Carrier Channel: On Edge CDN Wholesalers' Contest Extends from Courtroom to Web Services Deployment

Posted: 08/2002

On Edge CDN Wholesalers' Contest Extends from Courtroom to Web Services Deployment

By Khali Henderson

THE INHERENT DIFFICULTY IN DUPLICATING a content delivery network (CDN) has ensured a small field of players. This and a new layer of value-added capabilities, up to and including Web Services-enablement, are erecting ever-taller barriers to would-be competitors and securing a long-term wholesale market for such services.

Only a handful -- 15 from what was once 28 by one tally -- of pure-play CDN service providers, such as Akamai Inc., Mirror Image Internet and Speedera Networks Inc. remains. The others have gone out of business or have been absorbed by network service providers. Network service providers, due to their experience in meeting user demands for reliability, scalability and QoS, represent the primary challengers in the space.

AT&T Corp. and Qwest Communications Interna-tional Inc. have been building and operating their CDNs since summer 2000 and spring 2001, respectively. Williams Communications LLC has been operating its CDN since August 2001 and recently expanded its footprint and capabilities with the December acquisition of substantially all the assets of bankrupt iBEAM Broadcasting Corp., which it integrated into its Vyvx Broadband Media unit.

Other network providers have entered by acquisition. Colt Telecom last summer bought the assets of Adero Inc., including its worldwide nodes and computing assets, global traffic management and log collection technology and a license for its omnicast technology. Around the same time, Cable & Wireless bought the No. 2 pure-play CDN operator Digital Island. While the Digital Island name was replaced by the Exodus brand following C&W's February acquisition of Exodus Communications, analysts say its assets have been enhanced considerably by access to the C&W network and 26 Exodus Internet data centers, making it more competitive with market leader and rival Akamai.

CDN service providers have been affected by consolidation among their own ranks and among telecom companies because they rely on network service providers as infrastructure partners. "There has been a lot of churn in the ISP, carrier space," says Nancy Voke, director of product marketing for Akamai, who notes this caused the CDN operator to relocate some of its servers, which are deployed in 1,000 networks. The situation validated Akamai's business model, which from an infrastructure standpoint, does not depend on a single network, she says.

In contrast, of course, carrier-based competitors own their transport network and the CDN overlay. This has not stopped them from partnering with other carriers and ISPs to expand their footprints, however. Kurt Merriweather, Exodus senior manager, Industry Marketing, explains his company developed a Private Content Exchange (PCX) program wherein it creates peering arrangements with regional operators, such as Chunghwa Telecom Co. Ltd., Taiwan's largest telecommunications carrier. Content peering links multiple provider's CDNs by mutually agreed upon protocols. All PCX partners receive a share of the revenue based on the amount of traffic they generate and serve.

A multilateral peering initiative, Content Bridge, has not materialized despite the initial momentum of a 20-company alliance that founded it in August 2000. It switched operators three times -- from Adero to Inktomi to Digital Island -- and failed to gain traction. Merriweather says fallout from the economic decline has been the nail in the coffin, taking out committed participants Adero and Exodus, which were acquired, Madge.web, which was sold off in part after filing bankruptcy last year, and KPNQwest N.V., which filed bankruptcy in May.

With so few remaining players in the CDN market, the competition is oddly fierce and at times personal. Akamai and the former Digital Island have continued their rivalry and litigation over CDN patents. In May, a U.S. District Court judge upheld a jury verdict invalidating key claims of the patent licensed to Akamai by MIT, and in late June, the judge granted an injunction against C&W with respect to narrower claims upon which the jury found Digital Island to have infringed.

Akamai declined to discuss the case. However, C&W's legal spokesman Howard Laskey says the narrower claims addressed a particular method for rewriting customer URLs to direct them to CDNs the Exodus CDN no longer requires and has stopped supporting, thus rendering the impact of the injunction negligible.

Akamai also pursued competitor Speedera, filing a patent-infringement suit against the company in February, which was expected to go before the same judge who heard its case against C&W. And June 26, the company asked the California Superior Court to block Speedera from further access to and use of the Akamai trade secrets it alleges Speedera's CTO stole from a protected database maintained by Keynote Systems Inc., a third-party provider of Web site testing services. Federal authorities searched Speedera's offices for evidence. The court granted Akamai's request for expedited discovery and set July 24 for a hearing.

Speedera, also a Keynote Systems customer, denies the charge and countered by filing suit against Akamai alleging unfair competition, false advertising, trade libel and intentional interference with prospective business advantage. Gordon Smith, vice president of marketing for Speedera, told PHONE+ "Akamai is trying to win in the courtroom what it can't win in the marketplace."

Analysis by NetsEdge Research Group shows Akamai dominated the market in 2001 with 80 percent share (see chart at right). Principal John Katsaros told PHONE+ he does not expect any significant changes to Akamai's share this year; despite competitor's claims they are wooing Akamai's customers away. He says, the bigger question is whether No. 2 player, Digital Island, will be able to sustain its place now that it is a part of C&W.

The market is expected to experience tremendous growth. The CDN service market in the United States is forecast to balloon from $288.1 million in 2001 to more than $2 billion in 2006, according to a May report from IDC.

Splitting Hairs

While opponents in the courtroom and marketplace, Akamai and Speedera agree on CDN architecture. Each has built CDNs using edge servers. The idea is to get the content as close to the user as possible to minimize latency and load times for Web-based content.

In contrast, Mirror Image and C&W, as two examples, are using an aggregation approach. "We take advantage of key peering points," explains Chris Jennings, director of channel sales and marketing for Mirror Image. "We are aggregating both from a bandwidth and a customer standpoint." Large nodes that are located centrally offer better performance, he adds. He says it is not necessary to go back to the origin server because data are stored at a central access point. In contrast, he says, with many smaller servers, it's more difficult to manage where the content is and the storage capacity is much less.

The difference in the number and type of nodes used to serve a global customer base further illustrates the difference in the approach. For example, Akamai says it has nearly 13,000 servers deployed within at least 1,000 networks in 66 countries, while Mirror Image claims to have 1,220 servers and 17 wholly owned Content Access Points (CAPs) connecting to 80 networks in 12 countries.

The new battleground for CDN operators is on network functionality and ancillary services in answer to and, in some cases, in anticipation of, users' changing content delivery requirements.

"Whereas the initial concept [of the CDN] was to move static and graphical object to the edge, it is now expanded to include everything from dynamic, static, streaming content or applications, " says Speedera's Smith.

It is application delivery that seems to bewitch some CDN operators that are grooming themselves to become distributed computing or Web Services platforms. Mirror Image was first out of the gate. In April it announced an initiative that includes the launch of an Application Delivery Network riding on its CAP architecture that allows developers to publish and distribute Web Services on Microsoft Corp.'s .NET and Sun Microsystems Inc.'s J2EE servers.

Similarly, Akamai's vision is to be the Web Services platform unifying Internet-, intranet- and extranet-based content and applications. In May, Akamai and IBM Corp. unveiled EdgeSuite for Java Based on IBM Websphere, an edge computing service slated for availability in the fourth quarter. In April, the company announced an alliance with Microsoft to develop an EdgeSuite product for .NET.

C&W also announced in April an alliance with Microsoft wherein C&W will deploy a .NET application platform throughout the Exodus hosting network. No product announcements have been forthcoming, but in a press statement the company notes: "the .NET platform combined with the Exodus managed hosting and content delivery infrastructure will provide a foundation for the delivery of compelling Web Services scenarios."

While Speedera also deployed .NET servers in its CDN, Smith says his company has not made Web Services a priority. "Web Services and distributed computing will be significant someday," he says. "Right now, they will not make you a dime." He predicts the first phase of Web Services deployment will remain behind the firewall, which does not require a CDN. "It won't be until the second phase that companies will want to go outside the enterprise. ... It is very much the early days."

Internet services analyst John O'Keefe of Current Analysis Inc. concurs with Smith. Regarding the announced Web Services solution, he says: "Mirror Image's anticipation for these services, although applauded for its aggressiveness, cannot be validated by any measurable demand at this time." He also notes the effort could detract from its core CDN offer should the financial return be delayed.

Smith explains his company's tepid enthusiasm: "Why focus on what they don't want when we are growing at breakneck speed on what they do want," he says. Speedera expects to be profitable by the end of third quarter, he adds.

U.S. Content Delivery Services Market Forecast
Source: IDC, May 2002

2001 CDN Market Share
Source: NetsEdge Research Group

Demand Drivers

In a March assessment of the CDN market, Current Analysis cites several factors driving applications supported by CDNs. Among them are:

• Reluctance to travel, which forces use of alternative meeting options, such as Web-based conferencing or collaboration;

• Fair Disclosure Rules enacted in October 2000 by the Securities and Exchange Commission have boosted the use and acceptance of Web conferencing and streaming media services by requiring public companies to disclose financial information to all potential investors.

• Continued growth in users purchasing from online sites is increasing demand for provision of faster and more reliable services.

Supporting these demands, Williams, for example, has a portfolio of streaming services that includes ActiveCast FS, a packaged application combining audio and video with synchronized presentation slides, designed to help companies meet governmental fair disclosure requirements through Web-based virtual road shows, morning calls, research presentations, investor meetings and conferences. The company also announced in May support for live, on-demand and subscription/pay-per-view streaming.

Streaming -- support for and applications -- has been a popular addition for CDN operators. So too have security and business continuity offers. Speedera, for example, offers SecureCD, which provides authentication, authoritative DNS services and SSL content delivery to protect Web sites against multiple kinds of security threats, including denial of service attacks and defacement. SecureCD can be combined with Speedera's Whole Site Delivery to protect the entire site.

Akamai also has a real-time Web analysis service called SiteWise that provides companies with information about visitor behavior, online transactions and e-marketing campaign metrics.

In addition to productivity drivers, analyst O'Keefe notes the economic slowdown has pushed companies to seek cost reductions, such as outsourcing IT operations.

"Customers' motives have changed," agrees Speedera's Smith. "In the past they were looking to improve the user experience. Now they are focused on slashing costs. They can do that by outsourcing the management and deployment of their website infrastructure" to a CDN service provider.

Distribution Strategies

To serve end-user needs, most CDN operators have a channel sales program in place to deliver their services through strategic partners and resellers. Margins can range from 25 percent to 50 percent depending on the class of service, vendors report. Pricing for the services -- traditionally on a bandwidth or gigabyte per month basis -- is evolving to accommodate the new value-added services, which likely are to be priced on a subscription basis.

Akamai says its resellers -- mostly network service providers and managed hosting companies -- accounted for 25 percent of its revenue in first quarter 2002. Due to the upheaval in the industry, Voke says the number of resellers on board fluctuates. Last summer, the number was around 70.

Exodus, in addition to its PCX peering partners, also has resellers and actively is seeking service providers and Web hosting company partners, Merriweather says.

Last summer, Speedera announced Speedera Fusion, a strategic channel program for Web hosting providers and carriers. Charter partners include Globix Corp., Hitachi netBusiness Ltd., Metromedia Fiber Network Inc. and Wipro Net Ltd., the ISP arm of Wipro Corp. Smith says there are about 25 partners.

Mirror Image also launched a formal initiative, the Global Alliance Partner (GAP) program in December 2001. Jennings says the program includes referral partners, commissioned agents as well as pure resellers. Mirror Image is targeting Web hosting companies, ASPs, MSPs and Web integrators. The company has 16 resellers on board.

Williams also has a wholesale program, which debuted in May, but it's targeting large-volume streaming customers, such as media and entertainment content owners and streaming media resellers. Mike Schlesier, vice president of media and entertainment, says it likely will expand to take advantage of partnerships already developed by the company's Network Services unit.