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Content Delivery Networks (CDN) Industry Analysis February 2014
The document discusses the landscape and trends of content delivery networks (CDNs), highlighting established and emerging players, pricing forecasts, and key threats like large non-CDN tech companies and new streaming technologies. It notes a market consensus that CDN pricing will decline over the next few years and emphasizes the importance of diversification and innovation for CDNs to stay competitive. Opportunities for CDNs include expanding into international markets and developing value-added services related to security, analytics, and media delivery.
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Content Delivery Networks (CDN) Industry Analysis February 2014
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- 2. Overview • CDN Landscape Established Players in CDN Landscape Emerging / DisrupHve Players in CDN Landscape • Trends / Forecasts Pricing / Revenue Traffic / Video Growth • Threats Caching Video CDNs Large Non-CDN Players HVEC H.265, MPEG-DASH • CDN OpportuniHes OpportuniHes List Media OpportuniHes Example Slides Chris Van Noy 2
- 3. Key Takeaways Trends • Market consensus is CDN Delivery Pricing (StaHc & Video Delivery) will decline for the 2-3 years. Our previous view was the pricing would decline for only the next 12-18 mos. However, it appears prices have already started level off (Sept ’13) due to market realiHes and customer a^tudes • Dynamic Site AcceleraHon (DSA) not dropping nearly as quickly • Traffic, and video traffic in parHcular, will increase substanHally between ‘13 – ’17 Threats • Telcos/MVPDs/3rd ParHes creaHng caching CDNs – Has potenHal to take away significant video traffic • Large, non-CDN players are real threats to tradiHonal CDNs (Amazon, Google, MSFT, Facebook?, not Neflix) • New streaming standards/technologies HVEC H.265, MPEG-DASH (a couple of years) Opportuni0es • CDNs must/will diversify into other services or have the CDN business serve another business purpose • We anHcipate that there are large opportuniHes for CDN and other “nexus” players (remove the complexity) • InnovaHon OpportuniHes (moat around CDN business) – transformaHon, further delivery innovaHon, security (content, site, commerce), analyHcs, internaHonal • Adjacent Market OpportuniHes – adverHsing, data, B2B secure transport, media warehouse • Expand Further InternaHonally Chris Van Noy 3
- 4. CDN Landscape Established Companies Data from annual reports and company websites Chris Van Noy 4 * Performance Equity Management (PEM), with parHcipaHon from exisHng investors Menlo Ventures and Steamboat Ventures. Servers / POPs ‘12 Revenue / Net Rev +- / Net +- Notes 130,000/2,000 $1,300M/$230M +16% / +1.5% Good Shape, Media, Finance, Govnt quickly growing. Old Tech. Poor Cust RelaHonships 18,000/67 Debt, CDN loses $ Expansion in Lat Am, EMEA, Asia (Nov ’13), Rev + 37% YoY Q3 ‘13 18,000/80 $180M/($33M) +5% / -23% Losing $, ReinvesHng in CDN ???/35 $100M-$200M/(???) +100% / ??? July ’13 $54M new funding*. AcquisiHon? IPO? 14,000/26 $205M in debt refinancing (Aug ‘13) ???/25 $100M/(???) Growing Quickly, Scale, Explode DSA, PotenHal DSA concerns ???/24 Cloud services key, CDN not much focus. Xbox One bump not coming AcquisiHon By Verizon Announced Q4 ’13, finalized Q1 ‘14
- 5. CDN Landscape Emerging Players / Disruptors Chris Van Noy 5 Founded Descrip0on Disrup0on Customers 2011 SSD Based CDN Launched Video Streaming CDN Q3 ‘13 Lowest Latency, Fewer POPs needed, DSA beuer, Less Cost. Going into video and staHc content Twiuer, Vine, Shazam, Etsy, Github 2011 MulH-plaform adapHve video streaming, Video encoding, DRM and EncrypHon, Content Management, AnalyHcs and ReporHng, Dynamic ad inserHon Does encoding and ad inserHon more efficiently taking services rev from CDNs Disney/ABC 2008 Dynamic CDN Switching and AnalyHcs Allows customers to pay less for delivery, avoid exclusivity and have delivery fallback Many - Neflix, NFL, ABC, Univision etc 2010 Third Party Caching CDN for Video Allows ISPs to disintermediate CDNs from most popular video Mediacom, (allegedly negoHaHng w/ 2 Top US cable companies) Acquired By Verizon Q3 ‘13
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- 7. CDN Trends Pricing / Revenue Standard Delivery (Objects, Video) Customer spending more than $1M (Sept ’12) Delivered • 3PB/month, $0.03/GB High, $0.01 Low Sustained • 400Mbps/month, $4/Mbps High, $2/Mbps Low Dynamic Site Delivery/Accelera0on Pricing Pricing collected from mid-size to large customers, 2 yr contracts (May ’13) • 20 Mbps, $150 high, $110 low • 100 Mbps, $85 high, $50 low • 250 Mbps, $40 high, $25 low • 500 Mbps, $15 high, $6 low CDN Pricing Decline Dan Rayburn (May ’13) CVN Predic0on (Aug ’13) 2009 2010 2011 2012 2013 2013 - 45% - 25% - 20% - 15% - 25% - 5%-10% Both Standard and Dynamic delivery pricing has consistently decreased YoY. Previously anHcipated decline to conHnue for the next 12-18 mos. but CDNs already refusing to lower prices (Aug ‘13) Causes for decline: 1. Increased volume 2. Parity of quality in compeHHon 3. Some players compete on price (Level3, Edgecast) 4. CDN Switchers (Conviva) Chris Van Noy 7 Note: While pricing is important, it appears customers aren’t differenHaHng on price anymore.
- 8. $- $2.0 $4.0 $6.0 $8.0 2011 2012 2013 2014 2015 2016 2017 Revenues (US$ Bil) CDN Revenues Source: (Market and Market) Global CDN Trends Forecasts: CDNs are predicted to do well from ‘13 – ‘17 CDN Revenues ‘17: NA: $4.6B, Global $7.4B CAGR: 24.6% Source: MarketandMarkets Video CDN Rev ‘16: $1.2B CAGR: 15.2% Source: Frost & Sullivan By ‘17 Over 50% of internet traffic through a CDN Source: Cisco VNI Chris Van Noy 8 CVN Note: The rev and CAGR here seem very low
- 9. CDN Threat Caching Video CDNs - Disintermediates TradiHonal CDN Delivery Cached CDNs Advantages for ISP/MVPDs/Telcos 1. Frees up upstream capacity 2. Predictable Neflix flow 3. Higher QOS 4. Higher Content Quality 5. Saves Costs 6. Neflix Open Connect is Free Results in lower potenHal traffic for CDN’s which is not always bad (Neflix) Verizon, Time Warner Cable, Comcast, Neflix, Google all building. Qwilt is third party service aimed at MVPDs/ISPs Chris Van Noy 9 • User rouHng is done by control servers, not dependent on client DNS configuraHon • Request is routed to the nearest available Cached CDN Server • ISP could control client to cache server config Video Provider Control Servers 3. Client connects to local video cache 4. Local cache delivers video stream Cached CDN Server Broadband ISP CDNs Disintermediated CDN Gap
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- 11. CDN Threat Large, Non-CDN Players Coming Into the Space We believe these are big technology players that already have a large enough internal need that building their own CDN makes sense. Advantages: 1. Since already using capacity can price below market 2. Can take Hme to iterate and launch features 3. Unique insight into needs 4. Scale Rolling out Open Connect Caching CDN. Not interested in commercializing service for other content providers CloudFront is already at $100M at 3yrs. DSA just launched. PotenHally can affect ~75% of market with scale, pricing and educaHon of market No tradiHonal external CDN service but has the infrastructure and business reason (gathering data) to do so. Less than 2% of web traffic not likely to move in to the CDN space FB has an edge network to push photos Azure the Cloud Plaform, is becoming more central in MSFT but the CDN is not a focus. Xbox One will not change that. Chris Van Noy 11 • In our view, Amazon Cloudfront seems expensive • Cloudfront doesn't do true DSA. Only pull, not post • Does not have many DSA POPs. Co-lo'ed on some EC3 servers • DSA not a priority, AMZN has very few resources focused on it (Aug ‘13)
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- 13. CDN OpportuniHes Chris Van Noy 13 1. Interna0onal • LaHn America – Brazil, ArgenHna, Colombia, Mexico • Asia – China (difficult), India (difficult) 3. Quickly Growing Ver0cals For CDN Services • Financial Industry • Government • Enterprise (Pharma etc.) • Retail 5. Expanding Past CDN Delivery (Telco/Mobile, MVPDs, Private) 4. Expanding More Deeply into Media/ Entertainment Industry • Back into content creaHon - B2B i.e. Media Warehouse, Secure Media Delivery • Forward with services - B2C (see following slides) 2. Con0nue to Develop Value Added Services on CDN Plaaorm • Security (Content, Site and Infrastructure) • Data • Commerce • Media TransformaHon • Private Cloud CompuHng • Cable MPEG2 Delivery • Mobile AcceleraHon • Massive Content Storage/TransformaHon
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- 16. CDN OpportuniHes Media/Entertainment Industry • HTTP Object Delivery • Large File Delivery • AnalyHcs • Streaming • MulHcast support • Stream prioriHzaHon Site, App Accelera0on Cloud Storage Mobile Delivery Professional Services Security Content Management Core + Premium • Cellular Net OpHmizaHon • OpHcal Network OpHmizaHon • MVPD Capacity • Streaming Network Extension B2C B2B Mone0za0on • IdenHty Layer • AdverHsing • Payment ProtecHon/ facilitaHon Licensed CDN Content Transforma0on Content Crea0on/ Commerce • Secure Transport • Secure Display • CollaboraHon • AccounHng Data Security – Site, Content, Commerce Tracking – Commerce, AccounHng etc. Chris Van Noy 16
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- 18. Accelerated, Secure Media Delivery 564 Broadcast Partners TV SyndicaHon HE VOD The Managed CDN SoluHon Pre-configured servers or so|ware deployed that would include the automated workflow so|ware, opHmized for the Akamai network and security services – WAF, IPA etc. The network would be maintained by Akamai – Maximizing Efficiency and Minimizing Complexity Workflow Tools CDN File AcceleraHon Management Security 1 + 1 = 3 Scale Reliability Infrastructure Mgmt One Network Removes Complexity Lower Cost MCDN Chris Van Noy 18
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