Microsoft (MSFT) is building its own content delivery network using technology it recently licensed from Limelight Networks (LLNW). By building its own infrastructure, Microsoft is positioning itself for an anticipated surge in traffic from online video. Operating its own CDN may also provide efficiencies in delivery of software downloads and security patches.
"Right now we're actually building our own edge network," Debra Chrapaty, Corporate Vice President of Global Foundation Services for Microsoft, said in a presentation at a recent conference for web architects. "We're going to put nodes all over the world that we can leverage a little more broadly than we could by using a partner."
Back in August Microsoft and Limelight announced that they would cross-license some technologies, and "cooperate on extending and improving their respective technology infrastructures." The decision to license Limelight technology - rather than simply contracting to use Limelight's CDN infrastructure - suggested that Microsoft was developing an in-house system.
Microsoft's media properties serve 460 million unique users per month in 234 countries (including several dozen in Antarctica. "We're architecting one of the world's largest networks," said Chrapaty. "In environments like ours, we could look at network costs, if we continue to scale and support the world's data, in the billions of dollars. The numbers are really enormous."
At the time of the Limelight deal, Chrapaty said the agreement "anticipates Internet audiences and content offerings that are orders of magnitude larger than today." Some securities analysts speculated that the deal could reflect a loss of business for other providers, including Akamai (AKAM). Although details of how Microsoft would stage the deployment of CDN services aren't known, it would likely continue to work with existing CDN providers until (and perhaps even after) it begins using its own nodes for caching and streaming. In addition to its agreement with Limelight, Microsoft works with Akamai and CacheLogic, which provides peer-to-peer CDN services.
Dan Rayburn from the Business of Online Video said that despite analysts' focus on competition, the Microsoft-Limelight deal was best viewed in the context of the longer growth of the online content delivery market:
Why would Microsoft cross-license technology from a CDN? Very simple. Microsoft knows very well that what we are experiencing today with content delivery is only scratching the surface of where this business is going to go. They know that a few years from now this will truly be a powerful medium for delivering all kinds of video content and Microsoft wants to prepare now by making their platform ready for when it does hit.
There are rumors that Microsoft isn't the only major Internet player developing its own CDN. Shares of Akamai (AKAM) lost ground yesterday on rumors that Apple (AAPL) - a major consumer of content delivery services - might shift some of its business to CDN infrastructure from Google (GOOG). CDN industry watchers are skeptical. Rayburn doesn't believe it, while Eric Savitz at Tech Trader Daily also pokes holes in the rumor.