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, StreamingMedia (226 clicks)
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Since last year, Apple (NASDAQ:AAPL) has been hard at work building out their own CDN and now those efforts are paying off. Recently, Apple's CDN has gone live in the U.S. and Europe and the company is now delivering some of their own content, directly to consumers. In addition, Apple has interconnect deals in place with multiple ISPs, including Comcast (NASDAQ:CMCSA) (NASDAQ:CMCSK) and others, and has paid to get direct access to their networks. Doing trace routes on OS X downloads from multiple ISPs now shows them coming directly from Apple's CDN, as you can see with the example below.

- te-0-7-0-9-sur02.lowell.ma.boston.comcast.net (68.87.159.37)
- be-21-ar01.needham.ma.boston.comcast.net (68.85.106.45)
- he-1-12-0-0-cr01.newyork.ny.ibone.comcast.net (68.86.90.253)
- he-4-15-0-0-cr01.ashburn.va.ibone.comcast.net (68.86.87.197)
- he-0-11-0-1-pe04.ashburn.va.ibone.comcast.net (68.86.82.222)
- as714-2-c.ashburn.va.ibone.comcast.net (66.208.228.214)
- usqas1-vip-sx-003.aaplimg.com (17.253.0.223)

From ISPs I have spoken with, they tell me Apple has put a massive amount of capacity in place, with many saying that Apple has more than 10x the capacity they are using today, all ready to go. With Apple planning to release the beta version of their next desktop OS today, Yosemite (10.10), and with iOS 8 expected to come out this fall, Apple is putting in place a lot of capacity to support upcoming software releases. Apple is still using Akamai (NASDAQ:AKAM) and Level 3′s (NYSE:LVLT) 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 already started using their own CDN much faster than I expected. The pace of their build out and amount of money they are spending on infrastructure is incredible. Based on my calculations, Apple has already put in place multiple terabits per second of capacity and by the end of this year, will have invested well more than $100M in their CDN build out.

While Apple will probably never completely move away from third-party CDNs, like Netflix (NASDAQ:NFLX) did, they will rely less on third-party CDNs over time, just like we have seen with Microsoft (NASDAQ:MSFT), YouTube, Netflix and others. Level 3 will be able to make up for lost CDN business as they are 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 their own CDN and buying network services from them, as opposed to using Level 3′s commercial CDN platform. Akamai will see the most negative impact over time since almost 10% of their revenue comes from Apple and they 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 took them about 18 months before they moved enough traffic away from third-party CDNs to impact their business. Apple has now been working on their CDN build out for about 12 months now, and are quickly scaling their 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 around who (Apple/Akamai/Level 3) delivers what (updates, streaming, apps, radio) to whom (ISP customers, different devices etc.) are under Apple's control. These 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 many other factors. Companies like Apple, and previously Netflix, make variations in CDN choice by device, by ISP, by service - download, streaming, etc.

Apple already controls the hardware, the OS (iOS/OS X) as well as the iTunes/App store platforms. Right now, they control the entire customer experience, except for the way content is delivered to their devices, and they are 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 their own servers allows them 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 is only just getting started.

Disclosure: None.

Source: Apple's CDN Now Live: Has Paid Deals With ISPs, Massive Capacity In Place