The ever-increasing volume of content online is leading to big shifts in the content delivery network (CDN) market. Select content companies are now rolling out their own CDNs, and everyone in the business is trying to figure out new strategies for managing these delivery networks -- both operationally and financially -- over the long term.
To that point, there have been two notable news items in the CDN space this week. First, multiple outlets are reporting that Comcast Corp. (Nasdaq: CMCSA, CMCSK) has begun testing a commercial CDN service, where early customers are paying to have their content stored and delivered in Comcast's last-mile network.
Second, Apple Inc. (Nasdaq: AAPL), which recently began building out its own CDN, is now wading into the world of interconnection deals. According to industry analyst Dan Rayburn, Apple is negotiating paid peering agreements with large US Internet service providers.
Comcast hasn't announced any firm plans to compete in the CDN market. But if the MSO does move beyond the trial phase, it would mean new competition for pure-play CDN providers like Akamai Technologies Inc. (Nasdaq: AKAM) and Limelight Networks Inc. (Nasdaq: LLNW). These third-party CDN providers don't own last-mile networks, which means they'll have trouble competing on price at that point in the delivery chain -- although they can offer value-added services that Comcast can't, and they do have the advantage of larger network footprints to support national and international content delivery.
While Comcast has built its own national CDN in recent years, Rayburn notes that the cable company is now targeting commercial sales of last-mile or "on-net" service rather than national delivery.
Meanwhile, Rayburn also reports that Apple has been rapidly building out its own CDN for months, and is now negotiating interconnection deals with ISPs in the same way that Netflix Inc. (Nasdaq: NFLX) has. Netflix has been very vocal about its concerns over having to pay ISPs to connect directly with their networks. The company's arguments have led to big debates over whether or not peering agreements should be monitored by the Federal Communications Commission (FCC) , and whether or not they should be included within the broader framework of net neutrality discussions. (See Comcast-Netflix Peering Deal: A Game-Changer? and Netflix CEO Wants 'Strong' Net Neutrality .)
The CDN market has always been complicated, from both technical and business perspectives. However, the subject of CDNs is getting even thornier as online traffic and reliance on broadband networks continue to grow.
Here are a few observations to consider:
- The online content world is looking more and more like the offline TV world, with increasing dependence between content providers and distributors.
- Interconnections deals -- the relationships established to exchange traffic from one network to another -- continue to grow in importance, which means there will be more calls for greater oversight, and potentially for regulation.
- Scale is also becoming ever-more important for content delivery, which means a handful of companies will continue trying to expand their networks over larger areas. In other words, the big will get bigger.
"Net neutrality" is a loaded phrase, and many, many industry veterans argue that the CDN market has nothing to do with the network neutrality issue. However, there is a significant amount of power and control at stake in content delivery, and it is inevitably a market controlled by the few that have the scale and capital to make content delivery a successful business. Because of that, there will always be concerns over how companies exercise that power.
Right or wrong, networks aren't neutral. They are, and will continue to be, built on paid interests.
— Mari Silbey, special to Light Reading