I usually don’t comment on a CDN news article unless it’s way out of bounds from reality. I just found one from Mukesh Baghel, who published an article on The Motley Fool titled “Will Apple and Netflix’s New Moves Destroy Level 3”. My initial reaction is why is this even a discussion. A while back, analyst Dan Rayburn confirmed with Level 3 that Level 3 CDN revenues were $60M in 2010, growing double the industry average of 15% annually. If we take $60M, and add 30% over a four year period, we end up with about $171M.
The Numbers and More
Let’s just say that Level 3 generates $200M in CDN revenue in 2014. The $200M in CDN revenue compared to the $1.6B they do in quarterly revenue isn’t much. Even if Level 3 closed down its CDN business, what’s $200M compared to $6.4B in annual revenue. Next, even if Apple builds a CDN like Netflix, and decides to use their own internal CDN for content delivery, what global backbone network are they going to use to deliver content, since Apple and Netflix don’t have a network backbone, and neither does Comcast, at least a global network backbone.
In the end, Apple and Netflix will have to use Level 3 for CDN services or IP Transit, in essence swapping one service for another. I’m sure Apple and Netflix are already buying a ton of IP transit from Level 3, they will just have to buy more if they build and use their own CDN for delivery. The last time I checked, IP transit is just as expensive as CDN services. Another aspect to consider, if Apple decides to build a CDN, it’s going to take years to build one at a cost of hundred million dollars plus. It’s extremely difficult to build a global CDN, requiring years of fine tuning and trial & error. Apple is just better buying Fastly, than building one from scratch.