For more than ten years, AT&T has technically been in the CDN space but has not had a lot to show from it. Their legacy CDN platform, ICDS, never really worked well and even though the company announced in late 2007 that they were going to spend $70-$80M to build out a new CDN, those plans never came to fruition. So naturally when AT&T announced late in the day on Wednesday a new cloud-based CDN platform, many probably didn't take them seriously. This time however it's different due to how AT&T is coming to the market and the technology they are using.
While AT&T's release does not mention the technology they have deployed, their new cloud-based CDN platform is based off of technology from Cotendo and EdgeCast. In February of this year I detailed how AT&T was now using EdgeCast's CDN technology on the AT&T network and in October of last year, I detailed how AT&T had teamed up with Cotendo to deploy their app acceleration platform on the AT&T network. While AT&T still needs to prove themselves in the market, they have changed their mentality inside the company and have started relying on platforms that are proven in the industry, instead of trying to build it on their own.
While today's release by AT&T does not come right out an say it, what AT&T is essentially trying to convey to customers is that they are now serious about the CDN space. Using platforms from EdgeCast and Cotendo that have been in the market for years and are proven with hundreds of large customers, AT&T can slowly start to move the conversation away from the technology and start talking about solving business problems. AT&T won't be able to do this overnight and they still have a lot of work to do to take a large share of revenue away from Akamai, Limelight or Level 3, but their CDN platform is now built on proven, reliable technology.
AT&T is similar to Level 3 in that is owns the network, gets revenue from a diversified line of products and services, has a large sales force, spends a lot of money on marketing, has a good re-seller channel and isn't trying to own the market in the short term. This is a long-term play for AT&T. Another advantage AT&T has over all of the other CDNs, which is basically identical to Verizon, is that they already talk to the major content owners due to their U-Verse service and many of those content owners are already using the new AT&T CDN platform for U-verse related content. It's not a guarantee that AT&T can be successful, but it does give them a good running start.
I've always been very vocal about not seeing AT&T on CDN deals in the past and that I didn't take their CDN service very seriously. But now that they have a proven CDN platform, they do have a shot, and a good one at that, of competing in the CDN space. It won't happen overnight, they still need to execute and follow through on a lot of the product pieces, but at least they now have given themselves a chance at being successful. The real test will come the rest of this year as they go out to content owners and talk their value proposition and I'll be closely watching how well they do.
The last time AT&T talked about entering the CDN market in 2007 many on Wall Street went bonkers and started talking about how AT&T would push pricing down in the market and started a panic, downgrading Akamai on the AT&T news. Akamai's shares dropped over $2 that day, in my opinion, mostly due to investors who don't track the market very closely. In fact, I wrote a post the day after AT&T's news entitled "Analysts Covering Akamai Should Not Be Worried About AT&T", where I tried to put the news in perspective. This time around, things are no different. AT&T won't take a large share of the CDN market from Akamai, Limelight or Level 3 anytime soon, but they will have an impact on the pricing of value add services down the road.
As I wrote back in October of last year in my post about AT&T hooking up with Cotendo, AT&T, Cotendo, Lmielight, Level 3, CDNetworks and others, all combined, are applying pricing pressure to the "value add services" piece of the market. AT&T, Cotendo and Limelight have all gone out of their way to mention that they can charge half of what Akamai is charging today for some of the similar services. Of course, they all have to prove their services can compete with Akamai and so far, Cotendo has done a very good job of that earning them the notice of Akamai who filed a patent infringment suit (see www.cdnpatents.com) against Cotendo in November of last year.
So the real question is not how much business any of the CDNs take from Akamai, but what kind of pricing pressure they apply in the market, driving pricing down across the industry and how quickly we begin to see the impact from it. I'm already starting to see some signs of it today, but I think it's really another three quarters before this is very apparent in the market.
If AT&T executes properly, something they still need to prove in the market, we could have a fourth dominant CDN in the space to go along with Akamai, Limelight and Level 3. And by dominant I mean a CDN that could do $100M in CDN revenue within two years, if they are successful. The other thing to watch closely is the Akamai suit with Cotendo. With AT&T now betting the entire future of their CDN platform on Cotendo's technology, AT&T can't afford to see Cotendo have problems in court or worse yet, get acquired by Akamai. So it will be very interesting to watch what AT&T does when the time comes. These suits tend to take years to be settled in court, so I don't expect anything to happen anytime soon, but it does throw another twist into the AT&T CDN story.