Nov 1, 2008 12:00 PM,

Diverting the data flood

By Carol Wilson

As the Internet swells to capacity with video content, telcos look to enter the booming CDN market.

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“There is still a lot to be determined — them jumping into the space doesn't mean they are going to be the winners at the end of the day,” Yu said. “We decided to figure out a way to embrace the carriers and partner with them. What we have to offer the world is some pretty unique technology, which is valuable to the carriers.”

The scary part, Yu said, is that “the largest player in this space is still much smaller than the telcos. It's valuable to have a seat at the table; it improves our chances to succeed. We give up branding and margin, but there are plenty of players at this space already.”

Both Yu and Voxel's Smith think the new competition will have an impact on the CDN space as it exists today, regardless of how much market share the telcos or even Amazon might capture.

“Amazon has already done a great thing for the industry overall by bringing transparent pricing to this market,” Smith said. “Until now, selling CDN has been very similar to selling transport or circuits: It's not what you are selling, it's who's buying. You can sell a circuit for $200 or $2000. That's because you start with ‘Let me get you a custom quote,’ which really means ‘Let me see how much I can charge you based on who you are.’ Amazon is offering transparent pricing, and that will be good for this industry.”

Yu expects to see greater pricing pressure but also industry consolidation, through mergers and acquisitions and also through attrition.

Analyst Vorhaus also expects to see the sheer number of players in the CDN space shrink. “This many companies can't survive, even in a growing market,” he said. Vorhaus also questions whether the CDN space means major new revenues for telcos, or simply a good strategy for dealing with video that could eventually produce some cash when business models around advertising for Internet-based video get sorted out.

“Hey, this is a market growing fast and there is a ton of money there,” Vorhaus said. “Both of those things are true — but the money to be made in CDNs is small in comparison to the terms that a big carrier like AT&T thinks in.”