Earlier this year Level 3 caused a stir when it said it would enter the content delivery network (CDN) market with a radical pricing model: essentially offering the quality of service features at no incremental cost to what customers expect to pay for simple IP transit. And if you think about it, that's precisely what a CDN does: provide QoS features on top of dumb pipe. All of which should have, and did, raise fears about the health of the CDN market.
After all, if a contestant says it will give customers for free, what they today pay for, that's disruptive. Most recently, at&t itself said it was getting into the CDN business as well. Which should have caused another shudder: remember Northpoint, Rhythms Netconnections and Covad? They were the three independent providers in the nascent Digital Subscriber Line broadband access market. Of course, when the incumbent telcos decided broadband access was a business they had to "own," they simply moved to do that.
So are Level 3 and at&t a threat to market-leader Akamai? Right now it's hard to say much, beyond the obvious fact that competition is increasing in the space. One issue could ultimately be the size of the market opportunity, the reason for that being that a smallish market will favor specialists, while a large market will favor the larger telcos.
And it is not necessarily simply because scale economies might kick in. It is more a matter that large telcos tend not to do well in market segments that are small. Small markets never get the attention they might deserve in a large organization. So unless the market gets fairly sizable, a large telco simply will not invest enough to keep pace with smaller specialists.
So how big is the market today? As it turns out, that's a guesstimate of sorts.
Some things are hard to count. Unified communications software is an example. People who track these things like concrete measures: ports, servers, licenses sold. So how do you track "presence" features that simply are embedded in the basic functionality of an IP PBX?
Other markets aren't quite that hard to track, but still are fuzzy because mutltiple revenue categories get lumped together in the reporting. Streaming media services, as distinct from application acceleration, provides an example of that sort.
Dan Rayburn,StreamingMedia.com EVP, provides a reasonable way of current approaching the U.S. market size, though. Working backwards from benchmarks, Rayburn suggests the market for CDN services (but not P2P apps) currently is less than $800 million.
Internap's 2007 revenue is about $24 million. Limelight Networks generated about $105 million for 2007 and about $95 million of that was earned in the U.S. market.
Akamai probably generates $400 million to $450 million of its $625 million total revenue comes from their CDN services. Rayburn further guesses that U.S. CDN revenues amount to $300 million.
Level 3 wasn't in the market for much of the year, but might have earned $2 million or so.
VeriSign might have earned about $8 million for the year in the U.S. market.
Mirror Image, CacheLogic, Panther Express, CacheFly and Advection.NET taken together will do about $20 million in the U.S. market.
EdgeCast, CDNetworks and BitGravity combined did about $5 million for the year. Again, these are new services that didn't have a full year of operation to measure.
PEER 1, NaviSite and Ignite Technologies together collectively generated about $8 million.
All other smaller regional service providers providing small and medium sized businesses outsourced video delivery services sold under $20 million in 2007.
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