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

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

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

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

"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

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

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

  • 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

  • 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.




& Wireless

Telecom Co. Ltd.


Analysis Inc.


netBusiness Ltd.



Fiber Network Inc.


Image Internet

Research Group

Communications International Inc.

and Exchange Commission

Networks Inc.

Microsystems Inc.

Communications LLC

Net Ltd.

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