Over the past month or so, I have had multiple chances to spend time with Internap's management team to learn more about the company and to get updates on the VitalStream integration into Internap. I've asked them a lot of questions, gotten detailed answers and spent a lot of time looking at their CDN business. While I know Internap provides more services than just content delivery for audio and video, that is the core product I have been speaking to them about and the only product that I have insight into.
For Internap, the hardest and most time consuming task of integrating the VitalStream network and clients into their own network, seems to now be behind them. While everyone knows about the VitalStream acquisition, it's important to remember that VitalStream had acquired PlayStream and EonStreams before they were acquired. So Internap had to integrate three different platforms all into the Internap network. It's not been without problems, as witnessed by the ten-day outage that the small business customers, former PlayStream customers, experienced in the transition.
While they are still working to fully complete the integration, most of it has been done, they have added additional capacity in Europe and are working on adding capacity in Asia. By the end of this year, Internap plans to have two origin sites specific to video delivery in North America, Europe and Asia. In addition to those six origin sites, they also deploy caching sites as well.
Once Internap is fully done with the build out at the end of the year, then they can really focus their resources on selling their CDN offering. While VitalStream was always a company that was growing in terms of revenue and customers, it was limited based on the scale of it's network and the limited geographic reach. There was a lot of business VitalStream could not win, or could not go after based on how their network was setup. Internap now takes the old VitalStream service to a new level since at it's core, Internap is a network and VitalStream wasn't. From a strategic point of view, it was a good fit for VitalStream, but my personal opinion is that Internap overpaid.
That being said, Internap has it's work cut out for them. VitalStream as a brand has died out completely and there has been no new branding by Internap yet of the CDN offering. Internap did away with the VitalStream brand and most don't know that VitalStream is still around, but in a new form and with a new company. This is the biggest marketing challenge Internap has in front of them. While Internap's management is under the impression that the company is well known and has a good brand, that is not the case for customers who are only looking for CDN services and don't even know they offer the service. The majority of all the large RFPs that I see, aren't yet going to Internap simply because customers don't know about them. Can that be changed, yes, but it will take time and a clear marketing strategy needs to be executed on. Right now, the Internap website points you over to the VitalStream website for all the CDN info and while it is no longer branded as VitalStream, it's a completely different website, with very little info. There is no info on the network and all of the other info is the same as it was with VitalStream, just with the Internap name. And if you want info on Internap the company, you then have to leave the old VitalStream website and go back over to the Internap website. Very clumsy and confusing for a customer who is visiting the site for the first time. Needs to be packaged a lot better.
Internap did announce last quarter than even while they were integrating the networks they had signed up 54 new enterprise customers for their CDN service. They were not able to tell me how many of those 54 customer were doing delivery of video content, as opposed to static caching of content, but it clearly shows that no matter what some of the analysts say, the CDN market has not slowed down. The fact that a company can sign up new customers, while doing a major integration and while having a major network outage at the same time, is proof that CDN services are still in great demand in the market.
When Internap really starts to go after the market, it's going to be offering a different CDN offering based on being able to offer more than just CDN. For some customers, that may give Internap a competitive advantage over other CDNs who only offer delivery, but for customers who just want delivery, Internap's IP and co-lo services won't matter to them. No one can say the value these other services hold in the market as their value is determined strictly by the customer based on exactly what the customer needs. Internap has said that it feels that it won't be affected by the lower pricing being seen in the market due to them providing a different level of service and performance, but it could not say how much more a customer would be willing to pay for this if Internap could prove the enhanced level of performance to them. Keep in mind, when we are talking network performance, it's very hard to measure.
Based on some quotes in the media, there has been a lot of confusion in the market when it comes to Internap's SLA service for CDN. Internap does not provide a 100% SLA for CDN services. Internap provides a 99.7% uptime SLA for CDN based on Keynote and a 100% SLA strictly for the IP side of the business. So many people have told me otherwise, yet all it took was me asking Internap directly, and I got a very easy answer. I'd suggest to a lot of those that always "speculate" on what they think they know about a company to simply ask the company first, before you publish it in writing as a fact. Internap was very upfront about their SLA terms and anyone who asked them directly would have gotten the right answer.
I think Internap has a clear idea of who they want to become in the market in regards to their CDN services but have a lot of sales and marketing work to do to get there. If they complete the network expansion by the end of the year as they say they will, then next year they can really focus on the marketing and sales side of the business. They need to get sales reps up to speed, train SEs and focus on the message they want to deliver. VitalStream did roughly $25 million last year in CDN services, so if Internap can grow their CDN business next year, they will still be the third largest player in the space based on revenue derived from the delivery services for audio and video content. On their latest earnings call, they gave growth projections for the CDN business and said it was the product they expected to see the most growth in, so the potential is there for them to do more than $25 million next year. I won't predict how much they can grow that by for 2008 as it would be pure speculation on my part, but it's a pretty safe bet it will grow.
For me, the unanswered question is whether or not a company like Internap that sells many products can focus and sell their CDN offering as well as a company that specializes in just selling CDN as their core service. Also, I don't see a fit for the small business customers that Internap has via the PlayStream side of the business. Customers who spend $100 or $200 a month are not going to take other Internap IP services, so I don't see those as a fit. My opinion is that Internap should drop that side of the business all together so that it does not distract them from their core set of services.
Also, while Internap has been hard at work on the network side of the CDN service, what about the rest of the products that support content delivery? What does their reporting for video delivery look like? VitalStream's reporting was horrible before they were sold and needed a major upgrade. Has that been done? What about the advertising services that are offered via the EonStreams acquisition? Does that have any traction in the market? There is no detailed information on this product, a demo of it, or any mention of customers who use on their website. Is this a service Internap really wants to provide? Does it want to compete against ad networks who could be potential large CDN customers on their network? And what will Internap's customer service and support look like? Network is just one aspect of the entire solution you need to have in place to go to market with a CDN product. So the network may be great once done, but if you have a poor reporting package the network won't save you.
It's too early to tell what potential Internap has for growth in the market for it's content delivery offering. No doubt, they will see some growth as all CDN vendors are, but we'll have to wait and see how quickly Internap can really ramp up the packaging, pricing, marketing and selling of their CDN service once the network is completed. I think we'll have a pretty good idea of where they stand by the end of Q1 in 2008. The opportunity is there, as it is for nearly all the providers, the question is which ones can really move quickly and capitalize on the market ahead of the others.