At last week's Content Delivery Summit, I moderated a panel with speakers from Deutsche Telekom (DT), Global Crossing (NASDAQ:GLBC), Level 3 (NYSE:LVLT) and Tata Communications (NYSE:TCL) who discussed how over time, they believe they can dominate the CDN market. (video archives of the panel will be online shortly)
It was a very interesting discussion to hear the telcos talk openly about their offerings today and what they envision them looking like a year from now. Global Crossing, who to date has entered the CDN market by reselling Limelight (NASDAQ:LLNW) and EdgeCast, said that 18-24 months from now they will need to stop reselling third party CDNs and bring the product in-house. Deutsche Telekom also agreed that at some point, the CDN offering would become large enough that it makes sense to bring it in-house and have more hands on control with the service.
Level 3 and Tata Communications have taken a different approach and instead of reselling, Level 3 built their own CDN and Tata Communications licensed technology from BitGravity to deploy their own offering. Level 3 said that today, 70% of the traffic on their network is video, and for them, building a CDN was as much a defensive move as it was an offensive one. Not surprisingly, when I asked all of the CDNs where they think they could slip up, all of them stated that focus and quick reaction to the market would be essential to them being successful within the CDN sector. This should come as a major concern to all the telcos as the one thing they are not known for is reacting quickly to anything. Focus is another concern as well, but I think any company can focus if they really want to. Moving fast, that's a different story and even when some companies try to move fast, they simply don't have the mindset to be successful.
I also asked the speakers if they felt that owning the network offered any kind of cost savings or advantage in the market in regards to being able to sell CDN services at a cheaper cost. While most of them agreed that it did, none of them have yet to be able to prove that to the market since they all have only recently been offering CDN services. While owning the network may give some companies like Level 3 an advantage, until they can show the industry they are making money with CDN and have lower prices, it's pure speculation at this point in time.
While taking questions from the audience, one of the attendees asked the telcos on the panel who resell pureplay CDNs why none of them were reselling Akamai (NASDAQ:AKAM) since Akamai is the leader in the space. Deutsche Telekom commented that Akamai "would not move fast enough" and was not "nimble" which is kind of scary when a telco thinks someone else is slow to react.
While this is a comment I hear often from customers in regards to Akamai's slowness to respond, I also see a trend taking place. Akamai use to be the number one CDN to go to for resellers and has Verizon (NYSE:VZ), BT and NTT Communications (NYSE:DCM) reselling its services today. But in the past eighteen months, AT&T (NYSE:T), Deutsche Telekom (DT), Global Crossing, NaviSite (NASDAQ:NAVI), Pacnet, Reliance Globalcom, Tata Communications and TeliaSonera (OTCPK:TLSNF) have all decided to resell someone other than Akamai or build the CDN themselves. This can't be a good sign for Akamai and while it does report a large percentage of its revenue each quarter as coming from resellers, we have no idea how much of that revenue is specific to video.
While the telcos were very adamant that they think they can become the major players in the CDN market in 24 months, all of them also spoke with caution and no one was willing to guarantee that they will be disruptive. I think they all realize that they have a lot of work to do to catch up to the pureplay CDNs and the barriers to entry are very high. You can't just roll out a CDN with a bunch of boxes and have true scale, capacity and performance overnight, let alone do a few hundred million a year in revenue.
It's way too early to know what role the telcos will have on the CDN market but at some point, many of them will have to acquire some of the successful CDNs in the industry so they can get to market faster. It's only a matter of when, not if, and 18 months from now I think we'll have a very good idea if the telcos can truly disrupt the CDN industry, or will still only account for a small portion of the market share.
Disclosure: No positions