How Hyperscale Companies and Telecom Carriers Impact CDN Competitiveness

Oct 18 2018

NGD Systems

An image of five ascending blocks with two cartoon men standing opposite each other representing hyperscale companies and telecom.

As we discussed in our first blog in this series, the Content Delivery Network (CDN) business is an evolving one. The greatest changes in the CDN business is the entrance of telecom service providers (Orange, Verizon, ATT, Ericsson and others also known as “telcos”) and hyperscale companies we know as GAMFA (Google, AWS, MSFT, FB and Apple) and BAT (Baidu, Alibaba, and Tencent) into this market. The reason these groups entered the market are different: telcos entered so that they could deliver multimedia content (mostly video and audio, but increasingly also games) to mobile devices. Hyperscale companies entered largely as a way to increase the services that they provide to their customers. In some cases, even the telcos use hyperscale infrastructures. And let’s not forget Over The Top (OTT) consumer content providers such as Netflix , HULU, etc.…

While these groups entered the CDN market for different reasons, they both bring the same competitive factor to the market: an existing large-scale infrastructure with extremely high capacity. For the telecoms, this is both their wired/wireless networks (especially since many are now partnered or merged with cable MSOs), their backhaul networks, and thousands of self-owned points of presence. For the hyperscale companies, it is their network of extremely large data centers and (largely) custom infrastructure which has a lower cost per server than any other enterprise market segment.

In both cases, these companies enjoy a lower average cost per transaction than traditional CDNs. This is balanced by the fact that the traditional CDNs have a greater institutional understanding of how to deliver digital content than the new entrants, with this understanding being embedded in their proprietary software and processes. The question is how long this experience will be a competitive advantage for traditional CDNs. More importantly, what new technologies that the CDNs might be able to leverage to extend their advantage against telcos and hyperscale companies. We will investigate these options in our next blog.

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