According to very interesting article by Dan Rayburn this morning, AT&T (NYSE:T, news, filings) inked a deal with Cotendo over the summer to integrate the provider's application acceleration and dynamic site acceleration services into its own offerings. The move allows AT&T to challenge Akamai (NASDAQ:AKAM, news, filings) directly in the value-added end of the CDN space, which is interesting as AT&T hasn't seemed interested in taking them on in the more commoditized end of caching and streaming and such.
AT&T's target seems to be the large enterprise customers with whom it has a dominant position, but which are requiring more and more data services like dynamic site acceleration. That technological shift meant that they risked losing influence to Akamai over time with this key customer grouping, and hence they brought in the Cotendo capability. One can also see AT&T's move as similar to its initial entry into the CDN space, which made no dent in the rest of the market because it was targeted new customers from its own large enterprise base and not at major content producers. I see the Cotendo relationship less as AT&T attacking a new market and more as AT&T continuing to respond to Akamai's growing influence in territory it views as its own turf. That doesn't mean they aren't a threat to Akamai's position on top of the CDN sector, but it's more about segregating the pie in advance than taking away existing customers, thus perhaps reducing the size of the pie Akamai is shooting at.
The big immediate winner here is Cotendo, which gains a reseller that will give it access to customers it could never have reached otherwise. Dan suggests this might be a change in strategy for AT&T, bringing in partners and not needing to build everything itself. Frankly, I would suggest waiting a while before believing that.
Telecom industry watchers will be familiar with the pattern of(and its brethren) reselling a promising new technology for a year or two, either strictly for defense or while developing the same capabilities in-house to replace it with later on. Ask Level 3 about the boon of SBC reselling its hosted VoIP product back in 2004, or Deltathree about Verizon's VoiceWing. The past doesn't always predict the future, but it'd be crazy for Cotendo not to be ready for the possibility. AT&T hasn't gotten where it is granting access to its customer base to small tech companies to make them rich. Well there is Apple of course, but they aren't small.
Another thing worth thinking about is where AT&T's fellow telecommunications giants are on this. Are the needs of those large enterprises for value added services such as those Akamai provides enough to bring them further into the CDN marketplace? Is this just AT&T or is Verizon Business out there in the wings someplace?
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