Exclusive: Internap CEO on what’s next for CDN
CEO Eric Cooney talks about Internap's $50M expansion and the strategy for reinventing its CDN
In January, Eric Cooney, the former chief executive officer of Tandberg TV (which was acquired by Ericsson in 2007) was named CEO of Internap (NASDAQ: INAP), a colocation and IP transit services provider. It was a turbulent time for Internap. Although the data center business was booming, the company had struggled to integrate the assets of VitalStream, the content delivery network (CDN) provider it had acquired in 2007, to the point at which, last fall, Internap took a $100-million goodwill write-down on the assets it acquired for $217 million. And this month, it wrote down another $57 million, essentially emptying its books of the acquisition. With that slate now clean, some analysts say Cooney can reboot Internap’s CDN business and reinvigorate its IP services business, whose sales were down 7% in the second quarter. In a report this summer on the CDN sector, Yankee Group senior analyst David Vorhaus said that for Internap, “The challenge now is not one of technology or vision…but rather one of overcoming the preconceived notions that longtime CDN customers have of Internap.” Cooney hopes to change those notions in part by launching a new CDN platform this year. And the company is embarking on a $50-million expansion, building and acquiring its own data centers, thus reducing its reliance on partner sites. Cooney spoke with Telephony’s Ed Gubbins this week about that expansion and about the strategy for reinventing Internap’s CDN.
On CDN as a feature set: The way I think of our CDN is as an extension of our IP services offering, a feature set. We’re selling IP services. The fact that we have CDN is a feature set or a value-added benefit we can provide, hopefully to help differentiate us from the alternative service providers.
On the new CDN service Internap is launching later this year: In the second half of this year, we will be launching our next-generation CDN, the next iteration of our CDN product. The intention is to narrow the focus to more of a video-centric CDN, drawing a distinction between HTTPs, small-file downloads and Website acceleration, to specifically focus on video. That’s the first market-narrowing. Then, once we’re talking about video-centric CDNs, our value proposition ties nicely with [the value proposition of] our general IP services. We think the consumer will be able to see and differentiate an Internap-delivered video service relative to that being delivered by any other CDN provider… I’m not suggesting we’ve reinvented the CDN wheel. We’re more talking about Internap taking a combination of technologies like [Microsoft’s] Silverlight and Adobe’s version of the adaptive bit rate technologies and various transcoding technologies and the capability to [identify] devices [as a] mobile phone, a PC, TV, etc. It’s a combination of some off-the-shelf product as well as some Internap technology, combined with our route-optimization technology, packaging it together and creating a CDN offering, or feature set, that is an extension of our IP services offering.
On speculation that Internap’s recent change of accounting practices, to tuck CDN inside IP services, signals waning interest in the CDN space: I would caution against that conclusion based on removing CDN as a standalone external reporting segment. We made significant management organizational changes internally over the past three to four months. The job function overseeing our CDN business reports to the job function overseeing our entire IP business. From an operational and a physical standpoint, all the CDN [points of presence (POPs)] have been integrated with our IP POPs, and the CDN network operations center (NOC) was consolidated physically into the IP services NOC, and likewise the associated operations and support staff for CDN were consolidated organizationally into the operations and support staff for our IP services group. Internal to the company, we’re really looking at IP as a business and at the data center as business, and the accounting rules require that externally you report in a fashion that reflects your internal structure and management. That’s what triggered the need for CDN to be rolled under [IP services]. And the final step of that dual-segment reporting also then triggered the requirement to then revalue the assets on the balance sheet that triggered the good-will write-down. Nothing I said there had anything to do with our CDN strategy, our value proposition, or our expectations for that business going forward. I do disconnect the two.
On Internap’s edge in the CDN space: Pure-play CDNs like Akamai (NASDAQ: AKAM) and Limelight (NASDAQ: LLNW) – I’m not the expert, but I believe the primary drivers for their cost of goods sold are network transit and data center. We have our own data centers and offer IP services. [Internap’s advantage over CDN-selling carriers like Level 3 Communications (NASDAQ: LVLT)] is exactly the same advantage I have in selling IP services: quality or performance. Our route-optimization technology optimizes in real time the routing of packets across networks and proactively routes around blackouts and brownouts in the Internet. We’re improving the performance of video packets delivered over the Internet just as we are for all other IP packets.
On what went wrong with VitalStream: It’s somewhat difficult for me to judge because I came in significantly after the fact. But it’s fair to say that the growth of the business didn’t perform as expected. From an operational perspective, the complexity of the integration of those CDN assets with our IP POPs proved to be significantly more complex and time-consuming than was originally expected. And there were some challenges, so to speak, with the technology -- the maturity, the reliability, the stability of the CDN platform was lacking. And the combination of those financial, operational and technical challenges were pretty daunting. The end result: We’ve written down a majority of the value of those assets.
On whether the new CDN offering will include VitalStream technology: Sure, yes, absolutely. The good news is: The operational and technical issues have been addressed. What we have today is stable, solid, reliable CDN. It’s not as differentiated as we’d like it to be. We haven’t done as good a job differentiating our CDN capabilities as we think we can do going forward.
On the applicability to CDN of his background as the former CEO of Tandberg TV: My previous experience was all about premium video services. Whereas historically CDN has been less interested in high-quality video experiences for consumers, increasingly, whether your source of content is a cable or satellite operator and you’re watching it on a 50-inch plasma screen or you’re watching on a PC or a mobile device and the source is an Internet Web site, the consumer expectation is for continuing improvement in quality. That’s where the business models and the advertising dollars are being driven. I think my experience in an industry reliant on high-quality video to the consumer directly translates to the CDN industry. I’m forcing our entire CDN strategy to start with, ‘How do we deliver optimum quality to the consumer watching that video on any device?’ I’m challenging our organization and operations to make the answer to that question, ‘You get it by using an Internap CDN.’
Next: Internap’s $50-million data-center expansion
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