Saturday, November 08, 2008

On The Downside

The CDN business is looking more and more uncomfortable. Threatened by technology (Edgeware), the big boys (Level3 & AT&T) and the increasing number of player in the market willing to undercut, the news this week from Internap is not surprising.

Back in the days when Streaming Media East comprised of six stands in the Hilton on Avenue of the Americas in NYC, I met an investor in a company called Vital Stream;  clearly he and his colleagues knew what they were doing since they managed to sell a CDN doing $5m in turnover for $217m to Internap a couple of years ago.

Now, Internap has announced that it is writing down $100m of this investment, which might seem a technical issue, but does more than halve the value of the overall company. In the meantime it has failed to grow the CDN business at all (in fact, it has been contracting). In addition, write downs have had to be made under SLAs within Internap.

The CDN business is suffering from the same problem as the VMS market – the big guys don’t want small customers, and the unfortunate reality of the market is that there are only a few large clients and very many smaller players - it is a market with a very long tail.

Moreover, edge technology has marginal benefit smaller clients, who are better off using some of the cloud technologies now available.

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