Part 1: Decision Time for Instart Logic and Incapsula

Instart Logic and Incapsula, two of the most innovative startups in the CDN ecosystem are leaders in Web Application Streaming and CyberSecurity, respectively. The have developed game changing cloud features and services that a traditional CDN wouldn’t, not because they couldn’t, but because it’s out-of-the-CDN-box innovation. However, game changing features and services only last for 12-15 months in the CDN industry.

Akamai dominated the dynamic site acceleration segment for many years, but now most CDNs offer some flavor of DSA. Instart Logic and Incapsula must are now eyeing the future, ready to create the next service that will enable them to grow top line revenue, and capture additional market share in part 2 of their lifecycle. The question is what feature will drive that growth for these two startups? That’s no-brainer, security and video.

 Instart Logic

The Instart Logic executive team is experienced in big data, compute, big infrastructure and virtualization. They brought us products such as the AppSequencer, NanoVisor.js and Web Application Virtualization. Their target market are Akamai customers using DSA. Why? Because Akamai dominates all the big ecommerce, and websites pushing a high volume of transactions monthly. What is the market size for the DSA/FEO segment? Let’s runs some guesstimate calculations:

  • Akamai 2014 Estimate Revenue: $1.9B
  • Of that $1.9B, maybe 5% of that revenue is DSA/FEO which equates to $100M annually
  • The rest of the CDN DSA/FEO is about $15M
  • Total estimated DSA/FEO annual revenue  = $115M (guesstimate)

If Instart Logic is able to capture 10% of the overall DSA/FEO market, that’s equates to about $15M of annual revenue. Let’s throw in $20M for the non-dynamic content that accompanies DSA traffic, and we get $35M. In most websites, dynamic content represents only a small portion of the overall traffic, usually between 1% to 3% of the overall traffic. Based on this information, Instart Logic needs to find an additional revenue source from a different product line. Video delivery is not a good fit for Instart Logic, since video delivery is a commodity business with low profit margins. Video delivery is best served by Akamai, Level 3, Limelight and EdgeCast, since they have economies of scale in bandwidth.

Therefore, Instart Logic must enter the CyberSecurity segment, along with Akamai and Incapsula. That’s a high profit business line, with unlimited upside. Instart Logic might not even know it, but they will have to eventually build a robust CyberSecurity suite. My gut feeling tells me that Instart Logic will not be able to do what Contendo did to Akamai a few years back, and force Akamai into acquiring them because of their Web Application Streaming technology. The market has changed, DSA/FEO is common, and it will be only a matter of time before Web Application Streaming is a mainstream feature for all CDNs. Continued in part 2.