The State of the Content Delivery Market
Today, it is harder than ever to distinguish CDN providers from one another and to get a clear picture of exactly what they offer, what their market focus is, and what sweet spot they are going after. While many of the new entrants in the market over the past 12 months have taken aim at Akamai and Limelight, which are the No. 1 and No. 2 companies in the industry based on video delivery revenue, few have managed to take away any real market share from them. But that’s not to say competitors aren’t trying and that things aren’t getting interesting, especially with telcos such as AT&T and Level 3 now eyeing and entering the market.
The Telcos Cometh
Back in December, AT&T announced that it would spend $70 million to $80 million this year to build out its CDN offering and focus on the video delivery business. But while financial analysts have been quick to downgrade Akamai every time a telco says it is going to enter the CDN market, even AT&T won't make a big dent any time soon. You can’t build a CDN overnight, even if you are a telco and own the pipes, and while placing servers and turning up capacity is not hard, it’s all the other pieces around the CDN offering you need to have in place that make it difficult. Without reporting, content management, transcoding, etc., no CDN offering can get very big, and AT&T is aiming to have only 400Gbps of capacity for all of its CDN services by year’s end, which is only 20% or less of the capacity that some larger players have in the market.
That’s not to say, however, that AT&T or any other telco can’t make an impact in this market. For the past year, Level 3 has been hard at work building out capacity for its CDN and adding many of the ecosystem pieces that content owners are struggling with in the workflow. When Level 3 ties its Vyvx service and the applications it has from the Servecast acquisition into its CDN offering, the company will have a unique product on the market that allows it to control content from creation to distribution. While many don’t give telcos a shot at being real competitors in the CDN market, most are underestimating Level 3. I expect that by the end of this year, the company will be the No. 3 provider in the U.S., based on CDN revenue, and it will quickly become the No. 2 provider behind Akamai next year.
While AT&T and Level 3 are the only telcos in the market today, additional telcos have confirmed that they will be entering the market shortly. The real question is whether they will have the mentality of wanting to build everything themselves, like most telcos do, or of acquiring smaller players in the industry to get to market faster. Either way, one thing is for sure: The CDN market has yet to peak, and new providers will continue to enter the market in the second half of this year.
P2P and Hybrid CDNs
In addition to the venture capital (VC) money that CDNs have raised, we’ve also seen quite a bit in the market about new P2P or hybrid CDN offerings. While P2P has been around for many years now, it has begun to get a lot of mainstream attention in the media in only the past 12 months or so. As new CDNs enter the market, many are solely focusing on trying to reduce the cost to deliver video and/or increase the quality of the video being delivered. Many P2P-based solutions are attempting to challenge the CDNs for the same video delivery business, but with little luck. In order for P2P to make it, it has to be combined with a service-based offering. It can’t try to fight against the traditional means of CDN distribution or it will lose. It has to be combined with all other forms of delivery and be thought of as just another means of video distribution. In my eyes, the biggest point people are missing is that P2P is a complement to a CDN, not a replacement for it. Some CDNs, such as Velocix, use a hybrid model that combines a traditional edge CDN with P2P for delivery, but most CDNs today are using one form or the other.
While the technology surrounding the different CDN offerings will always be debated, the fact remains that today, customers have a very hard time comparing one CDN offering to another. Two big reasons for this are that the CDNs are still not doing a good job of marketing their services and they aren’t listening to their customers. Based on a CDN survey that StreamingMedia.com conducted this year, more than 75% of the more than 1,000 respondents said that poor reporting and analytics was their No. 1 complaint about their CDN. Even with that data, most but not all CDNs still lead their marketing messages with, "We’re cheaper than Akamai." If all it took to drive up business was for a CDN to say it is cheaper than Akamai, then Akamai would be losing a lot of CDN business right now, which it isn’t. And by now, everyone should know that CDN customers do not buy on price alone. If a customer cares about only price and thinks customer service, reporting, geographic reach, number of formats supported, and other features of the CDN offering have no value, then no CDN would want him or her as a customer anyway. The problem is that while many CDNs know this, they are still not conveying the value their services hold to the market.
Many CDNs use the same marketing terms and buzzwords and are simply falling in with the crowd, getting lost in bad marketing speak. An example of this would be CDNs that say they are helping customers monetize content. You are not helping customers monetize content simply by operating a CDN. The services that truly enable the monetization of content—including transcoding, authentication, metadata management, syndication tools, custom APIs, analytics tied into advertising, etc.—are not offered by most CDNs yet. Simply delivering bits is not enabling monetization. Anyone can deliver bits. It’s all of the other pieces of the content ecosystem that really drive the monetization of content. Some CDNs have a few of those pieces, such as Akamai with its Stream OS product or a few CDNs that have a stand-alone transcoding service, but the vast majority of them don’t.
Growing the Market
While the CDN market for video delivery in the U.S. is still small today, it will no doubt become a real business down the road. In the next few years, the growth of the content delivery market and the success of CDNs rely heavily on the trend we see developing for increased bitrates. Five years ago, the average broadband video stream was encoded at 300Kbps. Last year, 300Kbps was still the norm, but we saw many moving to higher quality. Within the last 6 months, we’ve gotten to the point where the average broadband video is now encoded at least at 500Kbps. We have all seen bigger window sizes and better frame rates, and all of that comes from increasing the bitrate.
Gone are the 300Kbps streams and small window sizes. Many content owners are now doing 750Kbps streams, and this year, they will be delivering many more bits than last year. With most content owners using some form of a CDN to deliver their content, the CDNs are poised for some explosive traffic growth this year. The average content owners I speak with say they expect to grow traffic two to four times this year even without the increased bitrate. Factor in moving from 300Kbps to 750Kbps and content owners could push four to eight times more bits this year than last.
Some say HD is going to be the biggest factor for CDN growth, but HD viewing adoption in large numbers is years off. HD will have some impact this year, but most content owners are not encoding content in this format and are focusing on a bitrate around 700Kbps. But even with HD having a small impact this year, it still adds to the growth that CDNs are going to see in the next few quarters. Content owners are putting up more content in more platforms and at higher bitrates, and much of that content is longer in length. This all amounts to a huge increase in the number of bits being delivered via the CDNs.
Mobile device adoption, security requirements, and the rapid growth of premium OTT video will all challenge CDNs in the coming year.
Companies and Suppliers Mentioned