Akamai drops on Netflix plan
Netflix said on its official blog Monday that it plans to expand Open Connect. As a practical matter, the company will be building its own content delivery network (CDN), eventually replacing outside providers such as Akamai.
"The world's other major Internet video provider, YouTube, has long had its own content delivery network," Ken Florance, the company's vice president of content delivery, said on the blog. "Given our size and growth, it now makes economic sense for Netflix to have one, as well."
Florance added that Netflix will continue to work with its commercial content delivery partners for the next few years, but he said that Open Connect will eventually be used for most of the company's data.
The news weighed on shares of Akamai Technologies and other companies that help deliver online content.
Jefferies analyst Aaron Schwartz noted that this isn't Netflix's first attempt at a content delivery network, so there will be questions about its credibility. But the news will hurt commercial content delivery providers such as Akamai, Limelight Networks and Level 3 Communications.
Akamai shares fell $1.51, or 5.3 percent, to $26.85 in pre-market trading, while Limelight shares dropped 25 cents, or 9.3 percent, to $2.45, and Level 3 shares fell $1.41, or 7.2 percent, to $18.31. Netflix shares rose 28 cents to $65.28.
Netflix has chosen Intequus to lead the development of its CDN. Intequus specializes in providing data center infrastructure for the cloud and hosting market and hardware appliances for independent software vendors (ISVs).
Intequus steers clients away from proprietary hardware solutions from traditional Tier 1 original equipment manufacturers (OEMs), recommending the use instead of Intel-based servers, storage and network appliances.
The approach is similar to the Open Compute Project that Facebook is using in its data centers.
Intequus said it plans to build the Netflix CDN with Intel systems that each feature more than 100 terabytes of storage, 10 gigabytes of network throughput and a Quad Core Intel Sandy Bridge CPU with low cooling requirements.