Part 2: Is the New Driver to CDN Growth, Video or Security

As mentioned in the earlier post, the video streaming feature set for the Content Delivery Network is a nice to have feature, but it is also a requirement for the CDN. Being able to ingest video, store it, transcode it (internally or 3rd party) into multiple renditions, and deliver it to any device anywhere helps the startup CDN attract the low hanging fruit of video streaming sites. The goal is to capture enough video streaming business so that bandwidth levels increase, and in turn, Tier 1 bandwidth prices drop to the same ball park of Limelight. Therefore, video streaming is necessary for cost reduction purposes, but it’s not a growth vehicle that will fuel the startup CDN ecosystem to new heights.

Six years ago, the quality of video streaming, particularly live streaming, varied considerably amongst CDNs. Now, with all these years of ongoing improvements, and experience, video streaming amongst CDNs has vastly improved to a point that jitter in any video is usually the problem with the last mile, not with the CDN. Streaming quality among all CDNs is now equal, and there isn’t a quality difference between an EdgeCast or Limelight. The streaming problems with the Oscars, and other events was due to an anomaly, that would never have happened with Akamai or Level 3.

Is Security the Answer

If video is not the fuel that will catapult the startup ecosystem to an era of high growth and high valuations, than what is? I believe the answer is security. The four pillars of security are Endpoint Security, Network Security, Data Center Security, and Edge Security. The end-to-end security stack is deep and wide. No company offers the full security stack from end-to-end, not even FireEye or Symantec.

That means CDNs have an unlimited number of options to choose from, thus they can pick their poison if you will, and market that security feature set as core differentiator. Here are some features that come to mind: IDS/IPS, log management system, SEIM, exotic flavor of mobile security, advanced threat protection platform, secured virtual browser that sits on top of browser and syncs with CDN POP, and so on. The theme here is to think outside the DDoS box that many CDNs offer.

 Is there a Market for Security Products

What proof is there that the security market is hot? As security journalist Tim Wilson put it, “follow the money” honey. VCs are extremely plugged into the technology community, and they follow the growing trends down to the tee. Today, VCs are investing billions into the security sector. The reason is simple; Target, Neiman Marcus, Adobe, Microsoft, and hundreds named brands have been hacked. The liability of the perfect hack can cost billions in lost revenue, and market valuation, just ask Target. The video play is extremely commoditized. In security, there are enemies that want to steal, and cause destruction.

The hacking phenomenon has reached critical mass, and it’s not going away. In fact, the hackers are winning in many cases. The bad guys are really good at winning, even though tens of billions of dollars has been invested in the security industry over the last decade. New security tools are needed to protect against the bad guy in one way or another. CDNs need to create innovative security features that detect, and stop threat actors in their tracks. On the bright side, CDNs have something that pure play security companies like FireEye don’t, a vast global network. This is the fuel that’s going to drive the CDN ecosystem into higher valuations, and prosperity. Here is a snapshot of the VC activity from 2011 to 2013.

 VC Activity in Cyber Security
  • Thomson Reuters: $3B invested in cyber security companies between 2011 and 2013
  • More than 300 firms funded over that time
  • 1st Quarter 2014 – Twenty security companies have launched or received major funding
  • Palo Alto Networks, Crowdstrike and FireEye grew from seed money