Update: Netflix and Akamai both say that their relationship status has nothing to do with Akamai’s network performance. More here. — Dan Frommer, Business Insider editor
Earlier, by Dan Rayburn: At the beginning of this year, Akamai took the Netflix business away from Level 3 and become the primary CDN for Netflix with at least 51% of their traffic. While it was a big win for Akamai at the time, it appears that it was short lived. Due to poor performance issues that Netflix has experienced with the Akamai network, Netflix now plans to move all of their traffic off Akamai in the coming months and will go back to only using Level 3 and Limelight.
Last week, on Limelight’s Q3 earnings call, the company announced that Netflix had extended their contract with Limelight for another three years until the end of 2013. And while Level 3 did not mention any customer by name, they also said on their earnings call last week that part of their recent CAPEX spend was, “in support of a large content customer CDN contract we just won in October,” with Level 3 expecting to see revenue from that contract beginning to ramp in 2011. In addition, Level 3 also put out a release saying that they added 1.65Tbps of capacity to their CDN network in Q3 and added five new network locations, not surprisingly, two of which were in Canada. Clearly a move by Level 3 to offer more support for Netflix’s new streaming service in that region.
I sent Akamai an email to see if they wanted to comment on my post and they said, “It’s no secret that Netflix has a multiple vendor strategy. We continue to have an ongoing relationship with Netflix but we don’t comment on the specifics of customers, contracts or other providers.” So while Akamai is accurate and Netflix is still a customer of Akamai today, it won’t be for much longer.
While I am not going to go into Netflix’s pricing at this time, it is interesting to note that Netflix moved to Akamai for lower pricing, yet then didn’t get the performance they wanted. It’s another great example in the market that the CDN business is not just about the low cost leader, but rather good performance with reasonable pricing. Naturally, one of the things you have to wonder is why Netflix would have performance issues with Akamai, yet other video customers I speak to say they don’t have any. It’s hard to know exactly why that is, but part of it could simply be that Netflix has more video traffic going over CDNs than anyone else on the web, by far.
If there is one thing Netflix is good at, probably the best in the industry, it’s measuring the quality of their streaming. They constantly send out emails asking customers to rank the quality of the video they just watched and they have so much data on what works and what doesn’t. So when they choose one provider over another, they really have the data to back it up.
I know some are going to ask me what the value of Netflix’s business is to Akamai and while I don’t have exact numbers, it’s in the $10M-$15M range. In addition to Level 3 picking up the Netflix business, Limelight also stands to get more of Netflix business in the New Year, as Limelight indicated on their earnings call, especially when it comes to Netflix expanding further out into the mobile space. And I heard at the Streaming Media West show last week that Netflix plans to release an Android app in the New Year, which would generate even more ridiculous growth for Netflix.
Another interesting point to note is that Limelight isn’t spending any additional CAPEX to support the increase in Netflix traffic, but Level 3 said that they estimate they will spend $14M in CAPEX in Q4 just to support “a large content customer” and already spent $10M in Q3 for additional CDN capacity. That’s $24M of CAPEX in two quarters for Level 3, just for their CDN business. That shows some of the differences in network capacity between Limelight and Level 3 and also gives you an idea at just how big of a customer Netflix really is.
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