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Video Helps Grow CDN Market, But Long-term Outlook Uncertain

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Online video has significantly contributed to the growth of the market for content-delivery networks, two new research reports show, but it’s unclear how much the industry as a whole will benefit from this trend going forward. The worldwide value of CDN services is estimated to reach more than $2 billion in 2011, In-Stat reported today. That’s up from $1.25 billion in 2008. In-Stat attributes this growth largely to the increasing popularity of online video.


Those numbers are echoing similar predictions from competing market research outlet AccuStream, which is predicting CDNs to bring in $1.16 billion in 2010, up from an estimated $1.37 billion this year. However, the price war for online video delivery has actually resulted in video becoming a smaller piece of the cake in terms of percentage of overall revenue. And then there’s the big unknown: How will Apple’s and Microsoft’s plans to shoulder more of their data delivery in-house affect the industry?

AccuStream is estimating that Akamai delivered 31.9 percent of the 22.5 billion professional video views served so far this year, with Limelight Networks (12 percent) and Level 3 (11.2 percent) fighting for second place. The company’s “CDN 2010: Revenue, R&D, Cap Ex and Operational Performance Analytics” report is also predicting that the CDN industry will see its revenue grow by 16.4 percent in 2009, and the number of contracts will increase by 23.2 percent this year.

Notice the difference here? More contracts are adding less on average to the bottom line, and the monthly recurring revenue is actually down 5.5 percent this year, according to AccuStream’s forecast. That’s partially due to the fact that the prices for online video delivery are falling, driven not only by cheaper bandwidth, but also a price war between vendors.

“Entertainment is the most price-competitive segment,” explained AccuStream Research Director Paul Palumbo, which is why he believes 2009 and 2010 to be “transformational years” for CDNs. “The overall dollar value of entertainment is increasing, but its share is decreasing at present, due to pricing,” Palumbo added.

Adding to this uncertainty is Apple’s confirmation that it is working on a billion-dollar data center in North Carolina. The company has so far been using Akamai and Limelight to distribute much of its data, and blogger Dan Rayburn probably isn’t alone in thinking that the two companies “could very well lose a large portion of Apple’s business” once that data center goes online.

Apple isn’t the only one trying to save costs by investing in data delivery infrastructure. Microsoft recently revealed that plans to deliver the majority of its data through its own Edge Computing Network by 2010, with a huge chunk of that data stemming from video delivery.

However, not all is lost for CDNs, even the ones serving independent-minded companies like Apple. Both AccuStream and In-Stat are predicting that international markets will see a huge growth for CDN services, as online video is becoming more popular overseas, and even a brand-spanking new data center in North Carolina doesn’t really help you all that much if you want to serve video to viewers in Europe or Asia.