Late in 2010, Level 3 (LVLT) announced on its earnings call that it would generate about $60M in revenue for the year, from its CDN services. Since then, the company hasn’t broken out CDN revenue from the rest of its products but on a call with the company last week, they gave me more insight into the growth of the their CDN business. Since 2010, Level 3 has said they are growing at more than double the average industry rate of 15% a year. This means that Level 3′s CDN business has grown by at least 30% each year, for the past three years.
Based on a 35% growth number, Level 3′s CDN revenue was $71M in 2011, $96M in 2012 and is on a run rate of at least $130M for 2013. These numbers do not include the Vyvx portion of their business, which separately does more than $100M a year. While Limelight has not given out guidance for yearly revenue, the consensus from many on Wall Street is that Limelight will do about $177M in revenue for 2013. Last quarter, 36% of Limelight’s revenue was coming from what they call “value added services," which is revenue outside of traditional CDN services. If that 36% number stays true for the remainder of the year and Limelight does $177M in revenue for 2013, Limelight’s CDN revenue for 2013 will be $113M.
A lot of vendors tend to call themselves the “largest” based on things like network capacity and number of customers, but the only real metrics that matter are revenue and profitability. Level 3 does not disclose the profitability of their CDN business, but being they own and operate their own network, they have a better shot at having a profitable CDN business than anyone else. Also, when the Comcast (CMCSA) and Level 3 dispute was taking place, Level 3 went on record to say that they were making money on their Netflix CDN business, even with the added port costs from Comcast. So if they can make money on someone like Netflix, which has a very low price point, surely they are making money from customers that aren’t getting the lowest price in the market. Level 3 has had a lot of success in the media and broadcast markets, signing up customers like Apple (AAPL), and with their Vyvx platform, they have the ability to control the customers content from creation to distribution.
Based on the revenue numbers disclosed by Akamai (AKAM), Limelight (LLNW), EdgeCast and now Level 3, it’s easy to call Level 3 the #2 CDN in the market, out of those four providers, based solely on revenue. But throwing Amazon (AMZN) into the mix makes things a bit cloudy. Amazon won’t give out any details on CloudFront’s revenue and it is possible they are generating more CDN revenue than Level 3. In 2011, Amazon announced they had more than 20,000 active (paying) customers, but customer count alone does not equal a lot of revenue. The vast majority of those customers aren’t the size or type of customers Level 3 has for CDN services, so even if they have more CDN revenue than Level 3, the amount of revenue they get from each customer per month is pretty low.
As an example, I am one of their 22,000 paying customers, but I spend less than $100 a year and use their service for small projects. So the real question about Amazon business is how much of their CDN revenue is similar to Level 3′s in size and scope. By my guess, less than 20% of Amazon’s CDN business could be compared to Level 3 in a true apples-to-apples comparison. Amazon has been doing a great job growing their CDN business and product capabilities, but I still don’t see them being involved in 8 out of 10 large RFPs I see in the market. Amazon still has a lot of work to do to improve their sales presence going after larger customers.
If 25,000 customers pay Amazon an average of $500 a month, Amazon would do $150M in CDN revenue this year and be larger than Level 3. But there are plenty of customers not paying that much each month, as well as customers paying a lot more. When I say CDN I don’t just mean video and there are all different kinds of streaming, downloads and small object delivery taking place across the CDNs. At some point, Amazon’s going to have to disclose some aspect of their CDN business, but until we know more, among the other four major CDNs, Level 3 has now taken over Limelight’s position as the number two CDN in the market.