Over on the business of online video blog, Dan Rayburn had the chance to interview Jim Crowe about Level 3's CDN business. It's a must-read, being the most comprehensive discussion of the company's CDN plans so far. One key point Crowe makes is this:
Crowe: We are trying to simplify the distribution chain associated with using an IP network for the delivery of rich media content. For this part of the market we believe that, over time, the distinction between IP Transit and CDN goes away. We will simply talk about Internet delivery of content.
It's not the first time Level 3 has said this. I've been pretty vocal about the IP transit business on this blog. As a business it has gotten better over the last few years, price compression has lessened and traffic growth now outpaces it, leading to at least some revenue growth. But overall, it remains pitiful relative to the amount of effort that has been put into it except at the access level. The CDN business on the other hand, has been a great place to be - at least for Akamai. The suggestion that these businesses with very different dynamics are going to become indistinguishable for rich content implies quite a transformation.
From my vantage point, such a transformation would be a welcome one because it would change the failed industry structure that has underlied the IP transit market for a decade. But what it also implies is that IP transit competitors without a CDN will be increasingly frozen out for rich content delivery, which suggests that Cogent's drastic pricing action this June may not help as much as they might hope. If the IP transit market diverges into CDN haves and have nots, the have-nots who have been depending on video to drive increasing traffic growth are going to be disappointed.
Here's another quote from the interview that could use a bit of interpretation.
Crowe: At the very least, we expect our CDN business standalone to compare in size to our Internet transit business within the next few years.
Translation: He didn't put a dollar amount on it, but I will based on my own research: $150-200M annually, up from the $20M annually the Savvis assets had when purchased, or perhaps 1/4 of Akamai's current turnover.
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