Update on the State of Internap’s CDN

In my previous post, I was critical of Internap’s CDN operations. I was convinced that Internap should shut down its CDN operations, sign a CDN reseller agreement, and focus on the hosting business. However, after talking to Pete Mastin, the VP in charge of Internap’s CDN and IP Platform, he convinced me otherwise. Internap has re-built its entire CDN platform, from the ground up, replacing every single line of code of the Vital Stream Platform.

Internap is launching a new CDN platform in March, that is feature-rich. While the Internap CDN already has a strong appeal for gaming companies and streaming companies, the new features are targeting companies that require website acceleration. The entire Internap exec team is really excited.

Internap Demographic for CDN

Internap is targeting the mid-market with its CDN services, not companies delivering massive amounts of content; typical targets for pure play CDN’s like Akamai, Limelight or EdgeCast. Thus, you won’t see Internap targeting the high ranking Alexa websites, or Fortune 1000. Internap’s CDN prospects are already hosting customers, and they have 11,000+ customers using their platform. There is a baked-in customer that is low-hanging fruit for Internap CDN services.

Cost of Running Internaps CDN Service

Previously, the COGS (cost of goods sold) estimate I used from the 10-Q, was on the high side. Also, I didn’t take into account that Internap is a data center company with many POPs, and an IP Carrier that sells IP transit. Data center space and IP bandwidth are usually the two biggest operating expenses for a CDN. However, for Internap, these two expenses are trivial. In that respect, Internap is a like a smaller version of Level 3, that probably has the lowest CDN COGS of anyone in the industry.

Conclusion on Internap

Internap is in a very unique position in the CDN ecosystem. They are a hybrid hosting company, data center company, IP Carrier, and CDN. They are probably the only hosting company that can have a traditional CDN, and be successful. By focusing on their existing customer base, and up-selling them on CDN services, they’ll be able to add a significant amount of revenue stream from their CDN operations, to their top line, if they execute according to plan.

My conclusion, I’m drinking the Internap cool-aid now. There in a good position to do well in the next three years, now that the Vital Stream acquisition is behind them.