement last week. But after reading so many analysts all saying the same thing, it’s clear that many of them are missing the bigger picture and not asking the right questions.

For starters, this announcement has nothing to do with Akamai (AKAM) or any other CDN provider. Some analysts did get it right, but way too many of them are asking
if Akamai lost this business, if it was taken from another provider or
how this may affect Akamai. Akamai did not lose this business.
Microsoft did not shop around an RFP for some delivery services. This
deal was about Microsoft extending a relationship that was already in
place and working with Limelight on some very specific long term goals of improving the Microsoft platform for digital media. And some analysts were saying that Akamai didn’t win this business since it is not in the co-location business, therefore it didn’t even bid on the business to being with. Limelight is not in the co-location business either. This deal had nothing to do with co-location.

While I must have seen at least a dozen different analysts commenting on the announcement, why is it that not a single one of them that I saw went into detail on the bigger piece of the announcement, that being the cross-licensing of technologies. Why aren’t the analysts asking about that? Think bigger picture here guys. Have you ever seen Microsoft cross-license any technology from a CDN before? I haven’t. That’s not to say that it has not happened in the past. And while I encourage anyone to point me to a similar announcement, I could not find any release by a CDN with Microsoft talking about cross-licensing technology in any public record, over the last five years. Why is no one asking about the details of that and what it may mean for the companies and the industry? Why aren’t the analysts asking what is different this time around and what it means for the CDN industry as a whole?

And don’t you think this says something about the market and the growth we are about to see? Why would Microsoft cross-license technology from a CDN? Very simple. Microsoft knows very well that what we are experiencing today with content delivery is only scratching the surface of where this business is going to go. They know that a few years from now this will truly be a powerful medium for delivering all kinds of video content and Microsoft wants to prepare now by making their platform ready for when it does hit. So what type of technologies might be cross-licensed? What does each company get from that portion of the deal? What are the longer-term implications that we may see? Why aren’t the analysts asking those questions and reporting on the answers? Aren’t many of these same analysts the ones who are predicting doom and gloom for the CDN space due to lower pricing and the "perceived" slowdown in the market? Doesn’t an announcement like this of cross-licensing technology from a CDN make you think otherwise, or at least question it?

I listen to a lot of the earnings calls these companies have and so
many of the analysts all ask questions pertaining to numbers, but not
the questions about the products and services that the numbers come
from. What about looking at the long term affect that any announcement
will have on the industry and companies in this space? It’s not about
what a company’s stock price does in one day.

I wish analysts would ask harder questions. I wish they would know more about the products and services of companies as opposed to just looking at market share, numbers, and all of the financial data. If many of them had a better understanding of the market and of a company’s products and services, they would be able to better analyze the numbers that come from those services. Also, while there are now over 30 CDN providers in some shape or form, and there are tons of new analysts covering the CDN space, I’d like to point out that the content delivery market for video is not a new industry. It’s been around since 1996. Analysts need to spend the time to look at the CDN landscape over the past many years to see how the business models and market has evolved. There is a lot that can be learned from what’s happened in the past and it will give great insight into the market today.

I’d also like to add for those of you who may think I am talking about all analysts that I’m not. I like analysts, I talk to a lot of them daily and I think some of them do a really good job. But I think many analysts should act more like reporters, asking about more than just numbers and questioning any information they are given.

The Video 2.0 Meetup in NYC usually takes place at Columbia Business School but the building will be closed next week. The organizer of the meetup, Yaron Samid, is hoping someone knows of a space that can be used for next Thursday, August 30th from about 6:30-9:30pm. We’re looking for space to accommodate roughly 250 attendees. If need be, the date can be moved if that helps secure the space. If you have a location yourself, or know of a location that can be used for free, please let me know.

While there are tons of spaces out there, most of them are very expensive and the Web 2.0 Meetup is a free networking and demo event for everyone. The way it is kept free is by keeping the costs down to zero or to something extremely small. If your company has the space and is willing to donate it, I’ll be happy to promote your company on my blog with a thank you and write a brief description of who you are and what you do. Its free visibility on a blog that gets roughly 300,000 page views a month in exchange for some space.

As you know by now, on Tuesday Adobe announced their support for H.264 for the latest version of their Flash player. While I saw many blogs and news sites that covered the announcement, most didn’t really provide any insight or analysis into what this announcement by Adobe means for the market. The best posting I saw was on a blog from one of the engineers at Adobe who works on the Flash player. If you really want to know the technical details, it’s the one post to read.

In the spirit of not just re-hashing a press release on my blog like so many other sites do, and since a few bloggers already gave the same analysis I would have, I decided to ask Bill Joll, On2’s CEO, for his take on the announcement and what it means for content creators as well as his company, which has a big stake in the Adobe Flash platform.

While Bill thinks the announcement is a step in the right direction for Flash video, he correctly points out that many times one technology does not replace another. In some scenarios, H.264 make work out to be the best solution, but at other times, On2’s solution would trump H.264.

Bill says that while there are certain markets for which standards-based codecs are important, there will always be an opportunity for On2’s state-of-the-art proprietary technology as well. H.264 can be very expensive if you want to distribute millions of encoders for applications like video chat or user-generated video publishing. In addition to licenses and fees to acquire an H.264 software development kit (SDK), a second intellectual property (IP) license is also required from MPEG-LA. And the same is true for the new AAC+ audio standard in Flash, which requires a separate IP license from Via Licensing in addition to a SDK license. Additionally H.264 is a fairly complex codec that requires significant CPU cycles for encoding and playback, especially for HD content. For these reasons, Bill says there will continue to be a strong market for VP6-based Flash video in the coming years.

That being said, On2 understands that there are certain market segments for which broadcast-industry standards are and will always be a requirement. The video industry is moving towards higher definition video and longer form content that requires lower power and higher performance along with the consumption of video anywhere. This translates into a requirement for any video on any device, but it also means that video coding blocks are moving more and more into hardwired implementations. For On2, they see the value in being able to support their own technology as well as standards in the market.

The news that Adobe is adding support for H.264 and AAC+ to Flash is something that Bill says On2 is well prepared to support. He points out that in May of this year On2 announced that they were planning to acquire Hantro, a Finland-based company with some of the best hardware implementations of audio and video codecs anywhere, including H.264. The Hantro acquisition, which is still pending, does two things for On2:  first, it provides a vehicle for hardware-specific versions of their industry-leading TrueMotion video technology, including VP6, VP7, and future codecs currently in development; and, as important, it propels On2 into the market of providing industry-leading implementations of standards-based codecs such as H.264, VC-1 and MPEG-4. In that regard, Adobe’s and On2’s announcements both echo the same base message: both companies are expanding their available market through support of standards-based technology.

Bill says that On2 is committed to two business tracks going forward: continuing to invest in their industry-leading proprietary video compression technology; and embracing standards in a way that will allow On2 to become the leading provider of codecs – any codecs – for any and all applications. On2 is fully committed to supporting the new H.264 and AAC+ Flash formats in their entire family of Flix encoding tools and SDKs which they announced this week. Bill points out that in some cases, these are free upgrades that will protect their customers’ investment in their products and he says On2 will give their current and future customers the option of supporting any and all technologies, whatever their needs may warrant.

When it comes to the ecosystem for online video, no one solution works best for every type of content customer. This holds true for compression, hosting, delivery, content management and many of the other technical pieces that make up online video. One format, codec or bitrate is not going to replace another and we’ll always have multiple choices in the market based on the fact that customers all have different needs in different industries and verticals. While Adobe’s announcement of support for H.264 is a step in the right direction for the industry and for content creators, in my eyes, it does not have a negative impact on On2 or their business as many may speculate.

Added 8/28: Check out ScribeMedia.org’s interview with On2’s Mike Savello.

Note: As I have said in the past, I am open to any vendor using this blog to give their take on a market trend in the industry or major announcement that takes place. If something happens in the market that you agree or disagree with, or if you feel you have a different insight into a topic, in most cases I will let you use this blog as an outlet. You can always contact me directly if you want to give back to the market and educate your peers, analysts and customers with your thoughts on what you think is important to this industry. As long as it is not a sales pitch for your company, this blog is a free platform for those who want to use it correctly.

EVDO, DVB-H and 3G. The mobile market is still an alphabet soup of competing formats, protocols, and networks, and with the recent demise of Amp€™’d and ESPN’€™s MVNO initiative, no one can blame you for thinking that mobile video might never take off.

But that’s not stopping carriers and content publishers from trying and the market is starting to pick up for video on the go. The October/November issue of Streaming Media magazine entitled "Video To Go" will help readers make sense of the confusion and reveal various experts take on what the future of mobile video holds.

For those who don’t already have a subscription, what are you waiting for?!?! It’s FREE! So join the nearly 20,000 other readers who get it bi-monthly and sign up today.

While I've mentioned this a few times in various post, I think it needs repeating in a post dedicated to the subject. While I provide a lot of data on the market, in particular the CDN industry, I don't provide any data so that I can speculate what a companies stock price will do in the short term, or long term. I don't own any stock in any public company, in fact, I have never purchased, sold or traded a single share of stock in any public company, ever.

If the price of a stock goes up or down, or the market valuation of a company changes, I am not compensated in any way. I provide data to the industry so that people can make informed decisions as to what's really happening in the online video industry. My intention of doing this is the hope that the data allows for clearer understanding of our industry and allows for customers to buy and use these services more often, to greater adoption.

If the data I provide is used by financial analysts for any type of financial evaluation, then great, it's being used by multiple people for insight into the industry in different ways. But since so many of my blog postings are now being syndicated by money mangers and financial investors, I think it's important for me to have on record on the blog that I do not benefit in any way from the share price of any company.

Over the past month or so, I have had multiple chances to spend time with Internap’s management team to learn more about the company and to get updates on the VitalStream integration into Internap. I’ve asked them a lot of questions, gotten detailed answers and spent a lot of time looking at their CDN business. While I know Internap provides more services than just content delivery for audio and video, that is the core product I have been speaking to them about and the only product that I have insight into.

For Internap, the hardest and most time consuming task of integrating the VitalStream network and clients into their own network, seems to now be behind them. While everyone knows about the VitalStream acquisition, it’s important to remember that VitalStream had acquired PlayStream and EonStreams before they were acquired. So Internap had to integrate three different platforms all into the Internap network. It’s not been without problems, as witnessed by the ten-day outage that the small business customers, former PlayStream customers, experienced in the transition.

While they are still working to fully complete the integration, most of it has been done, they have added additional capacity in Europe and are working on adding capacity in Asia. By the end of this year, Internap plans to have two origin sites specific to video delivery in North America, Europe and Asia. In addition to those six origin sites, they also deploy caching sites as well.

Once Internap is fully done with the build out at the end of the year, then they can really focus their resources on selling their CDN offering. While VitalStream was always a company that was growing in terms of revenue and customers, it was limited based on the scale of it’s network and the limited geographic reach. There was a lot of business VitalStream could not win, or could not go after based on how their network was setup. Internap now takes the old VitalStream service to a new level since at it’s core, Internap is a network and VitalStream wasn’t. From a strategic point of view, it was a good fit for VitalStream, but my personal opinion is that Internap overpaid.

That being said, Internap has it’s work cut out for them. VitalStream as a brand has died out completely and there has been no new branding by Internap yet of the CDN offering. Internap did away with the VitalStream brand and most don’t know that VitalStream is still around, but in a new form and with a new company. This is the biggest marketing challenge Internap has in front of them. While Internap’s management is under the impression that the company is well known and has a good brand, that is not the case for customers who are only looking for CDN services and don’t even know they offer the service. The majority of all the large RFPs that I see, aren’t yet going to Internap simply because customers don’t know about them. Can that be changed, yes, but it will take time and a clear marketing strategy needs to be executed on. Right now, the Internap website points you over to the VitalStream website for all the CDN info and while it is no longer branded as VitalStream, it’s a completely different website, with very little info. There is no info on the network and all of the other info is the same as it was with VitalStream, just with the Internap name. And if you want info on Internap the company, you then have to leave the old VitalStream website and go back over to the Internap website. Very clumsy and confusing for a customer who is visiting the site for the first time. Needs to be packaged a lot better.

Internap did announce last quarter than even while they were integrating the networks they had signed up 54 new enterprise customers for their CDN service. They were not able to tell me how many of those 54 customer were doing delivery of video content, as opposed to static caching of content, but it clearly shows that no matter what some of the analysts say, the CDN market has not slowed down. The fact that a company can sign up new customers, while doing a major integration and while having a major network outage at the same time, is proof that CDN services are still in great demand in the market.

When Internap really starts to go after the market, it’s going to be offering a different CDN offering based on being able to offer more than just CDN. For some customers, that may give Internap a competitive advantage over other CDNs who only offer delivery, but for customers who just want delivery, Internap’s IP and co-lo services won’t matter to them. No one can say the value these other services hold in the market as their value is determined strictly by the customer based on exactly what the customer needs. Internap has said that it feels that it won’t be affected by the lower pricing being seen in the market due to them providing a different level of service and performance, but it could not say how much more a customer would be willing to pay for this if Internap could prove the enhanced level of performance to them. Keep in mind, when we are talking network performance, it’s very hard to measure.

Based on some quotes in the media, there has been a lot of confusion in the market when it comes to Internap’s SLA service for CDN. Internap does not provide a 100% SLA for CDN services. Internap provides a 99.7% uptime SLA for CDN based on Keynote and a 100% SLA strictly for the IP side of the business. So many people have told me otherwise, yet all it took was me asking Internap directly, and I got a very easy answer. I’d suggest to a lot of those that always "speculate" on what they think they know about a company to simply ask the company first, before you publish it in writing as a fact. Internap was very upfront about their SLA terms and anyone who asked them directly would have gotten the right answer.

I think Internap has a clear idea of who they want to become in the market in regards to their CDN services but have a lot of sales and marketing work to do to get there. If they complete the network expansion by the end of the year as they say they will, then next year they can really focus on the marketing and sales side of the business. They need to get sales reps up to speed, train SEs and focus on the message they want to deliver. VitalStream did roughly $25 million last year in CDN services, so if Internap can grow their CDN business next year, they will still be the third largest player in the space based on revenue derived from the delivery services for audio and video content. On their latest earnings call, they gave growth projections for the CDN business and said it was the product they expected to see the most growth in, so the potential is there for them to do more than $25 million next year. I won’t predict how much they can grow that by for 2008 as it would be pure speculation on my part, but it’s a pretty safe bet it will grow.

For me, the unanswered question is whether or not a company like Internap that sells many products can focus and sell their CDN offering as well as a company that specializes in just selling CDN as their core service. Also, I don’t see a fit for the small business customers that Internap has via the PlayStream side of the business. Customers who spend $100 or $200 a month are not going to take other Internap IP services, so I don’t see those as a fit. My opinion is that Internap should drop that side of the business all together so that it does not distract them from their core set of services.

Also, while Internap has been hard at work on the network side of the CDN service, what about the rest of the products that support content delivery? What does their reporting for video delivery look like? VitalStream’s reporting was horrible before they were sold and needed a major upgrade. Has that been done? What about the advertising services that are offered via the EonStreams acquisition? Does that have any traction in the market? There is no detailed information on this product, a demo of it, or any mention of customers who use on their website. Is this a service Internap really wants to provide? Does it want to compete against ad networks who could be potential large CDN customers on their network? And what will Internap’s customer service and support look like? Network is just one aspect of the entire solution you need to have in place to go to market with a CDN product. So the network may be great once done, but if you have a poor reporting package the network won’t save you.

It’s too early to tell what potential Internap has for growth in the market for it’s content delivery offering. No doubt, they will see some growth as all CDN vendors are, but we’ll have to wait and see how quickly Internap can really ramp up the packaging, pricing, marketing and selling of their CDN service once the network is completed. I think we’ll have a pretty good idea of where they stand by the end of Q1 in 2008. The opportunity is there, as it is for nearly all the providers, the question is which ones can really move quickly and capitalize on the market ahead of the others.

At the Streaming Media West show taking place in San Jose later in November, we’ll be having a special session where four networks will have 15 minutes to demo their solution. While I typically don’t allow sales pitches by vendors as part of the conference, with all the questions around P2P delivery vendors and other networks, it’s a good way to compare four companies in under an hour. We did this last year with five of the CDN vendors and it worked well.

The four networks presenting will be BitGravity, Itiva, Grid Networks, Solid State Networks and Move Networks. Below is the description from the advance program and you can see all the session descriptions on the show website.

Online registration has now opened and registering early will get you a discount.

Wednesday, November 7, 2007
Session B204: 3:00 p.m. –4:00 p.m.
Demo: P2P and Next Generation Delivery Networks
Within the past year, a host of new content delivery companies based on P2P and other delivery solutions are stepping up to challenge the traditional way of delivering video. But confusion still reigns as to exactly how their technology works, what their value propositions are, and how they differ from other solutions in the market. This special demo session will give four new companies in the space the chance to showcase their technology and answer questions about their solutions. Come see first-hand what Move Networks, Itiva, Grid Networks, and BitGravity have to offer. Bring any questions you may have, as these companies will join Dan Rayburn for a Q&A session after their demos.