Content Delivery Networks Analyst Briefing

Content Delivery Networks: Market Drivers & Challenges for Delivering Video

Dan Rayburn, Principal Analyst

Digital Media

August 20, 2008

2

Today’s Agenda

• Introduction

• Latest CDN Funding Data

• Current Market Size and Forecasts (2007-2012)

• Pricing: Current Costs and Market Trends

• Customer Demands from CDNs for Video Delivery

• Impact of P2Ps and Telcos on the CDN Market

• Industry Consolidation and Outlook (18-24 Months)

• Impact of Patent Lawsuits in the Market

• Video CDN: Opinions vs Facts

• Questions

3

Upcoming Frost Report on the CDN Market

• Scheduled to be released next month, Frost & Sullivan's research report titled "World Video Content Delivery Networks (CDN) Market” will provide revenue and demand forecasts for CDN solution providers.

• Revenue and market sizing data will be broken out specific to content delivery for video.

• The data presented will also analyze the trends in different regional markets: Americas, EMEA, and Asia Pacific and break out market sizing in those regions.

• The report will include market drivers, restraints, market share, competitive analysis, and industry challenges specific to the video delivery industry.

(To be notified when the report is released, contact details provided on the last slide.)

4

CDN Market - Financing, 2007-2008

CDN Funding Now Tops $325 Million In Past 18 MonthsAdding AT&T’s Investment In Their New CDN Offering Brings Number to $400 Million

Adding up all the investments that CDNetworks, EdgeCast, Panther Express, Grid Networks, Highwinds, Velocix, Itiva, Move Networks, Pando Networks, Conviva, BitTorrent, ChinaCache, Rawflow, Oversi and BitGravity have gotten, it totals $285.35 million.

In addition to these sixteen providers, Kontki, SimpleCDN, Vusion and EdgeStream have all raised undisclosed amounts as well which puts the total amount of money raised into the CDN space well over $325 million.

And if we think of AT&T's CDN offering as a startup, which they basically are, with their $75 million investment into their network this year, that puts the total amount of money raised to over $400 million in the past 18 months.

And more funding is on the way. Additional CDNs will announce more funding as soon as next week.

For more funding details visit: www.contentdeliveryblog.com

5

Content Delivery Networks (CDN) Market, 2007

Video CDN

39%

Video CDN Market Size, 2007

Source: Frost & Sullivan

Revenues in 2007:>quarter of a billion dollars

6

Video Content Delivery Networks Market: Revenue Forecasts, World

0.0

200.0

400.0

600.0

800.0

1000.0

1200.0

1400.0

1600.0

2007 2008 2009 2010 2011 2012

Year

Reven

ues $

Mil

lio

n

Video CDN Market Forecasts

Source: Frost & Sullivan

•CAGR: well over 30%• Exponential growth from quarter of a billion dollars to over $1Bn

7

Pricing: Current Costs and Market Trends

Video Delivery Pricing For Q2 2008

50TB: High $0.96 per GB, Low $0.45 per GB250TB: High $0.55 per GB, Low $0.40 per GB500TB: High $0.30 per GB, Low $0.10 per GB750TB: High $0.12 per GB, Low $0.07 per GB

1000TB: High $0.09 per GB, Low $0.03 per GB

-This is per GB delivered pricing, not per MB sustained-Pricing is for major CDNs who focus on global delivery

-Cheaper prices can be found by going to regional service providers- Customers have different needs and requirements which determines the final price

-For quarterly pricing updates visit: www.cdnpricing.com

8

Customer Demands from CDNs for Video Delivery

• "How do you think we should proceed looking for a new CDN and how do we

get any data that will help us determine who we choose? All the CDN sales reps

are blaming the other one in terms of network size, service quality, etc. and we

can’t see the difference between many CDNs. Most CDNs won’t even provide

details on bandwidth, capacity, scalability, performance, etc.”

• CDN vendors need to do more than just deliver bits.

• Only a few CDNs offer true scalability and global reach for the biggest customers, which is why the top CDNs win all the big contracts.

• Ecosystem will become the buzz word of 2009 and for good reason.

• Poor reporting and analytics is the NUMBER ONE complaint from customers.

• There are two types of customers: those who want the cheapest price and buy on price alone and those who want a cheap price but want and need a measurable level of performance, as defined by the customer, NOT the vendor.

• CDNs are doing a better job of trying to show customers the value of their services, but too many CDNs don’t offer more than the commodity service.

9

Impact of P2Ps and Telcos on the CDN Market

• To date, P2P providers have not made a big impact in the market,although many CDNs are trying to work with P2P platforms

• P2P has to be combined with a traditional CDN in order to survive. P2P networks won’t and can’t survive on their own.

• Last year, P2P company Kontiki did $6 million in revenue which is the most revenue of any P2P company I know of in the U.S. or Europe.

• Telcos and carriers are eyeing the market, but so far have been slow to enter. Expect Europe and Asia based telcos and carriers to enter the U.S. market in the next 12 months.

• While Level 3 and AT&T have entered the market late, they have more resources than most new CDNs and could quickly be in the top 5 CDNs in the market based on revenue.

10

Industry Consolidation and Outlook: 18-24 Months

• Acquisitions are always possible, but most CDNs don’t have enough revenue, applications or IP to make them an acquisition target over the next 18 months. Only three CDNs are doing more than $25 million a year in video CDN revenues for 2008.

• Emergence of heavy weight telcos within the CDN space make incumbents such as Limelight Networks and Akamai prime acquisition targets.

• Bottom line, CDNs need to build some apps and create real value. Case in point, Nine Systems acquisition by Akamai.

• In 2000 we had over 50 CDN vendors. In 2002, about a dozen. In 2004 there were six. Now in 2008 we have 50 again. Many CDN vendors won’t make it 24 months from now.

11

Impact of Patent Lawsuits in the Market

• To date, patent suits have not played a major impact in the market or with customers. Over the past ten years there have been many CDNpatent suits and to date, no CDN has ever had to turn off customers.

• Patent suits cost CDNs legal fees and take the CDNs focus away from their number one priority, the customer. While they are part of all industries, the customer does not benefit in any way.

• Akamai and Limelight’s court case will continue to go on for years and Level 3’s case against Limelight won’t be resolved anytime soon.

• If patents do end up playing a role in the space, amongst CDNs only, Level 3 is the one to watch due to the IP portfolio they have built up.

• For regular updates on CDN patent news visit: www.cdnpatents.com

12

Video CDN: Opinions vs Facts

• Opinions on the CDN market are great, but way too many people who write and talk about the CDN market confuse “opinions” with facts.

• It is nearly impossible to compare one company to another. It is only fair to compare one company’s CDN service to another company’s CDN service.

• Understand the products that CDN vendors get their revenue from.Knowing the products better will help you better understand the role the vendor plays in the market.

• Don’t get caught up in marketing buzz terms.

• CDN vendors are doing a better job and buying CDN services will be easier over time.

13

Your Feedback is Important to Us

Growth Forecasts?

Competitive Structure?

Emerging Trends?

Strategic Recommendations?

Other?

Please inform us by taking our survey.

What would you like to see from Frost & Sullivan?

14

Additional Resources

• www.cdnlist.com

• www.cdnpricing.com

• www.cdnpatents.com

• www.cdnmarket.com

• www.contentdeliveryblog.com

15

For Additional Information

• To leave a comment, ask the analyst a question, or receive the free audio segment that accompanies this presentation, please contact Stephanie Ochoa, Analyst Briefing Coordinator, at (210) 247-2421 or via email, [email protected].