Dan Rayburn's Interview with Jim Crowe

August 19th, 2008 by · 3 Comments

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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Categories: Content Distribution · Internet Backbones

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3 Comments So Far


  • carlk says:

    Rob,

    Are you suggesting IP Transit inside of Core Network Services represents 150M-200M in annual revenues today?

    If so, please provide the last data point you have for that revenue line prior to them burying it, as well as any other comments you care to share surrounding your projection?

    Turnover is a British accounting term. Other than the Olympics, what brings an Englishmen to China over your years? 🙂

  • Rob Powell says:

    Heh, turnover – I pick up the strangest things reading the reports of foreign companies – in this case Colt.

    As for a datapoint, if you go to the Q2/2007 conference call transcript, they quote their entire hi-speed IP business as 8% of revenues, which at the time worked out to about $280M annually. I estimate half of that is to cables and other ISPs, and the other half would be content markets $140M. Add in some growth, and you get my $150-200M range in a few years.

    Of course, he *might* have meant CDN would match the entire hi-speed IP business, and I’m 50% too low. But after learning a few lessons along the way, I choose the more conservative interpretation.

  • carlk says:

    If selling CDN services to cable companies is an option, especially while considering the “quadruple play” that is fast coming down stream, in addition to the blurring lines comments, why wouldn’t some factor for up selling to the other half of your back of the envelope Swag be considered?

    Additionally, with European service revenues mostly on net, and in hypergrowth phase, why wouldn’t expectations for more CDN revenues be realistic?

    I think that if Crowe is going to yap to bloggers, which by default becomes a quasi public statement, then he should put numbers behind his words.

    Since O’Hara’s departure, he has tightened up the hyperboles surrounding BMG from 100B addressable market, to 33B for LVLT’s targeted world, for example.

    Finally, since bold comments have rarely been avoided by Jim Crowe, especially when addressing postion and market share, i.e., Big 3, why stop now?

    I mean, the stock already suffers from DISBELIEF SYNDROME (DS), and at some point, the flood gates from over one decade of Big Talk must finally exceed most expectations, even wild ones, lest Mr. Market may have cause to ask Jim Crowe to leave.

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