Netflix Unveils Its Own CDN

June 5th, 2012 by · 1 Comment

It had to happen sooner or later, but I'll bet some in the CDN sector were hoping it would be a bit later than this. Yesterday Netflix (NASDAQ:NFLX, news, filings) took the wrappings off its Open Connect Network, a special purpose in-house CDN designed to eventually take over the bulk of its content delivery needs over the next few years. 

In the bandwidth business, there is always a point at which a customer becomes big enough to take over tasks that it has paid others to do, and it's true whether you're talking about transport, transit, VoIP, or CDN. Only the largest content generators have the scale to justify their own global CDN infrastructure, but Netflix has obviously grown to be one of them.

Honestly though, I seriously doubt they will be able to save much given the pricing power they had and the scale involved. Rather than look at this in terms of costs saved, I think it's more about bringing control in-house. Even if it costs them the same to deliver more of their own bits in the end, the greater visibility into future costs is valuable.

This will obviously have an effect on their current primary CDN suppliers, Level 3 and Limelight. Primarily Limelight actually, for whom Netflix traffic is said to account for more than 10% of revenues. However, it is also quite true that from a profitability standpoint it won't hurt so badly, as Netflix traffic isn't itself that profitable for either one even as it has enabled them to truly scale out their networks.  The revenue effect won't be immediate, but it will be noticed.

For Level 3's CDN business, however, there are mitigating factors.  It will be mostly noise relative to the business as a whole, and even perhaps help solve the interconnection dispute with Comcast.  But more importantly though, Netflix may buy less raw CDN but by taking this path they'll be buying more of other things like colo, transport, and other services that Level 3 will probably be able to help them with as well.  In fact, I'd be surprised if they weren't already.  For Level 3, this probably represents a customer moving up the food chain within their customer base more than anything else, with both risk and opportunity on tap.

But for Limelight, there are fewer bright spots and Netflix's plans look like a multi-year headwind for them. I think this development may be the final push they need to finally find a buyer. In fact, it may just be that Level 3 and Limelight could take this opportunity to finally make last year's rumors come true and consolidate their efforts.

Dan Rayburn has a substantial amount of additional detail on Netflix's new CDN effort, which offers access to caches of its content to participating ISPs. It seems to be pretty well thought out, and apparently they already have it working in the UK.

If you haven't already, please take our Reader Survey! Just 3 questions to help us better understand who is reading Telecom Ramblings so we can serve you better!

Categories: Content Distribution

Join the Discussion!

1 Comment, Add Yours!


Leave a Comment

You may Log In to post a comment, or fill in the form to post anonymously.





  • Ramblings’ Jobs

    Post a Job - Just $99/30days
  • Event Calendar