Part 1: Is the New Driver to CDN Growth, Video or Security

What’s going to be the fuel that drives the CDN ecosystem growth in 2014 onward, the video streaming product portfolio or the security feature set? I’ll do a quick deep dive analysis into the comparison of video delivery vs security, in order to determine which product is the most viable option for fueling the startup CDN ecosystem over the next several years.

Live video streaming, and VOD delivery is growing year after year, and is going to consume over 90% of all Internet traffic in a few years. The startup Content Delivery Network that builds out their infrastructure for video delivery, and spends considerable sums of money on marketing their video delivery capabilities is likely to capture vast amounts of business, and take their CDN to new heights. I don’t think so.

 Video Streaming Growth

According to the WSJ, the top 10 US based websites account for 66% of the Internet peak traffic, with the leaders being as follows: Netflix-32%, Google-22%, Apple-4.3% and Twitch-1.8%. According to Qwilt, the top 5 live streaming video sites are Twitch, Justin.tv, ESPN, Youtube and NBC Sports. A few other big video sites that come to mind not included in the WSJ or Qwilt reports, Ustream, Livestream.com, and Metacafe. The common denominator in all the properties mentioned above is Akamai, and to some extent Level 3 and EdgeCast.

Large Scale Video Streaming

Akamai generates almost 50% of its revenue from the media segment. Level 3 generates a big chunk of their business from Netflix, and other large properties. Now throw in Verizon and AT&T, and the result is that all large scale video streaming sites will continue to be served by the large infrastructure CDNs and Telcos. That means they will capture the growth of this trend, and continue to see the economic benefits.

Limelight is not included that bunch, as it doesn’t have large scale streaming customers in the same quantity as Akamai or Level 3. EdgeCast is now Verizon, so that’s the reason they’re included in pack above. The startup CDN will capture some low hanging fruit of the video streaming business, but it’s going to be negligible, with their website customers pushing lower amounts of bandwidth.

 Recap

The takeaway, video delivery is a nice to have feature in the product portfolio for the startup CDN, however, it will not define the CDN, nor impact their ability to survive in the competitive industry. On top of that, the video streaming business is extremely commoditized. It’s not uncommon to see large video hosting websites generating 2PB of monthly traffic paying sub 2 cents per GB. Thus, if a startup CDN is pushing 10PB of streaming video for their clients on a monthly basis, this will generate $200,000/month or $2.4M per year.

That’s a nice piece of business to have, but in the grand scheme of things it’s not going to do much for a Fastly or Yottaa like CDN. The startup CDN needs to find the multi-million dollar feature set that can help them reach $50M to $100M in annual revenue in a few short years. Is that security? We’ll discuss that in the next post.