Apple Building Out Their Own CDN To Deliver Content To Consumers

AppleOver the past year, there has been speculation of when or if Apple would build out their own content delivery network for the purpose of delivering content to consumers. To date, all of the CDN deployments done by Apple have been for internal purposes only, but that’s about to change. For the past few months, those in the networking community have been discussing some of the new people Apple has recently hired, all of whom have a deep background in building out large-scale networks. These employees are part of a new group that was formed inside Apple last year, who are tasked with the build out of a new CDN for external use.

Historically, Apple has always relied on CDN providers Akamai and Level 3 to deliver Apple related content including apps, iTunes video, and software updates for their iOS and OS X platforms. Akamai has more of Apple’s business than Level 3, and while Akamai has never mentioned Apple by name, it’s widely known that Apple spent more than $100M with Akamai last year, for delivery of content and professional services. The news of Apple’s own CDN plans comes at an interesting time because Akamai announced a few months ago that they were in contract renegotiation with their largest media customer which would take place last quarter or the current one. While Akamai didn’t mention Apple by name, those who track the CDN market all know it’s Apple, especially when Akamai said the re-pricing would likely result in several quarters of negative revenue impact.

Since Apple is still in the build-out stage of their new CDN, it’s too early to know how this may impact Akamai and Level 3. We don’t know what scale Apple wants to build their CDN out to, what region(s) of the world they want to have more control over and how quickly they can get it done. Clearly, Akamai is more at risk than Level 3 though as Akamai’s contract with Apple is worth a lot more and Level 3 could still sell Apple other services it needs for their build out, like IP transit, fiber, co-location and other products and services Akamai does not offer.

Over time, more details will come out on exactly what Apple is doing and trace routes will tell us more about their plans as they change the way they currently deliver content. I’m most interested to learn the strategy Apple takes with regards to whether or not they work directly with ISPs and the decisions they make on the type of content they plan to deliver. What Apple is working on aligns with what all of the other big content syndicators out there have already built, including Microsoft, Google, Netflix, Yahoo!, Twitter, and Facebook; which is a considerable amount of their own distributed origin infrastructure, for both large and small objects.

What we still don’t know is how Apple plans to structure their CDN with regards to the type of content they will deliver. Apple could use it to handle more of their long tail content, the stuff that’s more difficult to deliver, since most of Apple’s content is not delivered from inside ISP networks. Or they could take the hot content and put that on their CDN and take the long tail content that’s hard to cache, and costly to build a CDN infrastructure to support, and offload it to the third-party CDNs. That would be the most economical way to do it, but I don’t know that economics is the key driver in why Apple is doing this.

I’m hearing that part of Apple’s reasoning for building their own CDN is because of performance issues with iCloud, with Apple wanting to have more control over the QoS of content going to their devices. Apple already controls the hardware, the OS (iOS/OS X) as well as the iTunes/App store platforms. Right now they control the entire customer experience, except for the way content is delivered to their devices. Since Apple does not own the last mile they won’t be able to have complete control, but having their own CDN would give them more control and security than they have now. The next set of questions to ask is what type of technology Apple uses? Will they go the open source route and built it in a non-proprietary way, or keep it closed? Some will also wonder if Apple might make their CDN into a commercial offering, but that wouldn’t make any sense for their business, unless they had some kind of content subscription service akin to Netflix.

It’s too early to know the degree of impact this will have on Akamai’s business with Apple this year as it takes time to build out CDN infrastructure to scale. When YouTube, Microsoft and Netflix all took their CDN delivery to in-house platforms, it took them about 18 months or more before they moved enough traffic away from the CDNs to impact their revenue. However, even in those cases, Microsoft and Netflix still rely heavily on Akamai, Level 3 and Limelight for a substantial portion of their content delivery needs, even to this day. So don’t count the CDNs out just yet. Apple still needs to execute, get to scale and some of the CDNs, primarily Level 3 and Verizon, could make up for lost CDN revenue or gain new revenue altogether, by selling Apple other infrastructure related services.

Apple didn’t respond to my request to comment on this story.

  • heyburt

    What about features of the CDN that would support enterprise needs as well?

    • danrayburn

      Don’t know, but would also depend on how you define “enterprise” and what service you are thinking of. That’s such a generic term these days.

  • Guest

    How is this diff then the article you wrote Aug 18 2009 ? Article link posted above under ‘Related Posts’. Why now, and not then? What happended to the ideas expressed 3+ yrs ago?

    • danrayburn

      I don’t know why they didn’t do more five years ago, or even two years ago, but clearly it wasn’t a big enough priority to them back then. It might have simply been a matter of how much Apple’s traffic and device penetration has grown in the last five years. Also in the 2009 time frame they were “interested” in doing more, but that’s doesn’t mean it was on top of their list to get done.

    • Noman Khan

      I believe the previous article was focused on having multiple CDN providers. This new one is suggesting that they want to build their own. I am not sure, if this is “negative” for $AKAM or others.

  • Anon

    What makes you think only level3 and Verizon can still sell other services to aapl and not akamai. Doesn’t akamai not have other services?

    Why would aapl go for investing in cdn for external use especially when this business is comodoized? Makes no sense. I can see if they want to build for internal use like Netflix, Microsoft..

    What are your sources for this info? How come you are privileged for such info?

    Your article as usual seems very biased and always wonder about the timing of these articles. Like quiet period, before earnings etc if this is negative for akamai it is also for all cdn providers.

    • danrayburn

      The type of services any company needs when they are building out their own CDN are colocation, transit, managed services, fiber etc. none of those are products/services that Akamai offers. Level 3 and Verizon do as they are carriers, Akamai isn’t. It’s not “biased”, it’s factual. Akamai doesn’t offer those specific services. Their core business is not the same as Verizon’s, Level 3, or other carriers.

      Apple is not getting into the CDN business and they aren’t going to sell this as a commercial CDN, it’s for their own use only. The largest content owners/syndicators on the web today all have a large CDN deployment of their own including Twitter, Facebook, Yahoo!, Netflix, Microsoft and others. What is taking place with the commoditization of CDN as a service is not relevant to what Apple is doing as Apple is not selling CDN.

      Vendors are under quiet periods, not members of the media. One has nothing to do with the other.

      • Anon

        You talked about 100m of business from apple to akamai. Not all of it is cdn. Apple also uses other services from akamai and maybe will need the new services like security etc. Your article sounded big loss due to apple building cdn. Please read wells Fargo analysis on the impact this could have with some numbers. To me the article didn’t do good job analyzing obectively and hence “biased”

        When I say quiet period I meant for companies which means media can write any articles. We will know more about thus when akamai reports in few days.

        You are so confident aaple is doing it. What makes you so confident if aaple did’t comment on this?

        Having said all even if aaple is building their on cdn we dont know all the details and it takes long time. Meanwhile akamai is coming up with services. This is gradual development in any company. This should impact all cdns and not just akamai.

        • danrayburn

          I know it’s not all for CDN. Read what I wrote. “..for delivery of content and professional services.” The major services you need when you build out your own CDN are not services Akamai offers.

          I know it takes time, I said, “It’s too early to know the degree of impact this will have on Akamai’s
          business with Apple this year as it takes time to build out CDN infrastructure to scale.”

          It does not impact “all” CDNs, it only impacts the ones that have services with Apple. If Apple is not paying a CDN to deliver their content, then the CDN does not have any of Apple’s traffic. It will impact carriers/service providers for sure, but Akamai is not a service provider.

          • Anon

            Apple cdn business is way less than 100m. Not sure how much of cdn business akamai has and that too it will a while or them to shift the buiness. There will be n impact but not the way you made it. It could have been higher if this was 3-5 years ago.

            Building out cdn by aapl will need services but this will be not the same as paying for cdn year after year. Then you don’t know whether they will go with level3 or someone else. So it’s lot of speculation. Looks to me level3 will loose if aaple builds their own cdn.

  • Bill Smells

    Apple will not do this. It doesn’t fit into their business model and there’s no real benefit to make such a massive investment.

    Remember AppleLink? Yeah, exactly. They aren’t going to relive the sins of the past.

    • danrayburn

      Apple is doing it. It’s not speculation. Of course there is a benefit, that’s why Netflix, Microsoft and others have all already done it.

      • anonymous

        http://seekingalpha.com/article/1997541-akamai-technologies-management-discusses-q4-2013-results-earnings-call-transcript?page=7&p=qanda&l=last

        And in terms of the do-it-yourself, generally, any very large media
        company at one time or another, I think, in the past or currently, is
        looking at a do-it-yourself solution. That is not uncommon.
        Do-it-yourself, as we’ve always talked about, is one of our largest
        competitors. It’s a lot harder than people think, though, to really do
        the delivery at scale, continually improving it and to continually be
        reducing the cost for it. And we’ve seen examples where very large media
        companies have gone off and done it and then, within some small number
        of years, realized that it’s not core to them and they’re not doing it
        as well as they had hoped. And they actually come back and use Akamai
        again. In fact, there’s a large media company today that’s nearing the
        second end of that cycle. It’s not as — not so easy to do and we put a
        lot of effort into doing it really well and to continually improving the
        quality, the scalability and the cost.

  • Adam Diep

    This probably speaks more to Apple’s strategy to focus on more “cloud” services. If every one of their i-xxx users actually used iCloud, they’re delivery charges are going to justify building out a network themselves. Don’t forget 2-way communication via FaceTime; that’ll work so much better on a private network or if Apple can control the QoS. FaceTime for business perhaps? With them owning the device and the OS, they’ll be able to monitor Internet traffic congestion better than anyone else.

  • OldManPar

    “Overlooked” is the most probable answer.

  • InvestorGater

    Dan, you said “Historically, Apple has always relied on CDN providers Akamai and Level 3 to deliver Apple related content including apps, iTunes video, and software updates for their iOS and OS X platforms.”

    Whatever happened to Limelight’s service to Apple?

    What was your purpose in writing “Apple Moves To Dual CDN Vendor Strategy: Now Using Limelight With Akamai”?

    Did Limelight do nothing for Apple? Or have you erased Limelight from Akamai’s history?

    • danrayburn

      Limelight had a little of Apple’s business in 2009, but that quickly went away and was short lived. I have not seen Limelight come up in any trace routes, for Apple’s delivery, in the last 3+ years.

  • anonymous