The Fastly IPO was a success for the entire industry. Fastly, along with Cloudflare, StackPath, and Limelight Networks are leading the efforts in edge computing innovation, providing developers the capabilities to build, deploy, and run apps at the edge.
From an annual revenue perspective, the four companies are generating similar results. By December 2019, each is likely to generate around $200M in revenue run rate. The next milestone for this elite group, reach $500M in annual sales, something no company has done among the pure-plays with the exception of Akamai.
What’s the magic formula for reaching $500M in annual revenue? It’s going to be a combination of things. Each will have to be creative with their product portfolio, highly focused, be a thought leader, take a few gambles in R&D, and most importantly, develop the ability to see the industry’s future.
Today, the two most dominant influences on the CDN industry are cloud security and edge computing. In cloud security, there is Akamai, Cato Networks, and Netskope. In edge computing, there is Fastly, Cloudflare, StackPath, and Limelight Networks. Each group will take on the legacy incumbents in their respective market once their product line is more built out.
Edge Computing CDN
What is edge computing? It seems every vendor has a different definition of the term, which is okay. However, for the CDN, edge computing is something very specific. It means to have the capabilities to ingest, process, store, and deliver data from the PoPs. In other words, become less of a CDN and more like AWS. The PoP will become a localized datacenter that cuts the lifeline from the customer to AWS. Two specific markets that are ripe for the edge computing CDN, gaming, and eCommerce.
The best way to see the before and after, as in the traditional CDN model vs the edge computing CDN is by the product portfolio.
Traditional CDN Product Portfolio
- Small file / large file delivery
- Video streaming
- Load balancing – Layer 7
- Image optimization
- DDoS protection
- Bot mitigation
- Streaming logs
- Centralized event delivery system/pipeline architecture
Edge Computing CDN
- Above plus
- Edge functions
- Distributed database
- Packet-level load balancing
- Build plugins and capabilities for Kubernetes and Istio
- Decentralized event delivery system/pipeline architecture available in the PoPs
Future Earnings Calls
On the Akamai Q1 2019 earnings call, Financial Analyst Alex Anderson asked Akamai CEO about the competition, industry pricing, and then brought up the Fastly IPO. The CEO responded by saying there are literally dozens of CDNs in the market and Fastly isn’t one of the leading CDNs they’re facing daily.
In the future, the right question for Akamai will be – are they running into legacy security vendors like Cisco, Palo Alto, Okta, etc. in competitive situations because that will be an indicator of how far they have come in extending their security portfolio.
For Fastly, the right question during the earnings call will be how much business are they taking away from AWS, GCP, and Azure, and that will be an indicator of how far they have come in developing their edge computing capabilities.
The CDN market in 2019 will be ~$8B in our estimates and there are ~45 CDNs at any given moment with a few more in stealth mode. Thus, the CDN market is confined and no company is going to take market share away from Akamai or others, just ask Instart. However, the security and cloud computing markets are $100B+, so there is plenty of there for the taking.
From the edge computing CDNs, who will be the first to reach $500M revenue run rate? We believe all four will reach that milestone around the same time, in 3.5 years. This year and next, they will develop and expand their edge computing portfolio. Thereafter, the sales team will sell the new offering and start booking deals over a 12 month period. Finally, in year three, sales will explode, if they have the right products and execute on the right strategy.