CDN Strategy Blog

So there is no European market. So how do streaming providers make a living if the market is so scattered and diffuse? What are the opportunities and threats?

Long post warning! But it is worth it :)

The European streaming delivery industry can be divided into two layers:

Global CDNs

Global CDNs are big. Large networks, large organizations. From a European perspective, there are some serious issues:

• Support: The global CDNs have support issues in Europe. During EU business and prime time hours, senior US support staff is not available. You get a first line call center employee instead of a senior engineer.
• Flexibility: A commonly heard complaint is that global CDNs tend to treat their US based customers better. European customers have to wait for weeks to get an offer, or an answer to more complex technical questions.
• Performance: Global CDNs have great performance in the USA. But their EU infrastructure is actually limited. Akamai has relative deep penetration, but Limelight, Highwinds and CDNetworks have limited connectivity: most of their traffic is pushed out from the top 3 IX-es (with anywhere between 10Gbps up to 80Gbps at maximum and it isn’t guaranteed that all this capacity is actually available for true streaming: most is used for http caching). Surprisingly, true pan-European presence is limited.
• Reliability: Most global CDNs are loss leaders and only focus on competition instead of customers. Are you comfortable with doing business with companies that may be forced to merge or sell (or worse) soon? They may be cheap now, but what is the price if your streams go down, or when you need to migrate?
• Focus: Because their margins on delivery are below cost level, these CDNs have to offer a lot of new services just to make some money. Ad solutions, VMS, transcoding, CMS, DRM: they are not core CDN services. By losing focus, they may lose the edge.
• Content is local: Why use a global CDN for regional delivery? It just doesn’t make sense.

Regional streaming providers

Local streaming providers (or maybe a better term is ‘regional CDNs’) are cool. Most of them are run by pioneers just like me. Enthusiastic, passionate and innovative survivors. Some are privately owned, others are backed by investors. These companies are much more innovative than the global CDNs. Much more flexible. But these local providers have some issues as well, especially with scale, support, innovation and focus:

• Scale: most local streaming providers have a limited infrastructure. Their CDN is anywhere between 25 and 100 servers (I’m not counting the really small streaming hosters), in just one country. With this limited scale, these regional CDNs can’t really benefit from wholesale volume buying rates. This impacts their margins and makes them more expensive compared to global CDNs.
• Support: the organizational scale is limited as well. Some can’t offer true 24*7 senior support to their demanding customers. Because these companies tend to try to offer a full-service (from players, CMS, encoding to delivery) they have to offer a wide range of support to their customers.
• Focus: to make money, the smaller regional players try to offer a full-service package to their customers. Which is great: customers have a one-stop shop for their entire online video service. But this also means it is hard to focus: In the past 15 years I’ve seen many starting and promising companies go out of business because they try to do everything. You can’t be the best in everything, especially in this complex and ever-changing industry. You can’t innovate if you don’t focus. You have to give up, outsource, partner and focus, focus focus!

Ten years ago

Let’s draw a parallel: ten years ago, all web design companies (I owned one) offered copywriting, design, a custom Content Management System, custom development, hosting, communication consultancy. Whatever a client wanted: it could be done. Five years later, this industry professionalized: the companies that focussed survived. They outsourced hosting and standardized on one or two professional CMS systems. The companies that kept trying to do everything were marginalized: they just couldn’t keep up the race in terms of focus, professionalism and efficiency.

Europe for the Europeans!

I’m a European and therefore of course I hope that the smaller, regional companies stay in business. I don’t care that much about the global CDNs. The European companies should try to keep the US based CDNs out of Europe. But how?

1) Cooperate

Don’t compete with each other, cooperate! Team up to buy capacity together in volumes, to lower the costs. Tie the networks together to be able to offer more capacity than any global CDN can ever build.

2) Focus

It is time to take the next step in becoming a future proof, reliable company. What is your true added value? Is it your streaming platform? Your Video Management System? Your encoding skills? Your organizational skills as a one-stop-shop? Specialize in what you do best, and outsource the rest.

3) Partner

Yes it is scary to stop and outsource a service that makes you some money. But if this helps you focus: you should! That’s where partners come in. Let’s have an open discussion in how we can help each other. Look at each others’ technologies and discuss your focus mutually. You can still be a one-stop-shop for your customer even if you outsource over half of the services. We all are in a value chain eco-system.

4) Innovate

Why reinvent the wheel? There are so many innovative European companies out there. European companies have kick-ass technologies for encoding, CDN, ad management, DRM, VMS, CMS, players. Why build the same stuff? From a macro perspective, it doesn’t make sense that my and your engineers do exactly the same. It would be better to team up and use open API’s so anyone can integrate and partner to offer great innovative services.

5) Market and sell

Partnering and focussing goes beyond infrastructure and technology. If you want to address the European market, you need local staff and resellers, for marketing, sales and support. To scale, we should team up.

Partner or merge?

To be able to block foreign companies out of the EU market, we need to team up. I prefer partnering. But consolidation is another option. I have been contacted many times to sell or merge StreamZilla. So far I rejected all offers. Sometimes, the offer was just crap, you know: 51% for a small sum. Yeah right, as if I would ever do that with a company that I 100% control and that makes a lot of profit, with extreme growth. Sometimes I rejected an offer because I didn’t believe that the other party was able to maximize the potential.  Most offers were rejected because in my opinion the other party didn’t have a clear focus and a clear strategy. But I’m open to discuss all options, as long as there is a mutual serious approach and a mutual, serious opportunity.

Partnering ideas

As I wrote before, focussing and partnering can be scary. It is also all about fear and ego (scroll down in that post). But I have some ideas. Here are two pitches:

StreamZilla: Best of both worlds
StreamZilla offers the best of both worlds of global CDNs and regional service providers:

• True Pan-European infrastructure: we happen to sit on a 2Tbps network with over 750Gbps connectivity to 17 European Internet Exchanges. Most regional providers are connected to just one IX. Most global CDNs are connected to just 3 IX-es on average. In terms of deep penetration, performance and connectivity, we run circles around other CDNs.
• All-format service: stream and deliver in all popular formats: Flash, Silverlight, 3GPP, H.264, AAC, etc: with 100% compliancy (true streaming instead of semi-streaming, and of course http delivery as well).
• Innovative! Just look at our CDN management dashboard and you will immediately see that this 12-years experience CDN technology kicks global CDN ass :)
• API’s: Open standard based API’s allow you to integrate all your cool technologies and services: transcoding, encoding, DRM, Ad management, CMS, VMS, players. Integrate the entire ecosystem workflow.
• Support: 24*7 exclusive support option with direct access to senior engineers. Who are really bright, enthusiastic people, cool to work with, down to earth.
• Proven EU player: less than 30% of our revenue comes from our core region (BeNeLux), we have customers throughout Europe, in all countries.
• Co-marketing and sales: we are open to discuss any reasonable reselling, white label, referral deals we can mutually think of.
• Here to stay: privately owned, no loans, debts or investors. Growing fast. Profitable since the start.
• Benefit of scale: low resources buy-in! Low costs for traffic, housing, hardware and licenses.
• And most important: we have focussed and partnered.

You know, it was a bit scary, five years ago to boldly choose to stop a lot of services and products and focus entirely on CDN. We made good money from setting up encoders, offering transcoding, building websites and producing webcasts for customers. By stopping all that, we risked to lose a lot of money. It could kill the company. But it was the best decision I ever made. The CDN service immediately improved. Customers were happy. We grew 100% in one year. Year after year. And we managed to get great partners for all the things we outsourced: we were no threat!

Example 1: StreamZilla partnering example

StreamZilla was entering a European country. Two regional streaming providers were active there. Both offered streaming hosting, encoding and video management services. Their streaming platform was no good. High costs, limited features, low performance, no scale. But their encoding and video management services were very good. And both companies had a great network. We contacted both.

And I said: sorry to be so bold, but why not outsource the streaming hosting to StreamZilla? Your customers will get better performance, more features. You can get a nice margin on the service. You don’t have to worry about 24*7 monitoring and CDN development. Let us take that part of the value chain. You can focus on you core activity: building the best video management platform in your market. We will NEVER offer anything that comes close to what you do because we focus.

The CEO of the first company saw us as a threat. Fear. He convinced himself that they could do better. Ego. The CEO of the other company saw this as an opportunity. Trust. He was convinced that he could beat competition. Realism. They now dominate their market.

Let’s discuss if we can do the same: I’m not trying to sell you StreamZilla. I’m trying to cooperate so we can join forces. Consider if outsourcing your delivery infrastructure is an option:

lower your costs, gain on performance, gain on features, gain on co-marketing and sales, and focus to innovate!!!

Example 2: VDO-X

VideoExchange is our CDN technology. It is the stuff that powers the StreamZilla CDN. We have licensed and deployed ±25 CDNs for telcos, hosting providers and broadcasters. Almost half of that was realized in 2009. We are contacted by MANY companies from all over the world for licensing deals. Especially streaming providers, hosting providers and telcos. They want to enter the CDN market (for many reasons), or they want to improve their current offerings.

VDO-X is industry disruptive. We have built more CDNs than anyone else, and the current demand is overwhelming. We are actively moving into markets. Perhaps even your market. Will you allow a competitor to beat you on your turf with our technology? ;-) Anyway, VDO-X is a full-featured CDN solution that will much improve your current streaming  / CDN service, at much lower costs for software, infrastructure, traffic, operations and support.

A very cool feature we are testing is CDN overflow / overlay. It means that any VDO-X licensee can push traffic to another VDO-X CDN. If we can achieve a critical mass with this, it means that you and we can offer global delivery with much deeper penetration than any CDN can. There are very interesting business models here!

Let’s discuss if we can do the same: I’m not trying to sell you VDO-X. I’m trying to cooperate so we can join forces. Consider if owning your delivery infrastructure based on VDO-X is an option:

lower your costs, gain on performance, gain on features, gain on co-marketing and sales, and focus to innovate!!! I’m open to discuss any reasonable cooperational, partnership or business model to build a European block.

Your ideas

I’m sure you have ideas too. Maybe they are completely different? Share.