The first half of 2023 has been quite eventful. Despite the prevailing geopolitical crises, rising energy prices, inflation, and significant layoffs in the tech sector, the CDN industry is thriving.

The US economy remains healthy as companies like Nvidia and MongoDB defy expectations. Moreover, the Generative AI movement has sparked a gold rush, with dozens of startups receiving millions in funding despite their products being in the early stages. Just look at Redpanda (Kafka competitor), who’s raised $100M+ as revenue quintuples, or MosaicML who just got acquired for $1.3B having raised just $64M-nice return. The irony surrounding the US economy has left many perplexed.

The unpredictable market is impacting CDNs. Cloudflare is the perfect example. On April 27, they missed top-line quarterly results and lowered revenue downward for the year. Thereafter, their stock plunged 25%. On May 25, they announced a product for AI and their stock recouped the losses and then some.

GenAI Movement

The arrival of Generative AI (GenAI) is a much-needed catalyst for the US economy. One could argue this transformative technology has single-handedly uplifted the stock market during one of the most challenging periods in recent history.

So far, only one CDN has responded, Cloudflare. No surprises there. Cloudflare, renowned for its marketing prowess, has embraced this technology and rolled out a product called Constellation AI. Surprisingly, Akamai, despite acquiring Linode and being a provider of GPU hardware infrastructure, has chosen to remain silent, in stark contrast to Cloudflare.

CDN AI Compute Infra

The tech industry is moving on from serverless and the edge. The future of the CDN industry is about GenAI and providing the computing infrastructure necessary to power these applications. Cloudflare understands the task at hand, and they’ve acted with lightning speed in launching Constellation AI. We’re likely to see Cloudflare launch several more products tailored to the GenAI domain in the coming years if history is our guide.

Although no one knows what the GenAI applications of the future will look like, it’s time for CDN vendors to update their infrastructure to support the next iteration of GenAI apps coming to a theatre soon. GenAI is the new edge application for CDNs. 

Industry Updates

 

Disney Cuts Back CDN Vendors 

There are rumors that Disney, as in DisneyPlus, has reduced its number of CDN vendors from five to two. CDN vendors neither confirmed nor denied, leaving us to believe it’s true. Disney is a global giant in content delivery, similar to Netflix. Their spending on CDNs is rumored to be in the nine figures ($100M+) annually. No surprise there. One of the winners is Akamai; again, no surprise there. We’ll keep the runner-up to ourselves.

For the losers, the reduction in revenue impacts their top and bottom lines. Two CDNs are feeling the pain right about now, scrambling like mad in finding clients to backfill the lost traffic. Fortunately for Edgio, the decision has not impacted them since they do not deliver significant traffic for Disney.

Cloudflare

In the CDN industry, Akamai and Cloudflare are bellwethers. As such, they’re indicators of what is happening in the broader ecosystem, from the SMB to the enterprise.

Earnings Snapshot
Cloudflare’s revenue has been increasing at a healthy pace, however, YoY growth is trending downward.

• Q1 2023 Revenue: $290M, up 37% YoY
• Q4 2022 Revenue: $275M, up 42% YoY
• Q3 2022 Revenue: $254M, up 47% YoY
• Q2 2022 Revenue: $234M, up 54% YoY

The reason for slowing growth:

“The macroeconomic environment has gotten harder, and we’re seeing that some on our team aren’t dressed for work. Digging in with Marc, we’ve identified more than 100 people on our sales team who have consistently missed expectations. Simply put, a significant percentage of our sales force has been repeatedly underperforming based on measurable performance targets and critical KPIs. That’s obviously a problem.”

On the bright side, the company has been busy launching new products and expanding its network footprint.

• Constellation AI runs pre-trained ML models (inference) tasks such as image classification and anomaly detection.
• Cloudflare Radar Internet Quality Page
• Cloudflare Observatory allows customers to monitor website performance using RUM data.
• Low Latency HLS Streaming which cost $5/mo. per 1,000 minutes stored and $1/mo. 1,000 minutes viewed. No costs for encoding. 
• PoPs in 300 cities and connected to 12k networks

Akamai

Akamai’s security business now generates more revenue than all other segments. Delivery Segment revenue is in second place, and it generated $394M in Q1 2023, down 11% YoY. Although the segment is not growing, it’s still a billion-plus per-year business that generates sufficient cash flow, allowing Akamai to keep the acquisition engine running at full speed.

Earnings Snapshot
Akamai’s revenue leaves much to be desired with YoY growth at a stalemate.

• Q1 2023 Revenue: $916M, up 1% YoY
• Q4 2022 Revenue: $928M, up 2% YoY
• Q3 2022 Revenue: $882M, up 7% YoY
• Q2 2022 Revenue: $903M, up 6% YoY

Highlights

• In the last year, Channel has been responsible for 87% of sales in Latin America. That’s an interesting data point. 
• Akamai Prolexic now comes with a Network Cloud Firewall
• Recently, Akamai has incorporated deep learning (ML) functionality into its bot protection product.

Fastly

It seems the relatively new Fastly executive team is focused on developing its product portfolio, which is exactly what they’ve needed. For a while there, Fastly wasn’t launching any new products. The recently introduced KV store was a much-needed product. Next up should be an SQL product along the lines of Postgres.   

Earnings Snapshot
Fastly’s revenue growth has been lukewarm compared to Cloudflare. The economy seems to be impacting their growth, similar to Cloudflare.

• Q1 2023 Revenue: $118M, up 15% YoY
• Q4 2022 Revenue: $119M, up 22% YoY
• Q3 2022 Revenue: $109M, up 25% YoY
• Q2 2022 Revenue: $103M, up 21% YoY

Highlights

• Introduced Edge Observer
• A new pricing model provides flat-rate pricing that protects against sudden traffic spikes. Not for media or streaming customers.
• Introduced KV store which provides “durable storage for compute functions at the edge”
• New product: Fanout pub/sub service

Orange Launches CDN

Orange, formerly known as France Telecom, has launched a white-label CDN in France. The technology powering the Orange CDN stack is from G-Core, the cloud infrastructure company and CDN based in Luxembourg. CDN services are also available in Africa. 

Telecom Malaysia CDN 

TM Global, which describes itself as the wholesale domestic and international business arm of Telekom Malaysia has launched a CDN and edge computing platform in the APAC region. The operator has an extensive footprint in that region. They join CDNetworks, BaishanCloud, EdgeNext, Alibaba, and Huawei Cloud in APAC. 

Render Raises $50M

Render, a cloud infrastructure company has raised $50M in Series B funding. Launched in 2019, they’ve grown fast, “serving over 1 billion monthly visits and attracting over half a million developers” to their platform. With the new funds, the startup plans to expand its platform features and hire more staff. The startup competes with CDNs in some areas, but also partners with them in others, as they have with Cloudflare for DDoS protection. In our 2022 CDN report, we classified them as an Abstract CDN.

The Curse of the Rust Programming Language 

In other news, what is going on with the Rust programming language? 

Graydon Hoare created the Rust programming language in 2006 while at Mozilla. In the years to come it became a runaway success. In a 2022 Stack Overflow survey, Rust was voted the most loved language among developers, holding that title for seven years in a row. Google, Discord, Meta, Amazon, and hundreds of well-known companies use Rust. 

The Rust Foundation and Rust Project are two separate organizations that work in unison to further the Rust programming language. The Rust Foundation provides legal and financial support to the ecosystem and the Rust Project is comprised of teams (including development) that extend its functionality and promote the language globally. For example, there is the Compiler team, Crates.io team, Dev tools team, etc.   

The first spectacular failure of the Rust Foundation was a trademark issue. The organization sought to enforce a trademark that would have prevented developers from using the name Rust in their work. Thus, if a developer came up with a tool for Rust, they would not be able to use the name Rust as part of the description. This upset the Rust community and some members forked Rust over to a new language called the Crab Programming Language.     

Around the same time, JeanHeyd Meneide, also known as The PhD was invited to give a keynote at RustConf, the largest Rust conference in the world. Initially, five members of the leadership team voted to have JeanHeyd be the speaker, but at the last minute, two members decided against it because of the subject matter. Instead, they gave him a regular speaking slot and he resigned. This upset a lot of folks, and as a result, several notable members quit. The problem stems from the lack of governance. And supposedly, these events happened even though a new governance model was put in place beforehand to address another blowup that happened in 2021 when the mod team quit because the core team could not be trusted. Ouch.      

Serverless Hiccup

This is old news. 

The Video Quality Analysis team at Amazon Prime Video team was tasked with building a tool that would “automatically identify perceptual quality issues and trigger a process to fix them” at scale, which could monitor thousands of simultaneous streams. Supposedly, the team built a distributed system orchestrated by AWS Step Functions and other serverless technologies. The design of the system caused some services to “hit a hard scaling limit at around 5% of the expected load.”

In short, the initial system failed to scale efficiently, and the serverless architecture ended up being costly to run, so the team rearchitected the system to run 90% cheaper on monolithic architecture. This is a non-event for every other company except Amazon. Amazon, which invented serverless and dominates the category, has been the leading advocate promoting serverless to global audiences. What we found out is that serverless is not the ideal solution for every use case. Kudos to the team that acknowledged this.

Takeaways

Although the world is in a geopolitical crisis, the CDN industry continues to thrive. The rise of Generative AI has brought new possibilities to the technology sector, and companies like Cloudflare have been quick to embrace it.

In addition, protecting applications and APIs has become a necessity. CDN security is the ideal solution for many use cases. Thus, if CDN security revenue is not growing, this is a business model issue.  

The security industry is growing like gangbusters. Just ask Palo Alto Networks (PANW). Their stock has grown 75% in the last six months, and they are a $74B security company. If there is a competitor Cloudflare should focus on, it’s not Zscaler but PANW.