Can EdgeCast Surpass Akamai in 12 Months


I am sure Akamai is regretting their decision not to buy EdgeCast. If not, they will after this post. There are probably a few dozen CDN executives that haven’t considered the repercussions of the Verizon acquisition. I have, and the worst-case scenario for Akamai is being surpassed as largest CDN by traffic volume.

EdgeCast, if they play their cards right, could become the largest CDN on the planet, bigger than Akamai and Level 3, in terms of traffic volume. My guess is (don’t quote me on this) Akamai and Level 3 each push about 5-7 Tbps of sustained traffic, at any given point of time. EdgeCast is probably somewhere in the low Tbps range. If EdgeCast can sign a few big clients, it will easily surpass Akamai.

CDNs with Last Mile Access
EdgeCast is the only CDN in the US with last-mile access. Thus, EdgeCast has direct access to Verizon’s customer base. According to one estimate, Verizon has 144M customers for broadband, TV, wireless, etc. Not even Level 3 has last-mile privileges, only middle mile. In the telco world, last mile access is everything.

The Netflix Effect
EdgeCast may now go to Netflix, who has a reputation for paying almost nothing for CDN services, and say the following: Mr. Hastings, I know you’re building out your own CDN with open source, but regardless of how much money you spend on it, or technologies you invent to accelerate video delivery, you’ll never be able to manage QoS (Quality of Service) to your customer base, because you don’t have last-mile privileges.

Therefore, please sign this contract, and you will have last-mile access to Verizon’s customer base. And since EdgeCast is now part of Verizon, they don’t have to succumb to pricing pressure from anyone including Netflix. If the deal isn’t profitable, they walk.

In turn, not only does Netflix solve the QoS issues, but also the cable companies will not push them around anymore. It has a long-term partner in Verizon that is capable of pushing back at cable providers. Thus, if Comcast messes with Netflix, it messes with EdgeCast and Verizon. And I don’t think they want to do that.

The Largest CDN Contract in History
If the Netflix-EdgeCast partnership does come to fruition, it is going to be the biggest CDN contract in history. My guess is only the setup fee is going to be $125M—on a 10-year contract of $125M per year. This amount is not a big deal for Netflix—their market cap is $22B, with 2013 quarterly sales of $1.1B, and current asset-current liabilities of $1B. However, EdgeCast would need to build out a CDN just for Netflix, so it does not impact other customers.

EdgeCast may now use that same approach with Hulu and Amazon (Instant Video). There is only one thing that stands in the way, though; Verizon has to give EdgeCast the green light to sign up Netflix, a competitor to FiOS. Whether that happens, is anyone’s guess.

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