Pacnet Looking To Acquire Public CDNs In Asia: CDNetworks or ChinaCache In Play?

In a story on Bloomberg this morning focusing on Pacnet delaying their public offering, CEO Bill Barney is also quoted talking about acquisitions in the content delivery market. He's quoted as saying, “We’ve been looking at acquisitions not only in Australia, but also in Japan, China and India. We call them players in the content delivery space and we’ve been quite active in the last few weeks.” The article also goes on to say that Pacnet’s acquisition targets include two listed companies, the names of which Pacnet would not identify.

While there are a bunch of companies offering content delivery services in Asia including Broadmedia, CDNetworks, ChinaCache, J-Stream, NTT Communications and PCCW amongst others, CDNetworks and ChinaCache are clearly the leaders in the APAC market when it comes to CDN related revenue and number of customers. In addition, the two are pureplay CDNs who's focus is primarily on delivering content, as opposed to some of the other companies who have many services outside of CDN. Although ChinaCahe is not listed on any exchange, I don't think that rules them out.

I expect we will start to see even more carriers start to make some moves before long to enter the CDN market, especially in Asia and India.

For Many Akamai and On2 Investors, Emotions Clouding Their Judgement

For shareholders in any company, these days are trying times. I don't have to tell you that all stocks are down and the market has taken a beating. That being said, even when the market was doing better, I still got more hate mail from Akamai and On2 shareholders than any others, most of which are for emotional reasons as opposed to rational arguments.

Most of the mail comes from individual investors and not large firms and the person typically wants to argue over a post I made on my blog, without either reading what I actually wrote, or not wanting to admit things that are simply facts. And while I am the first to admit that I don't own stock in any public company and have never bought or sold a single share ever, even I know that investing in any company means you have to keep your emotions out of the decision making process.

In my blog post last week about Sun launching the new JavaFX platform, I got tons of e-mails from readers who said I was crazy not to realize how big of a deal JavaFX is and how it would take over video playback on all devices. When asked, most of those who sent me the e-mails said they were investors in On2. While I can understand how an investor in On2 would be excited for the JavaFX announcement since Sun licensed the On2 codecs, you still have to keep the deal in perspective. Sun is not going to make any major traction in the market anytime in the next year. What they released last week was version 1.0 with very limited functionality for video and they don't even expect to have development software available for mobile until half way through 2009. Developers have to build apps first, get content owners to use them, get them deployed and get viewers to start to consume them. This does not happen overnight, or even in twelve months. Yet, many of those On2 investors who sent me e-mail wanted to argue with me that I don't know anything about investing and that I must be working for Adobe or have an interest in seeing H.264 succeed.

I don't need to know anything about investing to know how long it takes for something to be adopted in the market. How quickly do you really think it will take Sun to grab any large share of the market away from Adobe? That will not happen anytime soon and that's reality, like it or not. And while it is very easy to dismiss my post by saying, "Dan must work for Adobe", that's a lame argument. Whenever I write a post that is considered positive about Adobe, people say I must be working for them. If I write something positive about Microsoft, some are quick to say I must work for them. Rather than some investors wanting to actually admit and that they are allowing their emotions to cloud their judgment about how a company is really doing, it's easier for them to come up with a lame, and false, statement that the author must be getting paid by someone to write something that is positive one way or another.

If I were an On2 investor, I would look to the past. When Adobe licensed the On2 codec for Flash, many On2 investors wanted to make crazy statements about how big of a deal that would be for On2 and the revenue that would come from it. Considering how much Flash video is on the net and the rate at which Flash video was adopted, is any On2 investor happy with the deal Adobe got? I'd doubt it. On2 has made very little from the Adobe deal, but that is not stopping some from saying the Sun deal will be completely different. Can Sun get as much adoption as Flash has? No way.

I'm not knocking On2 as a company or their investors. Hell, I would not want to be an investor in any company with the way the market operates and the kind of headache it must cause for those who own shares. But at the same time, you have to remove your emotions out of the picture so you can make informed decision based on data, logic and what is really taking place in the market.

Aside from lots of e-mails from individual On2 shareholders, I also get a lot, if not more e-mails from Akamai shareholders. Many of them want to argue over points that make me wonder if they just want to argue for the sake of arguing? When I wrote the post last week on Akamai and how they were cutting pricing, I got lots of e-mails where people wanted to argue with me on lots of aspects of their business. That being said, not a single person was or could argue that Akamai is not growing revenue as fast as they use to, is seeing pricing pressure in the market, has seen a slowdown of traffic growth on their network and had to layoff 110 employees. Instead, folks wrote in with lots of angry e-mails about how Akamai is going to crush Limelight in the patent case and how Limelight is building a business on stolen technology.

For starters, the post didn't have anything to do with the patent case and I've never said that I think Limelight will win the patent case. In fact, I don't see why the judge would reverse the ruling and I think at some point, Limelight would have to pay some kind of damages, but it is really the rate that will be debated. But even if that happens, why would Akamai investors care so much about it? Lets say Limelight has to pay $50 million in damages and shows that they are no longer infringing on the patent. Now what happens? Nothing major. Akamai gets $50 million dollars, which does not put them in any kind of new revenue bracket and Limelight now only has $127 million in the bank instead of $177. It does not put Limelight out of business and if customers have not left Limelight over the past two years during the lawsuit, what makes you think they would leave down the road after a Limelight payment? It's an emotional win for Akamai shareholders, but it has no real impact on how Akamai is going to get back to growing their business.

But the best thing I always get from many individual Akamai shareholders is that I must be working for Limelight or trying to "pump" their stock. Again, what an easy argument for them to make, except for the fact it's not true. When I write something positive about Level 3, people write in and say I must be working for them. When I write something positive about Limelight, they must be paying me. And when I did two posts about Akamai's application delivery product, some said they probably paid me to write that. By all accounts, apparently I work for just about every CDN company in the market. Too bad they are all wrong and that I have never been paid by any CDN ever, except for Mirror Image which I stopped working for over a year ago and have never written about them on the blog.

If investors want to debate, great, lets have a discussion on how or why one company is going to grow over another. The comments section is always open on my posts. But bringing emotions into the picture and wanting one company to do well over another just because you have stock in them is not the reasoning behind why they must do well in the short or long term.

Online Video Companies Raise Over $75 Million In VC Money In The Past 60 Days

For all the talk of the poor economy and how tight VCs are being with their money, companies tied into the online video space still seem to be having no problems getting funding. A quick roundup of funding announcements over the past sixty days shows that more than $75 million has been raised and I'm sure there are a few I missed that would make the number even higher.

• ExtendMedia: $10 Million (news)
• Baofeng: $15 million (news)
• LiveRail: $500K (news)
• KickApps: $14 million (news)
• Magnify.net: "high six figures" (news)
• EyeView: $1 million (news)
• Boxee.tv: $4 million (news)
• Taboola: $4.5 million (news)
• blip.tv: $5.2 million (news)
• Transpera: $8.5 million (news)
• Digitalsmiths: $12 million (news)

There still seems to be quite a lot of interest by VCs in companies that are somehow tied into the online video market in some shape or form. And while the cost of entry is relatively low to get into the market, I have to wonder just how many VCs have a really good handle on the size of the market for the company they are investing in and how much market share that company can truly grab. Companies need to be able to show very quickly that they can stand on their own and deliver a very clear and compelling message to the market at a time when it is crowded with many similar companies.

While I do think money has dried up for those looking for some cash to simply experiment with an idea, for those who have something they can show as a real product, the money still seems to be easy to come by. Last month, NewTeeVee Live had a panel of VCs talking about this very idea and you can see the video archive here.

So what do you think? Will the money dry up soon or will VC money only continue to flow into the online video market?

FeedRoom Acquires ClearStory Systems: Content Management Still Evolving

The FeedRoom announced this week that it will acquire privately held ClearStory systems with the intent of integrating ClearStory's digital asset management (DAM) solution into The FeedRoom's enterprise video platform. This is the latest in a string of recent acquisitions in the industry (Entriq/Dayport, Accenture/Origin Digital) with the intent of giving content owners more control over managing multiple forms of rich media assets.

On paper, this seems like a natural fit for the two companies since The FeedRoom does a lot of work in the enterprise market and to date, their content management solutions were very customized and focused almost exclusively on video assets. Adding a true digital asset management platform to the fold should only help The FeedRoom's customers deliver a lot of the other pieces of content that go along with video.

That being said, it seems kind of scary that as far along as we are in the market, we are only now starting to see some acquisitions with the intent of solving the work-flow and management issues associated with rich media content. Customers content management demands are only going to increase as more content on placed online and gets consumed.

Hard Times Are Good For The Online Video Industry: Don't Give Into The Scare

No one will argue that just about every business vertical and our country are experiencing hard times. But for the online video industry, the challenging times are good for business and as a whole, good for the industry overall. To me, it looks as if too many folks are writing for headlines and want to predict doom and gloom just so they can play on emotions and do things like create lists of ways that companies in our space can "survive" the hard times. How many more posts do we have to read where someone gives advice saying things like "watch your expenses" or "renegotiate vendor contracts"? If any company in any industry does not already know to watch their expenses and isn't constantly working to renegotiate vendor contracts, in good or bad times, then they don't deserve to survive. Let them go under.

Part of the reason why we see so many of these is lists is that quite frankly, there are way too many companies that have to do with the Internet, being run by a bunch of young kids with no business experience at all. What other industries besides the Internet space do you see lists like this being made? The airline and automotive industries as a whole have been taking for years. We don't see the Airlines and those who cover the space talking about how airlines should "watch their fuel costs" or "make sure they don't have empty planes". A lot of what we are reading about in the online video space is due to the fact that many running these companies just don't have a lot of business experience. I don't fault them for that, you have to get your start somewhere, but those who have money in these companies should be overseeing them very closely all the time, not just when times are bad. And how many companies have a CEO or executive management team who might have very strategic visions or be very smart people, yet have no leadership skills or business experience. Many of the companies in the Internet space as a whole are founded by very smart technology people, not business people.

It seems that many writers want readers to give into the scare of these articles talking about how bad things are, and how much worse they are going to get, without looking at the real reason companies are having problems. Most of the companies I see laying off employees, don't have any business model to begin with. So at some point, in good economic times or bad, they are going to layoff employees anyway. That is not the case for all companies, but it is for many of them. And what about the positive impact this will have on the industry as a whole? Do we really need a hundred user generated video sites out there? Chopping many of them out of the market will help better define who the leaders are, what business models work and will assist those with real business models to grow faster and help them stand out from the sea of confusion. Many companies who have a legitimate shot at making it tell me their main marketing problem is how they make themselves stand out from all the noise that comes from having way too many companies, with no real business, in the market.

That being said, I'm not suggesting that anyone losing their job is a good thing or easy to deal with. And some cuts are coming to companies who I do think have a real business model in the future. But layoffs are a part of any business. The thing I don't like hearing is how so many executives of these companies are only just now talking about keeping an eye on costs because of the economy. Any real business person will tell you that you keep a closer eye on costs when things are good, when you tend to waste money, so that when things are bad, you are already prepared and don't have to take drastic actions. More money is wasted in good economic times with things like lavish dinners, expensive hotel rooms and company branded swag, than in times when the economy is bad.

I think it is also crucial for all facets of the online video industry to keep things in perspective and set expectations properly. For instance, at the beginning of this year it was all about how online video advertising was talking all this money from broadcast and print advertising. The death of every medium except the Internet was being predicted and as a result, people expected more than what was possible. The most aggressive prediction I saw was for online video advertising to be a billion and a half dollars in 2008. Now, at the end of this year, it looks like it will be more along the lines of $500 million. While there is nothing wrong with that number, even if it was a billion and a half dollars this year, that's less than 3% of the entire TV advertising market, that the industry is predicting such immediate death for. Lets be positive and excited about the growth we have coming, but also be realistic.

We have to keep in mind that even though this industry has been around for more than ten years now, every facet of the online video industry is still very small. The markets for online video advertising and content delivery for video are both under half a billion dollars this year. The market size for video transcoding, video publishing platforms and niche video networks are all under a few hundred million each. I think it is very easy for people in the industry to forget that while many have been working in this industry for years, our industry as a whole is still very small when compared to just about every other vertical market. We still have a lot of growth to do, a lot of innovation to bring to the market and many applications that need to be developed on top of the basic underlying technology that has been created.

Things will get worse for companies with no real business model, product offering or clear and defined message of who they are and what they offer. That's just business. But after the shakeout, our industry will still be here, business is still growing and the industry will be stronger as a result of it. We are only just getting started.

Roku To Stream Netflix HD Movies By End Of The Year

Before the end of this year, Roku will be releasing Netflix HD content to all Roku customers as a free, automatic upgrade. While exact details on the encoding bitrates are not known, Netflix HD content on the Roku should look better than Netflix HD on the XBOX since Roku will be using "advanced profiles" encoding.

Using advanced profiles encoding will allow Roku to deliver the same HD quality video, but at lower bitrates. This enables users who don't have high-end bandwidth to still be able to get HD quality video. While interlaced video content is typically de-interlaced before encoding with the Windows Media Video codec, advanced profiles supports compression of interlaced content without first converting it to progressive content. Microsoft says that maintaining interlacing in an encoded file is important if the content is ever rendered on an interlaced display, such as a television.

While I don't expect a lot of Netflix's inventory to be available in HD at the time of launch, giving all Roku users HD quality for free will definitely help Roku sell more boxes. In addition, last week, Roku announced that it had raised a third round of funding from Menlo Ventures. Even in today's poor economy, investors clearly still believe that Roku has a chance at making a dent in the market. With the list price of the Roku box being just $99 and Roku planning to open up their box soon to content other than Netflix, they have a good shot at getting some real market penetration.

Internap Closes The Door On VitalStream Acquisition: Takes $99 Million Writedown

It should come as no surprise to anyone that yesterday, in a 8-K filing with the SEC, Internap announced they would take a write down of "approximately $99.7 million" for the value of the CDN business Internap purchased from VitalStream for $217 million in 2007. While some have been speculating that the write off should have been closer to $200 million, Internap's CDN business does have some value and has to be assigned some sort of fair evaluation. With Internap reporting earnings next week, I expect we'll hear more on how they decided on the $99.7 million number and how they value their CDN business moving forward.

For Internap, it's been a really rough year for their content delivery business. With the write down now behind them and the uncertainty of what they may or may not do out of the way, hopefully this now closes the door on the VitalStream acquisition mess and allows Internap to move forward with their CDN offering. Next year is a clean slate for Internap's CDN business and if I were them, I would treat their CDN business as if it was a new startup in the market and completely re-align and re-brand their content delivery offerings.

Enterprise Video Market and Vendors Growing Nicely: VBrick Raises $11.9 Million

With all the talk of video in the broadcast and entertainment verticals, it seems that enterprise based video offerings are rarely written about anymore. I can't remember the last time I read a really in-depth article on video inside the enterprise. This is a shame as there are a lot of major video deployments and continued video adoption taking place within the enterprise market, inside the firewall.

As opposed to content delivery networks, who for the most part are focusing on just delivering bits, vendors offering products and services for enterprise video are tackling more complex issues like video content management, self-provisioned webcasting and other pieces of the entire video ecosystem.

One of these vendors, VBrick, announced this morning a new round of funding totaling $11.9M from existing investors, with room for a strategic investor in the future. VBrick has seen nice growth over the past few years and has shipped more than 40,000 products to more than 5,000 customers. While VentureBeat.com is reporting that VBrick "brought in $30 million in revenue last year", that number is a few years old and is low by more than 30%. While VentureBeat.com also says that Vbrick has "been helped along the way by a partnership with Akamai Technologies", Vbrick's "Broadcast" product uses multiple CDNs and they have had partnerships with Akamai, Limelight, PowerStream and others for many years now.

VBrick says the additional money raised will go towards continuing their growth and possible acquisitions as VBrick's target customer has quickly evolved from mid-sized companies and universities to major Fortune 500 corporations.

Some Venture Capitalists Need To Blame Themselves, Not The Economy

I keep seeing reports, like this one on the New York Times blog, entitled "Venture Capitalists' Confidence Plummets to an All-Time Low." Of course, many VCs want to simply blame the current economy and point their finger at the global financial troubles taking place for the reason their investments may not be looking so hot. And while some VCs are legit in saying that, to me, it seems a vast majority of them should be blaming themselves, and not the economy.

I speak to many VCs and while some of them are very knowledgeable of the market and product vertical they are investing in, many aren't. Some have no idea how big the market opportunity it, who the major competitors are and what their product offerings look like for the industry they are investing in. How many times have we seen VCs give a large chunk of money to someone who has no real business model, no business experience, yet says they have really great technology so that's why they invested. And I'm not talking about the content delivery business here. Think about what we saw two years ago in the UGC market, or what we've seen in regards to the number of "Internet TV Platforms" who have raise a lot of capital, but have almost no revenue.

Lately, companies have been coming out of the woodwork approaching me about new compression technology they have, new codecs etc... all of whom have already gotten lots of money, but literally have no idea how they are going to turn their technology into a business. All they keep wanting to talk about is their technology without the understanding that it is worth nothing if they don't have a way to monetize it. Or they say things like, "my technology is going to compete with Flash". Ok, good luck.

Of course, we have seen this before. Many VCs are making multiple bets and hoping some of their investments pay off to help cover the ones that don't. I understand that is how the game is played. But the idea that many VCs simply point to the economy as the sole reason why they have no confidence in any industry is wrong. VCs need to start doing a better job of truly understanding the market opportunity and competitive landscape they are investing in. The most common responses I get from VCs when I ask them why they invested into a particular company is usually, "the founders have great technical backgrounds", "many of the executives have PhD's", or "they have the best technology we have seen". What about the business experience of the executives, the market opportunity for the product/service and the business model for the company?

Backed By Sequoia Capital, New CDN Cotendo Launching Early 2009

Earlier this year, Sequoia Capital invested less than $5 million into a new CDN startup called Cotendo. After spending the past year on development, the company expects to launch their content delivery offering in "early 2009". While there are already too many CDNs in the market shipping bits, Cotendo assures me that they are not going to be focusing on simply pushing traffic and instead will focus on building applications and IP.

The U.S. based company, which currently has their R&D based out of Israel, continues to add new employees to the roster. Former Limelight Networks employees Gary Baldus is now running ops and Mike Sawyer is running marketing. While it is too early to talk in detail about Cotendo's offering, it's a hard time for any new company who plans to enter the content delivery market. One of the biggest things Cotendo has going for them is that they have to date, only raised a small round of funding. That being said, I would not be surprised to see Sequoia Capital doing a larger, second round, sometime next year once Cotendo gets up and running. Having only gotten a few million to start, it's simply not enough capital to bring a product offering to the market with any scale.

More details on Cotendo's offering will be released to the market later in the year, but in the mean time, the list of content delivery networks just keeps on growing.