State of Internap CDN

Internap, an Infrastructure-as-a-Service provider, acquired hosting company iweb on October 2013 for $145M. iweb, which caters to the SMB segment, generated $44M in sales and $11M in EBITA over a 12 month period. Back in 2012, Internap acquired Voxel, an enterprise hosting company for $30M in cash.

These two acquisitions solidify the identity of Internap; Internap is a hosting company, that caters to the SMB and enterprise market. Why is Internap in the CDN business? Internap is the only hosting company amongst its peers (listed below), with a traditional CDN.

What Should Internap do with it CDN

My honest assessment, Internap should shut down its CDN operations, sign a reseller agreement with EdgeCast, then migrate existing CDN customers to the EdgeCast platform. Edgecast is strong in the hosting market. Gogrid, Softlayer, Theplanet (before it was acquired), and few others have signed an agreement with EdgeCast, and integrated the EdgeCast CDN platform into their own hosting platform.

Gogrid and Softlayer, have taken out the complexity of ordering CDN with Hosting. Their customers sign up for a a hosting account, and click a button to add CDN services, on a pay-as-you-go basis. The best part, Gogrid and Softlayer eliminated the huge expense of operating a 25 POP CDN.

Operating Cost of Internap’s 25 POP CDN

There is significant cost for maintaining and supporting a 25 POP CDN. For the quarter ending September 30, 2013, Internap generated $24M in sales for IP Services (Performance IP Service, CDN, IP Routing Hardware & Software platform), with direct cost of $9.6M, and $14.4M of segment profit.

Internap IP Services Quarterly Cost Structure
  •   $24M IP Services – $9.6M Direct Cost = $14.4M Segment Profit

The $9.6M/quarter is for IP Service + CDN + Routing Hardware+ Software Platform. How much of that $9.6M is attributed to operating a CDN? I will guesstimate its $4.6M/quarter. Now multiply that number by 4 quarters, and that equals $18.4M annually.

If Internap sign a $1M/annual agreement with EdgeCast, it saves $17.4M per year. Even if my guesstimate is too high, let’s say it’s $5M per year to operate the CDN, it can sign the same commitment, and save $4M annually. The big benefit for Internap, it will have a better CDN that is years ahead of its own, at a much lower price point.

Why Should Interap Shut Down It’s CDN

To be successful in the CDN game, companies must devote 100% of their time to it. You can’t have one foot in hosting and another in CDN. If it’s hard enough for pure-play CDNs to make it in the CDN industry, imagine what’s it like for Internap, it’s going to be impossible. Once an existing Internap CDN customer reaches an adequate size, its a guarantee that many pure-play CDNs are going after that account.

They’ll bring Gomez Last Mile test with them that show how much faster they are than Internap. However, If Internap is running on EdgeCast, there is less to worry about. Competing CDNs are not going to use performance test against Internap/ EdgeCast and win.

The bottom line, Internap’s CDN is old and at least two years behind most pure-play CDNs. It’s not at the same level of a Fastly, EdgeCast or Akamai. I doubt it has any advanced features like DSA, ADN, FEO, Mobile Device Detection, Rules Engine, Instant Purging, or WAF.

Here is a matrix of “like minded hosting companies” that are similar to each other in many respects, and are grouped in the same box. With the exception of the multi-billion dollar players, no other hosting company has its own CDN. So why is Internap going in the opposite direction of everyone else. Amazon, Microsoft & Google can afford to do anything it wants. Internap can’t.

Like Minded Hosting Companies
[table “” not found /]