[Updated October 18, 2021: Apple’s iCloud Private Relay feature, which was being powered during the beta by Akamai, Fastly and Cloudflare, will officially launch with iOS 15 in “beta”. It will no longer be enabled by default, due to incompatibility issues with some websites.]

On Monday, Apple announced some new privacy features in iCloud, one of which they are calling Private Relay. The way it works is that when you go to a website using Safari, iCloud Private Relay takes your IP address to connect you to the website and then encrypts the URL so that app developers, and even Apple, don’t know what website you are visiting. The IP and encrypted URL then travels to an intermediary relay station run by what Apple calls a “trusted partner”. In a media interview published yesterday, Apple would not say who the trusted partners are but I can confirm, based on public details (as shown below; Akamai on left, Fastly on the right), that Akamai, Fastly and Cloudflare are being used.

On Fastly’s Q1 earnings call, the company said they expect revenue growth to be flat quarter-over-quarter going into Q2, but that revenue growth would accelerate in the second half of this year. The company also increased their revenue guidance range to $380 million to $390 million, up from $375 million to $380 million. Based on the guidance numbers, Fastly would be looking at a pretty large ramp of around 15% of sequential growth in the third and fourth quarter. Fastly didn’t give any indication of why they thought revenue might ramp so quickly, but did say that, “a lot of really important opportunities that are coming our way.” By itself, this new traffic generated from Apple isn’t that large when it comes to overall revenue and is being shared amongst three providers. This news comes out at an interesting time as this morning, Fastly had a major outage on their network that lasted about an hour.

Brendan Carr, commissioner of the Federal Communications Commission (FCC), published an op-ed post on Newsweek entitled “Ending Big Tech’s Free Ride.” In it, he suggests that companies such as Facebook, Apple, Amazon, Netflix, Microsoft, Google and others, should pay a tax for the build-out of broadband networks to reach every American. In his post he blames streaming OTT services as well as gaming services like Xbox and cloud services like AWS for the volume of traffic on the Internet. There are a lot of factual problems with his post from both a business and technical standpoint, which is always one of the main problems when regulators get involved in topics like this. They don’t focus on the facts of the case but rather their “opinions” disguised as facts. The Commissioner references a third-party post-doctoral paper as his argument, which contains many factual errors when it comes to numbers disclosed by public companies, some of which I highlight below.

The federal government currently collects roughly $9 billion a year through a tax on traditional telephone services—both wireless and wireline. That pot of money, known as the Universal Service Fund, is used to support internet builds in rural areas. The Commissioner suggests that consumers should not have to pay that tax on their phone bill for the buildout of broadband and that the tax should be paid by large tech companies instead. He says that tech companies have been getting a “free ride” and have “avoided” paying their fair share.” He writes that “Facebook, Apple, Amazon, Netflix and Google generated nearly $1 trillion in revenues in 2020 alone,” saying it “would take just 0.009 percent of those revenues,” to pay for the tax. The Commissioner is ignoring the fact that in 2020, Apple made 60% of their revenue overseas and that much of it comes from hardware, not online services. Apple’s “services” revenue, as the company defines it, made up 19% of their total 2020 revenue. So that $1 trillion number is much, much lower, if you’re counting revenue from actual online services that use broadband to deliver the content.

If the Commissioner wants to tax a company that makes hardware, why isn’t Ford Motor Company on the list? They make physical products but also have a “mobility” division that relies on broadband infrastructure for their range of smart city services. Without that broadband infrastructure Ford would not be able to sell mobility services to cities or generate any revenue for their mobility division. You could extend this notion to all kinds of companies that make revenue from physical goods or commerce companies like eBay, Etsy, Target and others. Yet the Commissioner specifically calls out video streaming as the problem and references a paper written in March of this year as his evidence. The problem is that the paper is full of so many factually wrong numbers, definitions and can’t even get the pricing of streaming services accurate, something the Commissioner clearly hasn’t noticed.

The paper says YouTube is “on track to earn more than $6 billion in advertising revenue for 2020”. No, YouTube generated $19.7 billion revenue in 2020. The paper also says that Hulu’s live service costs $4.99 a month, when in actuality it costs $65 a month. It also says that the on-demand version of Hulu costs $11.99 a month when it costs $5.99 a month. There are many instances of wrong numbers like this in the report that can’t be debated and are simply wrong. Full stop. The authors say the goal of the paper is to look at the “challenge of four rural broadband providers operating fiber to the home networks to recover the middle mile network costs of streaming video entertainment.” They say that “subscribers pay about $25 per month subscriber to video streaming services to Netflix, YouTube, Amazon Prime, Disney+, and Microsoft.” That’s not accurate. YouTube is free. If they mean YouTube TV, that costs $65 a month. The paper also uses words like “presumed” and “assumptions” when making their arguments, which isn’t based on any facts.

The paper also points out that the data and methodology used in the report to come to their conclusions “has limitations” since traffic is measured “differently” amongst broadband providers. So only a slice of the overall data is being used in the report and the methodology collection isn’t consistent amongst all the providers. We’re only seeing a small window into the data being used in the repot, yet the Commissioner is referencing this paper as his “evidence”. The paper also references industry terms from as far back as 2012 saying they have “adapted” them to today, which is always a red flag for accuracy.

The paper also incorrectly states that “The video streaming entertainment providers do not contribute to middle or last mile network costs. The caching services provided by Netflix and YouTube are exclusionary to the proprietary services of these platforms and entail additional costs for rural broadband providers to participate.” Netflix and others have been putting caches inside ISP networks for FREE, which saves the ISP money on transit. Apple will also work with ISPs via their Apple Edge Cache program. For anyone to suggest that big tech companies don’t spend money to build out infrastructure for the consumers benefit is simply false. Some ISPs choose not to work with content companies offering physical or virtual caches but that’s based on a business decision they have made on their own. In addition, when a consumer signs up for a connection to the Internet from an ISP, the ISP is in the business of adding capacity to support whatever content the consumer wants to stream. That is the ISPs business and there is no valid argument that an ISP should not have to spend money to support the user.

The paper stats that, “Rural broadband providers generally operate at close to breakeven with little to no profit margin. This contrasts with the double-digit profit margins of the Big Streamers.” Disney’s direct-to-consumer streaming division which includes Disney+, Hulu, ESPN+ and Hotstar lost $466 million in Q1 of this year. What “double-digit profit margins” is the paper referencing? Again, they don’t know the numbers. The paper also gets wrong many of their explanations of what a CDN is, how it works, and how companies like Netflix connect their network to an ISP like Comcast. The paper also shows the logo of Hulu and Disney+ on a chart listing them under the Internet “backbone” category, when of course the parent owner of those services, The Walt Disney Company, doesn’t own or operate a backbone of any kind. The paper argues that since rural ISPs have no scale, they can’t launch “streaming services of their own” like AT&T has. Of course, this is 100% false and there are many third-party companies in the market that have packaged together content ready to go that any ISP can re-sell as a bundle to their subscribers, no matter how many subscribers they have.

According to a 2020 report from the Government Accountability Office (GAO), the FCC’s number one challenge in targeting and identifying unserved areas for broadband deployment was the accuracy of the FCC’s own broadband deployment data. Congress recently provided the FCC with $98 million to fund more precise and granular maps. You read that right, the FCC was given $98 million dollars to create maps. In March of 2020, Acting FCC Chairwoman Jessica Rosenworcel said these maps could be produced in “a few months,” but that estimate has now been changed to 2022. Some Senators have taken notice of the delay and have demanded answers from the FCC.

It’s easy to suggest that someone else should pay a tax without offering any details on who exactly it would apply to, how much it would be, what the classifications are to be included or omitted, which services would or would not fall under the rule, how much would need to be collected and over what period of time. But this is exactly what Commissioner Carr has done by calling out companies, by name, that he thinks should pay a tax. All while providing no details or proposal and referencing a paper filled with factual errors. I have contacted the Commissioner’s office and offered him an opportunity to come to the next Streaming Summit at NAB Show, October 11-12, and debate this topic with me in-person. If accepted, I will only focus on the facts, not opinions.

The tech industry has always been a prolific producer of hype and right now, no topic is mentioned more generically than that of “edge” and “edge compute”.  Everywhere you turn these days, vendors are promoting their “edge solution”, with almost no definition, no real-world use cases, no metrics around deployments at scale and a lack of details on how much revenue is being generated. Making matters worse, some industry analysts are publishing reports saying the size of the “edge” market is already in the billions. These reports have no real methodology behind the numbers, don’t define what service they are covering and talk to non-realistic growth and use cases. It’s why the moment edge compute use cases are mentioned, people always use the examples of IoT, connected cars and augmented reality.

Part of the confusion in the market is due to rampant “edge-washing”, which is vendors seeking to rebrand their existing platforms as edge solutions. Similar to how some cloud service providers call their points of presence the edge. Or CDN platforms marketed as edge platforms, when in reality, the traditional CDN use cases are not taking advantage of any edge compute functions. You also see some mobile communications providers even referring to their cell towers as the edge and even a few cloud based encoding vendors are now using the word “edge” in their services.

Growing interest among the financial community in anything edge-related is helping fuel this phenomenon, with very little understanding of what it all means, or more importantly, doesn’t mean. Look at the valuation trends for “edge” or “edge computing” vendors and you’ll see there is plenty of incentive for companies to brand themselves as an edge solution provider. This confusion makes it difficult to separate functional fact from marketing fiction. To help dispel the confusion, I’m going to be writing a lot of blog posts this year around edge and edge compute topics with the goal of separating facts from fiction.

The biggest problem is that many vendors are using the phrase “edge” and “edge compute” interchangeably and they are not the same thing. Put simply, the edge is a location, the place in the network that is closest to where the end user or device is. We all know this term and Akamai and been using it for a long time to reference a physical location in their network. Edge computing refers to a compute model where application workloads occur at an edge location, where logic and intelligence is needed. It’s a distributed approach that shifts the computing closer to the user or device being used. This contrasts with the more common scenario where applications are run in a centralized data center or in the cloud, which is really just a remote data center usually run by a third-party. Edge compute is a service, the “edge” isn’t. You can’t buy “edge”, you are buying CDN services that simply leverage an edge-based network architecture that perform work at the distributed points of presence closest to where the digital and physical intersect. This excludes basic caching and forwarding CDN workflows.

When you are deploying an application, the traditional approach would be to host that application on servers in your own data center. More recently, it is likely you would instead choose to host the application in the cloud, with a cloud service provider like Amazon Web Services, Microsoft Azure or the Google Cloud Platform. While cloud service providers do offer regional PoPs, most organizations typically still centralize in a single or small number of regions.

But what if your application serves users in New York, Rome, Tokyo, Guangzhou, Rio di Janeiro, and points in between? The end-user journey to your content begins on the network of their ISP or mobile service provider, then continues over the Internet to whichever cloud PoP or data center the application is running on, which may be half a world away. From an architectural viewpoint, you have to think of all of this as your application infrastructure, and many times the application itself is running far, far away from those users. The idea and value of edge computing turns this around. It pushes the application closer to the users, offering the potential to reduce latency and network congestion, and to deliver a better user experience.

Computing infrastructure has really evolved over the years. It began with “bare metal,” physical servers running a single application. Then virtualization came into play, using software to emulate multiple virtual machines hosting multiple operating systems and applications on a single physical server. Next came containers, introducing a layer that isolates the application from the operating system, allowing applications to be easily portable across different environments while ensuring uniform operation. All of these computing approaches can be employed in a data center or in the cloud.

In recent years, a new computing alternate has emerged called serverless. This is a zero-management computing environment where an organization can run applications without up-front capital expense and without having to manage the infrastructure. While it is used in the cloud (and could be in a data center—though this would defeat the “zero management” benefit), serverless computing is ideal for running applications at the edge. Of course, where this computing occurs matters when delivering streaming media. Each computing location, on-premises, in the cloud and at the edge, has its pros and cons.

• On-premises computing, such as in an enterprise data center, offers full control over the infrastructure, including the storage and security of data. But it requires substantial capital expense and costly management. It also means you may need reserve server capacity to handle spikes in demand-capacity that sits idle most of the time, which is an inefficient use of resources. And an on-premises infrastructure will struggle to deliver low-latency access to users who may be halfway around the world.
• Centralized cloud-based computing eliminates the capital expense and reduces the management overhead, because there are no physical servers to maintain. Plus, it offers the flexibility to scale capacity quickly and efficiently to meet changing workload demands. However, since most organizations centralize their cloud deployments to a single region, this can limit performance and create latency issues.
• Edge computing offers all the advantages of cloud-based computing plus additional benefits. Application logic executes closer to the end user or device via a globally distributed infrastructure. This dramatically reduces latency and avoids network congestion, with the goal of providing an enhanced and consistent experience for all users.

There is a trade-off with edge computing, however. The distributed nature of the edge translates into a lower concentration of computing capacity in any one location. This presents limitations for what types of workloads can run effectively at the edge. You’re not going to be running your enterprise ERP or CRM application in a cell tower, since there is no business or performance benefit. And this leads to the biggest unknown in the market today, that being, which application use cases will best leverage edge compute resources? As an industry, we’re still finding that out.

From a customer use case and deployment standpoint, the edge computing market is so small today that both Akamai and Fastly have told Wall Street that their edge compute services won’t generate significant revenue in the near-term. With regards to their edge compute services, during their Q1 earnings call, Fastly’s CFO said, “2021 is much more just learning what are the use cases, what are the verticals that we can use to land as we lean into 2022 and beyond.” Akamai, which gave out a lot of CAGR numbers at their investor day in March said they are targeting revenue from “edge applications” to grow 30% in 3-5 years, inside their larger “edge” business, with expected overall growth of 2-5% in 3-5 years.

Analysts that are calling CDN vendors “edge computing-based CDNs” don’t understand that most CDNs services being offered are not levering any “edge compute” services inside the network. You don’t need “edge compute” to deliver video streaming, which as an example, made up 57% of all the bits Akamai’s delivered in 2020, for their CDN services, or what they call edge delivery. Akamai accurately defines the video streaming they deliver as “edge delivery”, not “edge compute”. Yet some analysts are taking the proper terminology vendors are using and swapping that out with their own incorrect terms, which only further adds to the confusion in the market.

In simple terms, edge compute is all about moving logic and intelligence to the edge. Not all services or content needs to have an edge compute component, or be stored at or delivered from the edge, so we’ll have to wait to see which applications customers use it for. The goal with edge compute isn’t just about improving the use experience but also having a way to measure the impact on the business, with defined KPIs. This isn’t well defined today, but it’s coming over the next few years as we see more uses cases and adoption.

In my blog post from March of this year I detailed some of the changes Limelight Networks new management team is taking to set the company back on a path to profitability and accelerated growth. Absent from my post were full-year revenue guidance numbers as Limelight’s management team was too new at the time to be able to share them with Wall Street. Now, with Limelight having reported Q1 2021 earnings on April 29th, we have a better insight into what they expect for the year.

Limelight had revenue of $51.2 million in Q1, down 10%, compared to $57.0 million in the first quarter of 2020. This wasn’t surprising since Limelight’s previous management team didn’t address some network performance issues that resulted in a loss of some traffic. The good news is that Limelight stated during their earnings that they have since “reduced rebuffer rates by approximately 30%”, “increased network throughput by up to 20% through performance tuning” and believe that over the next 90-days they can create additional performance improvements that will “drive increased market share of traffic from our clients.” For the full year, Limelight expects revenue to be in the range of $220M-$230M, while having a $20M-$25M Capex spend. Limelight had total revenue of $230.2M in 2020, so at the high-end of Limelight’s 2021 projection, the growth of the business would be flat year-over-year.

New management has made some measurable progress addressing some of their short-term headwinds and identifying what they need to work on going forward. Based on some of the changes they have already made the company expects to benefit from an annual cash cost savings of approximately $15M. It’s a good start, but turnarounds don’t happen overnight and the new management team has only been inside the organization for 90-days. They need to be given more time, at least two quarters of operating the business, before we can expect to see some measurable results and see what growth could look like in Q4 and going into Q1 of 2022. Limelight also announced during their earrings that they will be holding a strategy update session in early summer to discuss their broader plans to evolve their offerings beyond video with the goal of taking advantage of their network during low peak times.

Here’s a quick recap that highlights the most important numbers you need to know from last week’s Q4 2021 earnings from Brightcove, Google, FB, Verizon, AT&T (HBO Max), Microsoft, Discovery, Comcast (Peacock TV) and Dish (Sling TV). Later this week I’ll cover earnings from Akamai, Fastly, T-Mobile, Fox, Vimeo, Cloudflare, Roku, ViacomCBS and AMC Networks. Disney and fuboTV report the week of May 10th.

• Brightcove Q1 2021 Earnings: Revenue of $54.8M, up 18% y/o/y, but nearly flat from Q4 revenue of $53.7M; Expects revenue to decline in Q2 to $49.5M-$50.5M. Full year guidance of $211M-$217M. More details: https://bit.ly/2RgZLVE
• Alphabet Q1 2021 Earnings: Revenue of $55.31B, up 34% y/o/y ($44.6B in advertising); YouTube ad revenue of $6.01B, up 49% y/o/y; cloud revenue of $4.05B, up 46% y/o/y (lost $974M). No details on YouTube TV subs. Added almost 17,000 employees in the quarter. More details: https://lnkd.in/dNrwSVD
• Facebook Q1 2021 Earnings: Total revenue of $26.1B, up 22% y/o/y; Monthly active users of 2.85B, up 10% y/o/y; Daily active users of 1.88B, up 8% y/o/y; Expects y/o/y total revenue growth rates in Q3/Q4 to significantly decelerate sequentially as they lap periods of increasingly strong growth. More details: https://bit.ly/3tf2o7J
• Verizon Q1 2021 Earnings: Lost 82,000 pay TV subscribers; added 98,000 Fios internet customers. Has 3.77M pay TV subs. More details: https://lnkd.in/dWrZ9iP
• AT&T Q1 2021 Earnings: Added 2.7M domestic HBO Max and HBO subscriber net adds; total domestic subscribers of 44.2M and nearly 64M globally. Domestic HBO Max and HBO ARPU of $11.72. WarnerMedia revenue of $8.5B, up 9.8% y/o/y. More details: https://lnkd.in/eZeFy_8
• Microsoft Q1 2021 Earnings: Total revenue of $41.7B, up 19% y/o/y; Intelligent Cloud revenue of $17.7B, up 33% y/o/y; Productivity and Business Processes revenue of $13.6B, up 15% y/o/y. More details: https://bit.ly/3tdv5BV
• Discovery Q1 2021 Earnings: Has 15M paying D2C subs, but won’t say how many are Discovery+; Ad supported Discovery+ had over $10 in ARPU; Average viewing time of 3 hours per day, per user. More details: https://lnkd.in/dp8DZG4
• Comcast Q1 2021 Earnings: Peacock Has 42M Sign-Ups to Date; Lost 491,000 pay TV subscribers; Peacock TV had $91M in revenue on EBITDA loss of $277M. More details: https://bit.ly/3vGnJZw
• Dish Q1 2021 Earnings: Lost 230,000 pay TV subs; Lost 100,000 Sling TV subs (has 2.37M in total). More details: https://lnkd.in/dD9za-e
• Netflix Q1 2021 Earnings: Added 3.98M subs (estimate was for 6M); finished the quarter with 208M subs; operating income of $2B more than doubled y/o/y; will spend over $17B on content this year; Q2 2021 guidance of only 1M net new subs. More details: https://bit.ly/33bsdei
• Twitter Q1 2021 Earnings: Revenue $1.04B, up 28% y/o/y; Average mDAU was 199M, up 20% y/o/y; mDAU growth to slow in coming quarters, when compared to rates during pandemic. More details: https://lnkd.in/dK9PiJf

This morning it was announced that private equity firm Apollo Global Management has agreed to acquire Verizon’s Media assets for $5 billion, in a deal expected to close in the second half of this year. Apollo will pay Verizon $4.25 billion in cash, along with preferred interests of $750 million, and Verizon will keep 10% of the new company, which will be named Yahoo. I’m getting many inquires as to what this means for the CDN market as a whole since the Verizon Media Platform business (formerly called Verizon Digital Media Service) is part of the sale.

While part of Verizon’s Media Platform business involves content delivery, based in large part to Verizon’s acquisition of CDN EdgeCast in 2003, it’s far too early to speculate what this means for the larger overall CDN market. The Verizon Media Platform business includes a lot of video functionality outside of just video delivery, with ingestion, packaging, data analytics and a deep ad stack for publishers as part of their offering. What pieces of the overall Verizon Media business Apollo will keep, sell, consolidate or double-down on with further investment is unknown. For now, it’s business as usual for Verizon’s Media Platform business.

Anyone suggesting that this is good for other CDNs as maybe there will be less competition in the long-run, or bad for other CDNs as Apollo could double-down on their investment in CDN and make it a more competitive market, is pure speculation. It’s too early to know what impact this deal may or may not have on the CDN market.

Netflix reported their Q1 2021 earnings, adding 3.98M subscribers in the quarter (estimate was for 6M) and finished the quarter with 208M total subscribers. On the positive side, Netflix reported operating income of $2B which more than doubled year-over-year. The company said they will spend over $17B on content this year and anticipates a strong second half with the return of new seasons of some of their biggest hits and film lineup. More details:

• Q2 guidance of only 1M net new subs
• Finished Q1 2021 with 208M paid memberships, up 14% year over year, but below guidance forecast of 210M paid memberships
• Average revenue per membership in Q1 rose by 6% year-over-year
• Q1 operating income of $2B vs. $958M more than doubled vs. Q1’20. The company exceeded their guidance forecast primarily due to the timing of content spend.
• Netflix doesn’t believe competitive intensity materially changed in the quarter or was a material factor in the variance as their over-forecast was across all of their regions
• Netflix believes paid membership growth slowed due to the big Covid-19 pull forward in 2020 and a lighter content slate in the first half of this year, due to Covid-19 production delays

Netflix’s stock is down almost 11% as of 5:12pm ET. Roku is also down 5%, probably seeing an impact from Netflix’s earnings.