Why Microsoft Built Its Own CDN

Microsoft announced this week that it will begin providing on-demand access to the full versions of retail video games. That means titles like BioShock (6 Ggigabytes) and Mass Effect (7 GB) can be downloaded through the Xbox Live online gaming service, which has more than 17 million members. The growth of these type of bandwidth-draining services has been a major driver in Microsoft’s decision to build its own content delivery network.

Jeff Cohen, the general manager of Microsoft’s Edge Computing Network, discussed the company’s content delivery infrastructure in his May 11 keynote at the first Content Delivery Summit. Cohen said video delivery accounted for just 10 percent of Microsoft’s content delivery in 2007, but has since grown to 40 percent, consuming as much bandwidth as the company’s “large file” downloads of software and security updates.

“The content is exploding,” Cohen said at the event, part of Streaming Media East. But the barrier to entry for the CDN market is steep. ”It takes a huge amount of capital to get into this space, even for Microsoft.”

A Cisco CDN?

Cisco Systems clearly sees Internet video and large-file transfers as key drivers for the future of its business. So it’s not a surprising to hear reports that Cisco is leasing space in data centers for a content delivery network (CDN). Dan Rayburn says he has heard from two colocation providers that Cisco has recently acquired space for a future CDN offering for third parties.

Since Cisco (CSCO) is sitting on about $30 billion in cash, Dan asks the obvious question: “If Cisco is in fact building their own CDN, you have to wonder why they don’t acquire one of the major CDN players already in the market,” he writes. “Cisco has the cash and has not been shy lately in saying that they want to do more acquisitions in the market. While Akamai may be too expensive for them, companies like Limelight and EdgeCast could be taken out of the market for what would be pocket change to Cisco.”

As an example, the market capitalization of Limelight Networks (LLNW) is currently about $295 million. Limelight has a strong video delivery business, and Microsoft as a customer. Whether it builds or buys, Cisco’s interest in content delivery is one more storyline that will keep the CDN sector interesting in months and years to come.

CDN Funding as Wealth Destruction?

Dan Rayburn at the Business of Video says CDNetworks’ deal for Panther Express is not going to be the start of a consolidation trend in the content delivery, as suggested by some analysts (and DCK as well).

“The problem with thinking that major consolidation will take place is that the vast majority of CDNs don’t own any real technology, don’t have applications, have no patents, no intellectual property, have a small number of customers and very little revenue,” Rayburn writes. “Lets say that you are a telco that wants to enter the CDN market. What do you get by acquiring a current CDN that has very little in the way of technology or revenue?”

New content delivery companies raised more than $325 million from investors in 2007 and the first half of 2008. If Dan’s correct that these new companies have little revenue and are unlikely to be acquired, the content delivery sector may turn out to be the graveyard for a lot of venture funding. Clearly, trying to grab market share from Akamai (AKAM) and Limelight Networks (LLNW) has proven much more difficult than these companies envisioned.

CDNetworks Acquires Panther Express

CDNetworks has acquired Panther Express in a move that could signal; the start of a long-expected consolidation phase in the content delivery sector. The deal gives Korea-based CDNetworks a larger presence in the U.S., where Panther had a marquee client in the official BarackObama.com campaign site. 

CDNetworks has been the leading content delivery network in Asia, and expanded into the U.S. market in mid-2007, establishing caching sites in nine locations. It raised $96 million in private funding in late 2007 and appeared poised to make an acquisition to expand its North American presence.

CDN Roundup: Akamai, CDNetworks, EdgeCast

It’s been a busy week for the content delivery sector. Here’s a roundup:

• CDN market leader Akamai Technologies (AKAM) defied concerns about competition and pricing pressure, surpassing Wall Street expectations with a strong earnings report. “Akamai’s results show no signs of pricing disruptions, despite the crowded field,” writes Rob Powell at Telecom Ramblings. ”I don’t get the sense that they prospered at the expense of others in the sector, rather that the sector itself had a good quarter.”
• Up and coming CDN EdgeCast has had a good run of late. Last week it picked up a big reseller deal with Deutsche Telekom, and yesterday it unveiled a similar agreement with managed hosting provider NaviSite, which will use EdgeCast to supersede its in-house service. Dan Rayburn has more.  
• Network World has an update on the progress of CDNetworks, the large Korean CDN which last year launched an ambitious expansion into the US market. The company says it now has more than 120 customers in the US, and has added nodes in Australia and Brazil.

CDNs Covet Churches for Streaming Sermons

Are churches a growth market for content delivery services? Internap Network Services (INAP) thinks so. Internap has a press release this morning positioning itself as “a preferred network provider for faith-based organizations,” and highlighting several clients streaming sermons and Christian education programming.

“Faith-based organizations are moving online in rapid succession,” said Tim Sullivan, chief technology officer at Internap. “The type of content they are distributing requires very robust streaming media and connectivity solutions.”

Internap isn’t alone. The EdgeCast content delivery network is also customizing its marketing to target video and audio sermons. “EdgeCast ensures that your church’s sermons are always on the network edge, adjacent to your congregation, no matter where they are located globally,” the company says.

CDN News: Mobile CDNs, Ono, Kontiki

There’s been a number of news stories today about the content delivery business. Here’s a roundup:

• Does mobile content require specialized CDN services? Stacey Higginbotham at GigaOm looks at a new software product from Dilithium Networks targeting mobile distribution, as well skepticism from CDNs that such services are needed.
• Can CDNs like Akamai and Limelight provide a roadmap for reducing network traffic used by peer-to-peer applications? Researchers at Northwestern have developed a plugin for the Azureus P2P client that identifies nearby users and seeks the shortest route to the files. The software, called Ono, assumes that two computers sent to the same node on a CDN network are close to one another. 
• ISPs and hosting companies are the target market for Aflexi, a new company that offers to aggregate CDN services from multiple providers. See coverage by Contentinople, Lydia Leong and Dan Rayburn.   

The Google CDN

So after all of last night’s drama about Google supposedly constructing an Internet “fast lane” offering preferential treatment from access providers, it turns out the company is actually building a traditional content delivery network (CDN) to cache content at ISPs. The arrangement will save bandwidth costs for many Google services, but especially for YouTube, which was specifically mentioned by Google’s Richard Whitt in his blog post last night.

It’s perhaps not a coincidence that the Google CDN project is gaining a higher profile just now. Last week YouTube began offering a larger number of videos in high definition (HD), which means it must deliver many millions of videos in even larger file sizes. The leading CDN providers, Akamai Technologies (AKAM) and Limelight Networks (LLNW), have long predicted that HD video would be a game changer for them, fundamentally altering the math of network capacity and shifting more content to CDNs.