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Apple's $100M Investment Marks a Shift Away From Third-Party CDNs

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Since 2013, Apple’s been hard at work building out its own CDN, and now those efforts are paying off. In late spring, Apple’s CDN went live in the U.S. and Europe, and the company is now delivering some of its own content directly to consumers. In addition, Apple has interconnect deals in place with multiple ISPs, including Comcast, and has paid to get direct access to those networks. While Apple hasn’t made any official announcements about its CDN, an analysis of trace routes on OS X downloads showed them coming directly from an Apple CDN.

I have spoken to ISP representatives who say Apple has put a massive amount of capacity in place, perhaps up to 10 times the capacity it is using today, all ready to go when the company releases Yosemite and iOS 8 this fall. Apple is still using other CDN services for iTunes (Akamai), Radio (Level 3), and app downloads, but over time, much of that traffic will be brought over to Apple’s CDN. It’s too early to know how much traffic will come over and when, but Apple has begun using its own CDN much faster than I expected. Apple is spending an incredible amount of money on infrastructure and completing its build out at an incredible pace. Based on my calculations, Apple has already put multiple terabits per second of capacity in place and by the end of this year will have invested well more than $100 million in its CDN build out.

While Apple will probably never completely move away from third-party CDNs the way Netflix did, it will rely on them less over time, just like we have seen with Microsoft, YouTube, and others. Level 3 will be able to make up for lost CDN business, as it is one of the vendors that Apple is buying wavelengths, IP transit, fiber, and other infrastructure services from. From a revenue perspective, Level 3 benefits more from Apple building out its own CDN and buying network services than it would from Apple using Level 3’s commercial CDN platform. Akamai will see the most negative impact over time, since almost 10% of its revenue comes from Apple, and it can’t sell Apple wavelengths, transit, co-location, or other network-related products. When YouTube, Microsoft, and Netflix all took their CDN delivery to in-house platforms, it was about 18 months before they moved enough traffic away from third-party CDNs to impact their businesses. Apple has now been working on its CDN build out for about 15 months and is quickly scaling its network. So while I’m not predicting doom and gloom for Akamai overnight, make no mistake, it will have a negative impact on their business at some point.

It is also important to point out that decisions on who (Apple/Akamai/Level 3) delivers what (updates, streaming, apps, radio) to whom (ISP customers, different devices, etc.) are under Apple’s control. Content providers manage these choices according to their business rules and usually don’t inform the ISP when something changes. If adequate server and network capacity exists, switching from one CDN provider to another (such as moving iTunes downloads from Akamai to Apple’s CDN) or changing encode rates should not impact performance, so we should not expect consumers to even notice the change. What CDN to use -- internal versus external -- depends on cost, contracts, capacity, and technical readiness to in-source, among other factors. Companies such as Apple, and previously Netflix, make variations in CDN choice by device, by ISP, and by service -- download, streaming, etc.

Apple already controls the hardware, the OS (iOS/OS X), and the iTunes/App store platforms. Right now it controls the entire customer experience, except for the way content is delivered to its devices, and it is quickly working to change that. While Apple doesn’t own the last mile, paying to connect directly to it (in some places) and delivering content from its own servers allows it much more control over the user experience, especially for cloud-based services. Over time, this is something that will make the experience and performance for consumers even better -- and Apple’s only just getting started.

This article appears in the October 2014 issue of Streaming Media magazine as "Complete Control: Apple’s CDN Now Live."

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