CDN’s Delivered 95% Of Microsoft’s Traffic In 07′, But Only 40% By Next Year

Cohen During his keynote at the Content Delivery Summit last month, Jeff Cohen, GM of Microsoft's Edge Computing Network gave out a lot of interesting data as it pertains to Microsoft's CDN business. While the theme of his presentation covered a lot of great topics, one of the points that really stood out was how quickly Microsoft is moving away from relying on third party CDNs for delivery and instead, using their own internal CDN. While this trend by Microsoft is something that has been widely known about to anyone who closely follows the CDN space, this is the first time I have seen Microsoft break out numbers that shows the split in traffic. (Note: Jeff's slides can be downloaded here, video of his presentation can be seen here)

Over the past two years, Microsoft has quickly started bringing a lot of their traffic for video, software downloads and small object delivery in-house. In 2007, third party CDNs delivered 95% of Microsoft's traffic. Based on Jeff's estimate, third party CDNs will only account for 40% of Microsoft's delivery business by next year.

Msft-slide

While Jeff said that Microsoft would always have the need for CDNs to compliment their own delivery, clearly that's a lot of lost business for the CDNs in a three-year period. During that time, Akamai and Limelight have gotten the vast majority of Microsoft's business and Level 3 has received a good portion as well, but primarily just over the past 14 months. While Microsoft is not pulling the business away from CDNs overnight, it is a lot of lost traffic for them to have to make up, not to mention, revenue growth they can't rely on. Of the three CDNs that have most of the business, it probably impacts Akamai more than anyone else since Akamai always had the largest share of Microsoft's business. And with Microsoft having licensed Limelight's technology, Limelight should be making up some of that lost traffic over time with their licensing contract.

Jeff's slide also shows some interesting numbers when it comes to the type of traffic being passed over their network. In 2007, video delivery account for 10% of the traffic and in 2010, is expected to account for 55% of all traffic delivered on Microsoft's CDN. At the same conference, Level 3 also stated that video now takes up 70% of all traffic on their network. These data points are more evidence on just how quickly video traffic is growing and the challenge third party CDNs have in trying to make money. When the largest percentage of traffic on your network comes from video, yet video only account for lets say 25% of your revenue, those are some skewed numbers.

While Jeff made it clear that Microsoft will always need to rely on third party CDNs for scale and for delivery in regions of the world where Microsoft does not have a footprint, he also said that, "we want to make sure that what's strategic to our business, stays within our business". Jeff also said that the decision to move traffic to a CDN or from a CDN is done on a "property to property basis" inside Microsoft.

While I don't know what percentage of revenue Microsoft accounts for at any of the CDNs, a question I am often asked, with Jeff estimating that Microsoft's traffic is growing "between 30-100% year over year", that's a lot of additional bits the CDNs won't get to deliver in the future.

  • Tim Hart

    Dear Dan,
    Are you sure it is Akamai that will bear the brunt of this change-my feeling is that Akamai will still handle the security downloads and those issues that Microsoft needs to be positive are handled properly-my understanding is that Limelight by selling the license the way it did ( for a flat fee) cut they own throat,they will loss media andXBox business.If Jeff Cohen secificly stated to you that Akamai was the big loser here ,you need to tell us that.Otherwise you are miss leading your readership.
    Yes I own Akamai

  • http://www.BusinessOfVideo.com Dan Rayburn

    Tim, I am not “miss leading” anyone and you need to read what I wrote. I clearly stated that it “probably impacts Akamai more” and no where did I say otherwise.
    We all know that history wise, Akamai has always had more of Akamai’s business than other CDNs, so with Microsoft showing data on how much traffic they are brining in-house, the company that has the most to lose is the one that has the largest share of that business, which is Akamai.
    On the Limelight front, the company is not stupid and they have known for a long time that Microsoft is shifting to their internal CDN to do their own delivery. So Limelight licensing their technology to Microsoft helps then make up for some of that last revenue, over time. It does not make them lose the business more or faster. It’s the exact opposite since over time, they and other CDNs will lose some of the business anyway.

  • Tim Hart

    I do not feel you answered my question-Did Jeff Cohen specificly say Akamai would be the be the big loser or is that your the interpetation of the situation?For example if Microsoft is taking inhouse all of their media and Xbox CDN stuff but not upgrades and security downloads-how does that change the picture-specificly what comprises the 60%(2009) vs.40%(2010)-my guess is that it is video and xbox-mainly what Limelight and Level 3 have been doing for them.Have they indicated they are going away from Akamai for Silverlight and HD variable streaming

  • Dan Rayburn

    Did you watch the video? Did you download Jeff’s slides? Go watch what Jeff said instead of “guessing”. Microsoft is moving all kinds of content in-house, not just video. Small object delivery, software downloads, security patches, video etc… watch the video.
    Also, Limelight delivers a huge amount of Windows software updates for Microsoft every month. They are not exclusive to that business, but your notion that Limelight and Level 3 only deliver video or Xbox content is not accurate.

  • Jack Sunderland

    Dan, Are you sure you got this right. Your call that Apple was moving off of Akamai was dead wrong.

  • http://www.BusinessOfVideo.com Dan Rayburn

    Jack, please show my by way of facts, not your opinions, where my report that Apple moved some of their business to Limelight was “dead wrong”. Did you speak to Apple? Did you talk to any of the CDNs involved? I did.
    I’m so tired of investors who own stock in a company saying they don’t believe something just because it’s not in the best interest of their stock. Back your words up with facts, I backed my Apple story up with traceroute details. Where are your facts?
    And no where in my post about that months ago did I say “Apple was moving off Akamai”, I clearly explained they moved to a dual-vendor approach.

  • Kevin

    Jack,
    To show yourself you are dead wrong simply run a trace route to apple.vo.llnwd.net
    There you go, Apple is using Limelight. Personally in my experience 80% or so has been delivered by akamai with the remaining 20% VIA Limelight.

  • Fellow Reader

    Dan,
    Re: Companies performing CDN services in-house or a portion of their services in-house
    For a company like Microsoft, I guess if they provide their CDN without a third party provider, there will still be bandwidth costs associated with file transport.
    I was under the impression that for large files, especially video, that the prices CDNs are charging are pretty close to “transport” fees. As as result, how would Microsoft (or any other company for that matter) save money?
    Secondly, if this is a trend where companies will start building their own CDN (forget about Telco), doesn’t this in some ways fly in the face of Nick Carr’s thesis that IT is becoming commodited and as a result companies should outsource commodity IT services which can be handled by a third party such as Akamai, Limelight and/or Level 3? My note: please do not focus on the term “commodity” b/c I am not tryin to steer the conversation by saying that AKAM, LLNW and/or LVLT provide “commodity” services, but in fact, I’m trying to steer the question towards Vertical v. Horizontal specialization, i.e. companies owning all aspects of their value chain v. companies using specialized third parties to provide a piece of their value chain.
    Thirdly, if we look at the total CDN industry, do you have any idea as to how much Microsoft makes up this industry? Are we talking 1% of the industry? .01%? 10%?
    Thanks for the blog and I enjoy reading your insights.

  • http://www.BusinessOfVideo.com Dan Rayburn

    One thing to keep in mind is that bandwidth is just one cost of running a CDN. There are a LOT of other costs associated with it that no one ever seems to want to talk about. There is a lot more to a CDN than just bandwidth. Clearly Microsoft sees the cost savings, even with having spent a few hundred million to build out their own CDN.
    Content owners are not building their own CDNs for video at least and there is no trend taking place that says otherwise. Sure, companies like Microsoft, Google, Yahoo! and others may, but there are only a handful of companies like that. All the major content owners outsource video delivery to CDNs.
    As for the Microsoft question, I don’t know what percentage they make up of the $400M in global video CDN revenue last year but I’d guess around 5%.