Brighter Days Ahead for Internap’s CDN Service?

Internap’s had quite a year; after completing the acquisition of VitalStream begun in 2006, the integration of the content delivery network (CDN) into Internap’s backbone began in earnest this year. VitalStream had made a key purchase when it acquired EonStreams for its ad-insertion technology shortly before Internap swooped in and picked up the CDN.

To fill in the additional holes around the CDN, Internap has been busy cutting deals for digital rights management (DRM) and peer-to-peer (P2P) networking.

The company recently signed a DRM deal with BuyDRM to integrate the DRM solution for its Windows Media content customers. Integration into Internap’s MediaConsole, a management component of the CDN, will allow better web content marketing and monetization tools, including support for pay-per-view, ad-supported, and subscription-based business models, among others. Designed to be agnostic to most payment gateways, BuyDRM’s solution also provides compatibility with Silverlight’s PlayReady DRM.

On the P2P front, Internap signed a deal with Pando Networks, which uses P2P to accelerate delivery of media files, with a focus on high definition video files, to be integrated by the end of 2007. The Pando Video Booster—a thin client that users load on to their machine for streaming Adobe Flash video and Windows Media files—is geared toward long-form content delivery and its reporting is being integrated into Internap’s digital dashboard.

With these pieces in place, the marketing is beginning in earnest.

"Until now, P2P networking was an interesting technology that could not meet the requirements of enterprise applications and digital media owners," said Phil Kaplan, chief strategy officer at Internap and co-founder of VitalStream, at the time of the Pando co-development announcement. "Internap's proven CDN platform, streaming services, and content monetization tools are complemented by Pando's innovative P2P client to deliver an integrated, secure, and reliable solution for distributing and consuming media assets."

On top of all this, Internap, which now feels the VitalStream CDN is sufficiently integrated into its redundant backbone, has announced that it is extending its service level agreement (SLA) to its CDN. The company guarantees a 100% uptime, which in effect means it issues proactive credits to customers who have the SLA agreement, instead of requiring customers to request their own credits. The determination of an outage is based on monitoring by Keynote Systems, who many Streaming Media readers will recognize as a company that’s been involved in video delivery metrics for some years.

In assessing the state of CDN reliability, I followed up with several customers who had contacted me in the past about VitalStream issues. These current customers—who chose not to be identified—said they have had sporadic reliability issues with the VitalStream CDN before and after Internap’s announcement that it had completed integration of VitalStream into the Internap backbone.

Some of the issues occurred as recently as last month, and the general feeling of the customers that I spoke to was that they would take a "wait and see" approach to the SLA and give Internap a hard look early in 2008, noting that the SLA doesn’t guarantee uptime but rather a way to be reimbursed for outages.

When asked about SLAs a few years ago, Internap described the process as one that covers the 90 percent of customers who don’t get around to asking for credits.

"It should be our responsibility to catch our outages, not the customer's responsibility," said Kelly Flynn, who managed SLA monitoring for Internap at the time. "We will diagnose and fix problems proactively and also offer proactive crediting. Only 10% of the customers that qualify for a credit ever get around to requesting it, but 100% of our customers that are owed credits get credits in the next billing cycle."

Finally, on a slightly tangential note, the year closes out with a final bit of good news for the investors in EonStreams, a company that formed the core of VitalStream’s ad-insertion approach and continues to do the same for Internap.

A judgment against Clear Channel for breach of contract was awarded to Eonstreams in the amount of $40 million. The breach, which I’d heard rumbling about as far back as early 2006, occurred after Clear Channel signed a letter of agreement in late 2004, which stated that "in exchange for EonStreams developing ad-insertion software, Clear Channel would sign a three-year service agreement with the company, pay a 15 percent commission for ad sales and make Eonstreams the ‘preferred streaming service partner’ for Clear Channel stations."

Clear Channel, which then had a representative on EonStream’s board, chose to name another company as its preferred streaming service partner and began to develop a competing ad-insertion technology in late 2005.

Grady Vanderhoofven, who I know through my past economic development work around Oak Ridge and the northeastern Tennessee region, was a venture capitalist with a seat on the board, as his Southern Appalachian Fund had invested in EonStreams in early 2005. In an affidavit for the case, Vanderhoofven stated the company would have received an additional $15.375 million in the sale if it had retained the revenue from Clear Channel's business.

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