The acquisition only impacts the website delivery/acceleration portion of the CDN market — it has no impact on the software delivery and media delivery segments. The acquisition will leave CDNetworks as the only real alternative for dynamic site acceleration that is based on network optimization techniques (EdgeCast does not seem to have made the technological cut thus far). Level 3 (via its Strangeloop Networks partnership) and Limelight (via its Acceloweb acquisition) have chosen to go with front-end optimization techniques instead for their dynamic acceleration. Obviously, AT&T is going to have some thinking to do, especially since application-fluent networking is a core part of its strategy for cloud computing going forward.

I am not going to publicly blog a detailed analysis of this acquisition, although Gartner clients are welcome to schedule an inquiry to discuss it (thus far the questions are coming from investors and primarily have to do with the rationale for the purchase price, technology capabilities, pricing impact, and competitive impact). I do feel compelled to correct two major misperceptions, though, which I keep seeing all over the place in press quotes from Wall Street analysts.

First, I’ve heard it claimed repeatedly that Cotendo’s technology is better than Akamai’s. It’s not, although Cotendo has done some important incremental engineering innovation, as well as some better marketing of specific aspects (for instance, their solution around mobility). I expect that there will be things that Akamai will want to incorporate into their own codebase, naturally, but this is not really an acquisition that is primarily being driven by the desire for the technology capabilities.

Second, I’ve also heard it claimed repeatedly that Cotendo delivers better performance than Akamai. This is nonsense. There is a specific use case in which Cotendo may deliver better performance — low-volume customers with low cache hit ratios due to infrequently-accessed content, as can occur with SaaS apps, corporate websites, and so on. Cotendo pre-fetches content into all of its POPs and keeps it there regardless of whether or not it’s been accessed recently. Akamai flushes objects out of cache if they haven’t been accessed recently. This means that you may see Akamai cache hit ratios that are only in the 70%-80% range, especially in trial evaluations, which is obviously going to have a big impact on performance. Akamai cache tuning can help some of those customers substantially drive up cache hits (for better performance, lower origin costs, etc.), although not necessarily enough; cache hit ratios have always been a competitive point that other rivals, like Mirror Image, have hammered on. It has always been a trade-off in CDN design — if you have a lot more POPs you get better edge performance, but now you also have a much more distributed cache and therefore lower likelihood of content being fresh in a particular POP.

(Those are the two big errors that keep bothering me. There are plenty of other minor factual and analysis errors that I keep seeing in the articles that I’ve been reading about the acquisition. Investors, especially, seem to frequently misunderstand the CDN market.)

I frequently talk to customers about acceleration solutions, and discuss the business value of performance. Specifically, this is a look at business metrics that measure the success of a website or application — time spent on your site, conversion rate, shopping basket value, page views, ad views, transactions processed, employee productivity, decline in call center volume, and so forth. You compare the money associated with these metrics, against the cost of the solutions, to look at comparative ROI.

The business value of performance is usually tied to industry in a narrow and specific way, because users have a particular set of expectations and needs. For instance, for travel sites, a certain amount of performance is necessary in order to make the site usable, but the long waits for searches are things that users are conditioned to, making their overall performance expectations relatively low. Travel sites usually discover that generalized site responsiveness improve the user experience and cause revenue per site visit to increase — but only up to a certain point, at which point in time it plateaus, as the site has enough responsiveness that users aren’t discouraged from using it, and they’re going to buy what they came to buy.

Google Flight Search proves that you can “break through” the performance ceiling to actually entirely change the user experience, though. This is not the kind of incremental improvement you can achieve through acceleration techniques, though; instead, it’s a core change that affects the thing that is slowest, which is generally the back-end database and business logic, not the network. This can actually be a disruptive competitive advantage.

I typically ask my CDN clients, “What are the factors that make your site slow?” In many cases, they need to do something that goes beyond what edge caching or even network optimization (dynamic acceleration) can achieve. They need to reduce their page weight, or write better pages (and may benefit from front-end optimization techniques), or to improve the back-end responsiveness. Acceleration techniques are often used to band-aid a core problem with performance, just like CDN professional services to make a site cacheable are often used to band-aid a core problem with site structure. At some point in time it becomes more cost-effective to fix the core problem.

Too few businesses design their websites and applications with speed in mind.

However, for various reasons, I am not currently publicly commenting further on Twitter or my blog, or really in general with non-Gartner-clients, regarding the potential acquisition of Cotendo by Akamai (or AT&T, or Juniper, or anyone else who might be interested in buying them).

If you are a Gartner client, and you want to discuss the topic, you may request a written response or a phone call through the usual mechanisms for inquiry.

Yottaa is a fourth-generation CDN that offers site analytics, edge caching, a little bit of network optimization, and front-end optimization.

While CDNs of earlier generations have heavily capital-intensive models that require owning substantial server assets, fourth-generation CDNs have a software-oriented model and own limited if any delivery assets themselves. (See a previous post for more on 4th-gen CDNs.)

In Yottaa’s case, it uses a large number of cloud IaaS providers around the world in order to get a global server footprint. Since these resources can be obtained on-demand, Yottaa can dynamically match its capacity to customer demand, rather than pouring capital into building out a server network. (This is a critical new market capability in general, because it means that as the global footprint of cloud IaaS grows, there can be far more competition in the innovative portion of the CDN market — it’s far less expensive to start a software company than a company trying to build out a competitive CDN footprint.)

There are three main things that you can do to speed up the delivery of a website (or Web-based app): you can do edge caching (classic static content CDN delivery), you can do network optimization (the kind of thing that F5 has in its Web App Accelerator add-on to its ADC, or, as a service, something like Akamai DSA), or you can do front-end optimization, sometimes known as Web content optimization or Web performance optimization (the kind of thing that Riverbed’s Aptimize does). Gartner clients only: See my research note “How to Accelerate Internet Websites and Applications” for more on acceleration techniques.

Yottaa does all three of these things, although its network optimizations are much more minimal than a typical DSA service. It does it in an easy-to-configure way that’s readily consumable by your average webmaster. And the entry price-point is $20/month. Sign up for an instant free trial, online — here’s the consumerization of CDN services for you.

When I took a look at calculating the prices at volume using the estimates that Yottaa gave me, I realized that it’s nowhere near as cheap as it might first look — it’s comparable to Akamai DSA pricing. But it’s the kind of thing that pretty much anyone could add to their site if they cared about performance. It brings acceleration to the mass market.

Sure, your typical Akamai customer is probably not going to be consuming this service just yet. But give it some time. This is the new face of competition in the CDN market — companies that are focused entirely on software development (possibly using low-cost labor: Yottaa’s engineering is in Beijing), relying on somebody else’s cloud infrastructure rather than burning capital building a network.

Three years ago, I asked in my blog: Are CDNs software or infrastructure companies? The new entrants, which also include folks like CloudFlare, come down firmly on the software side.

Recently, one of my Gartner Invest clients — a buy-side analyst who specializes in infrastructure software companies — pointed out to me that Akamai’s R&D spending is proportionately small compared to the other companies in that sector, while it is spending huge amounts of capex in building out more network capacity. I would previously have put Akamai firmly on the software side of the CDN as software or infrastructure question. It’s interesting to think about the extent to which this might or might not be the case going forward.

I blogged about this about a year and a half ago: “Google’s DNS protocol extension and CDNs“. See that post for a deeper analysis. (I also previously blogged about the problem with using DNS as the CDN vantage point.)

My opinion on this hasn’t changed. In the intervening time, various DNS service providers and CDN providers have contributed to the draft, and the end result seems to be pretty reasonable. The extension solves a common problem for the CDNs — returning appropriately close CDN servers to an end-user who is using a DNS resolver that’s not close to his own location (common for users on some ISP networks, along with those who use resolvers from OpenDNS, Neustar, etc., and potentially for some users in enterprise networks).

But I am impressed with the amount of hype that the vendors involved have managed to generate about a fiddly little technical detail that ordinary users have probably never thought about and shouldn’t ever really need to think about.

But there’s one Akamai product (delivered as a value-added additional service) that’s currently sufficiently compelling that customers and prospects who want it, won’t consider any other CDN that can’t offer the same. (And since it’s currently unique to Akamai, that means no competition, always a boon in a market where pricing is daily warfare.) I’m suddenly seeing it frequently quoted, which makes it likely that it’s a significant sales push, though it’s not a brand-new product. It’s a very effective attach.

Can you guess what it is?

(You may feel free to speculate on my blog, but if you want the answer, and you’re a Gartner client, make an inquiry request through the usual means.)

This is a different sort of deal than Akamai/Riverbed. Whereas that deal addresses a particular use case — enterprises who want to accelerate a SaaS solution but the SaaS provider isn’t cooperating — the Citrix/Cotendo deal is intended to enhance dynamic acceleration by integrating with an on-premise ADC (in this case, a Citrix NetScaler, of course).

Back during the Netli days, Netli actually coupled their service, in most cases, with a lightweight on-premises ADC to ensure first-mile acceleration as well. This was phased out when Netli was acquired by Akamai, which did not want to have to deal with CPE (customer premises equipment). While there had been talks of partnerships with ADC vendors, the Akamai acquisition essentially killed them, and in the four years that have passed, this excellent, even vital, idea has essentially lain fallow.

Optimal acceleration of content requires end-to-end solutions — optimizing of the content itself, optimization of the network from the first mile all the way to the last mile, and optimization on the device. To make this happen, CDN providers need to have tight integration with ADC vendors.

I like the partnership and the investment, and I hope that it paves the way for an ecosystem in which many CDNs offer tighter integration with a variety of ADC devices from a range of popular vendors.

AcceloWeb is a front-end optimization software company (sometimes called Web content optimization). FEO technologies improve website / Web application performance, through optimizing the HTML/CSS/JavaScript/images on the page. I’ve blogged about this in the past, regarding Cotendo’s integration of Google’s mod_pagespeed technology; if you’re interested in understanding more about FEO, see that post.

Like their competitors Aptimize and Strangeloop Networks, AcceloWeb is a software-based solution. FEO is an emerging technology, and it is computationally expensive — far more so than the kind of network-based optimizations that you get in ADCs like F5′s, or WOCs like Riverbed’s. It is also complex, since FEO tries to rewrite the page without breaking any of its elements — especially hard to do with complex e-commerce sites, for instance, especially those that aren’t following architectural best practices (or even good practices).

CDN and FEO services are highly complementary, since caching the optimized page elements obviously makes sense. Level 3 and Strangeloop recently partnered, with Level 3 offering Strangeloop’s technology as a service called CDN Site Optimizer, although it’s a “side by side” implementation in Level 3′s CDN POPs, not yet integrated with the Level 3 CDN. (Obviously, the next step in that partnership would be integration.)

The integration of network optimization and FEO is the most significant innovation in the optimization market in recent years. For Limelight, this is an important purchase, since it gets them into the acceleration game with a product that Akamai doesn’t offer. (Akamai only has a referral deal with Strangeloop.)

Gartner clients: My research note on improving Web performance (combining on-premise acceleration, CDN / ADN, and FEO for complete solutions) will be out soon!

Akamai has been facing increasing challenges to its leadership in the application acceleration market — what Akamai’s financial statements term “value added services”, including their Dynamic Site Accelerator (DSA) and Web Application Accelerator (WAA) services, which are B2C and B2B bundles, respectively, built on top of the same acceleration delivery network (ADN) technology. Vendors such as Cotendo (especially via its AT&T partnership), CDNetworks, and EdgeCast now have services that compete directly with what has been, for Akamai, a very high-margin, very sticky service. This market is facing severe pricing pressure, due not just to competition, but due to the delta between the cost of these services and standard CDN caching. (In other words, as basic CDN services get cheaper, application acceleration also needs to get cheaper, in order to demonstrate sufficient ROI, i.e., business value of performance, above just buying the less expensive solution.)

While Akamai has had interesting incremental innovations and value-adds since it obtained this technology via the 2007 acquisition of Netli, it has, until recently, enjoyed a monopoly on these services, and therefore hasn’t needed to do any groundbreaking innovation. While the internal enterprise WAN optimization market has been heavily competitive (between Riverbed, Cisco, and many others), other CDNs largely only began offering competitive ADN solutions in the last year. Now, while Akamai still leads in performance, it badly needs to open up some differentiation and new potential target customers, or it risks watching ADN solutions commoditize just the way basic CDN services have.

The most significant value proposition of the joint Akamai/Riverbed solution is this:

Despite the fundamental soundness of the value proposition of ADN services, most SaaS providers use only a basic CDN service, or no CDN at all. The same is true of other providers of cloud-based services. Customers, however, frequently want accelerated services, especially if they have end-users in far-flung corners of the globe; the most common problem is poor performance for end-users in Asia-Pacific when the service is based in the United States. Yet, today, doing so either requires that the SaaS provider buy an ADN service themselves (which it’s hard to do for only one customer, especially for multi-tenant SaaS), or requires the SaaS provider to allow the customer to deploy hardware in their data center (for instance, a Riverbed Steelhead WOC).

With the solution that this partnership is intended to produce, customers won’t need a SaaS provider’s cooperation to deploy an acceleration solution — they can buy it as a service and have the acceleration integrated with their existing Riverbed solution. It adds significant value to Riverbed’s customers, and it expands Akamai’s market opportunity. It’s a great idea, and in fact, this is a partnership that probably should have happened years ago. Better late than never, though.

I consider 3Crowd to be a fourth-generation CDN. (I started writing about 4th-gen CDNs back in 2008; see my blog posts on CDN overlays and MediaMelon, on the launch of CDN aggregator Aflexi, and 4th-gen CDNs and the launch of Conviva).

To recap, first-generation CDNs use a highly distributed edge model (think: Akamai), second-generation CDNs use a somewhat more concentrated but still highly distributed model (think: Speedera), and third-generation CDNs use a megaPOP model of many fewer locations (think: Limelight and most other CDNs founded in the 2005-2008 timeframe). These are heavily capital-intensive models that require owning substantial server assets.

Fourth-generation CDNs, by contrast, represent a shift towards a more software-oriented model. These companies own limited (or even no) delivery assets themselves. Some of these are not (and will not be) so much CDNs themselves, as platforms that reside in the CDN ecosystem, or CDN enablers. Fourth-generation CDNs provide software capabilities that allow their customers to turn existing delivery assets (whether in their own data centers, in the cloud, or sometimes even on clients using peer-to-peer) into CDN infrastructure. 3Crowd fits squarely into this fourth-generation model.

3Crowd is targeting three key markets: content providers who have spare capacity in their own data centers and would like to deliver content using that capacity before they resort to their CDN; Web hosters who want to add a CDN to their service offerings; and carriers who want to build CDNs of their own.

In this last market segment, especially, 3Crowd will compete against Cisco, Juniper (via the Ankeena acquisition), Alcatel-Lucent (via the Velocix acquisition), EdgeCast, Jet-Stream, and other companies that offer CDN-building solutions.

No doubt 3Crowd will also get some do-it-yourselfers who will decide to use 3Crowd to build their own CDN using cloud IaaS from Amazon or the like. This is part of what’s generating buzz for the company now, since their “Garage Startup” package is totally free.

I also think there’s potentially an enterprise play here, for those organizations who need to deliver content both internally and externally, who could potentially use 3Crowd to deploy an eCDN internally along with an Internet CDN hosted on a cloud provider, substituting for caches from BlueCoat or the like. There are lots of additional things that 3Crowd needs to be viable in that space, but it’s an interesting thing to think about.

3Crowd has federation ambitions, which is to say: Once they have a bunch of customers using their platform, they’d like to have a marketplace in which capacity-trading can be done, and, of course, also enable more private deals for federation, something which tends to be of interest to regional carriers with local CDN ambitions, who look to federation as a way of competing with the global CDNs.

Conceptually, what 3Crowd has done is not unique. Velocix, for instance, has similar hopes with its Metro product. There is certainly plenty of competition for infrastructure for the carrier CDN market (most of the world’s carriers have woken up over the last year and realize that they need a CDN strategy of some sort, even if their ambitions do not go farther than preventing their broadband networks from being swamped by video). What 3Crowd has done that’s notable is an emphasis on having an easy-to-deploy complete integrated solution that runs on commodity infrastructure resources, and the relative sophistication of the product’s feature set.

The baseline price seemed pretty cheap to me at first, and then I did some math. At the baseline pricing for a start-up, it’s about 2 cents per 10,000 requests. If you’re doing small object delivery at 10K per file, ten thousand requests is about 100 MB of content. So 1 GB of content of 10k-file requests would cost you 20 cents. That’s not cheap, since that’s just the 3Crowd cost — you still have to supply the servers and the network bandwidth. By comparison, Rackspace Cloud Files CDN-enabled delivery via Akamai, is 18 cents per GB for the actual content delivery. Anyone doing enough volume to actually have a full CDN contract and not pushing their bits through a cloud CDN is going to see pricing a lot lower than 18 cents, too.

However, the pricing dynamics are quite different for video. if you’re doing delivery of relatively low-quality, YouTube-like social video, for instance, your average file size is probably more like 10 MB. So 10,000 requests is 100 GB of content, making the per-GB surcharge a mere $0.02 cents. This is an essentially negligible amount. Consequently, the request-based pricing model makes 3Crowd far more cost-effective as a solution for video and other large-file-centric CDNs, than it does for small object delivery.

I certainly have plenty more thoughts on this, both specific to 3Crowd, and to the 4th-gen CDN and carrier CDN evolutionary path. I’m currently working on a research note on carrier CDN strategy and implementation, so keep an eye out for it. Also, I know many of the CDN watchers who read my blog are probably now asking themselves, “What are the implications for Akamai, Limelight, and Level 3?” If you’re a Gartner client, please feel free to call and make an inquiry.