Telstra To Acquire OVP Provider Ooyala: 5x Revenue Valuation, Will Remain Independent

Online video platform provider Ooyala announced that Australia based telco provider Telstra will acquire the company, which will become a subsidiary of Telstra, and will operate as an independent business under the leadership of its existing management team. Telstra, which already owned 23% of Ooyala via a previous $61M investment, is paying $270M to have a 98% ownership in the company. In the past seven years, Ooyala had raised $122M in funding from Telstra and other investors and the company is projected to do $65M in revenue this year, which puts Ooyala’s valuation at just above 5x projected 2014 revenue. That’s a nice multiple considering that Ooyala’s largest competitor in the space, Brightcove, has a market cap of just under $200M, but is expected to do around $122M this year, or double Ooyala’s revenue.

This is a smart deal for Ooyala and the right time to do it as the company has been experiencing growing pains with their business that has negatively impacted some of their customers. Any small company can only manage growth so well with the resources they have and Ooyala simply needs more resources from a larger company to continue to grow. Now with Telstra’s backing, Ooyala should be able to scale their business much faster and avoid some of the headaches they have experienced, hopefully enabling them to provide a much more consistent quality service to every customer. As Ooyala’s CEO mentioned in a letter to employees, scale is the key to their business, and that’s what Telstra gives them. Ooyala couldn’t get there by simply taking more money; they needed a partner and backing of a much larger company that can take their cloud offering and integrate it into a much larger platform.

Vendors that want to compete in the MSO space have to have deep pockets and spend a lot of money on people, infrastructure, R&D and all the accompanying costs that go along with a cloud based service. To put it in perspective, OVP providers Ooyala, Brightcove and Kaltura have raised more than $400M in funding combined, but are on track to just over half that in 2014 revenue. Their business models require a lot of cash and more importantly, scale. To win in this market, they have to build a much larger platform, like what Cisco did when it acquired Inlet Technologies, Extend Media and BNI Video to create their Videoscape TV everywhere solution. When the major players in any market are companies like Cisco, which to date has invested half a billion dollars into their TV everywhere platform, the writing is on the wall for smaller companies to become part of a larger ecosystem.

While I believe this deal is good for Ooyala and their customers, as an industry, we have to set the proper expectations on the size and growth of the different markets that vendors sell into. Companies are always so quick to throw out huge numbers on how big a market will grow to in a few years, but they are always wrong. Brightcove made this mistake when in their S-1 filing they said the “total potential market opportunity was approximately $2.3 billion in 2011, growing to approximately $5.8 billion in 2015.” This set wrong expectations with not just those on Wall Street, but also with those who track the industry. In an open letter to Ooyala’s employees, their CEO said, “The market for the technologies and services we provide is will be worth tens of billions in the next few years.” Those are not realistic market sizing numbers.

If you combine the revenue of all the companies in this space that are selling cloud based services similar to Ooyala, it is somewhere in the ballpark of $500M. And that number includes a large percentage of revenue from reselling bandwidth, not platform license fees. [See: OVPs Still Getting Too Much Of Their Revenue From The Re-Sale Of Bandwidth] So even if the industry as a whole grows 30% a year, for the next three years, that’s combined revenue of about $1.3B globally. That’s a long way away from Brightcove’s “$5.8B” number or Ooyala’s “tens of billions” estimate.

While Ooyala still has to execute properly in the market, Telstra’s backing gives Ooyala everything they need to scale their business to a level that most other competitors won’t be able to get to. They can hire more employees, spend more on R&D, have a true global presence, create very large and meaningful partnerships and drive faster adoption for their services. I would argue they have more work to do now than before the acquisition, but with the new backing and new resources, Ooyala should be able to grow and scale their business at a level they simply would not have accomplished on their own.

Here’s The Program For Streaming Media West Show: Now Placing Speakers

Screen Shot 2014-08-06 at 4.49.26 PMThe advance program for the 2014 Streaming Media West show (#smwest) taking place Nov. 18-19, at the Hyatt Regency Huntington Beach Resort & Spa in Huntington Beach, CA is now complete.[view the entire agenda here] Speaker placement has officially started and our first batch of speakers from Netflix, FOX Networks, DIRECTV, NY Times and YouTube have already been confirmed. Speaking spots will go fast, so if you are interested in being considered for one of the speaking spots, or placing someone from a company on a session, please contact me. As always, vendors who bring customers will always get picked before vendors that don’t bring customers.

If you have any questions at any time about the program, what a session will cover, how the selection process works, or need help choosing the right session, you can call me (917-523-4562) or send email. However I find it is much easier to discuss it on the phone rather than email and many times, I can give you an answer on the spot. So please feel free to call at any time.

You can view the entire agenda here, and below is a list of all the session titles:

  • How To: Selecting The Right Video Management Technology
  • On-Premises Or In The Cloud: Choosing The Best Live Video Workflow
  • Best Practices for Webcasting Sporting Events
  • Netflix’s Video Workflow: Transcoding, Codecs, and 4K Streaming
  • How YouTube Lost at Becoming The Next TV Network
  • Designing The Right OTT Workflow For Premium Content Owners
  • How To: Building A Chromecast Application
  • Streaming Live Events When There Is No Room For Failure
  • The Business Of Building An Enterprise Online Video Network
  • How To: Multi-Cam Shooting, Editing and Delivery On An iPad
  • TV Everywhere Trends And What It Means For The Future Of Television
  • Using YouTube For Original Content Distribution
  • How To: H.265 vs. H.264: Choosing The Best Options
  • Content Management Strategies for Enterprise Content Platforms
  • Measuring The ROI On An HEVC Deployment
  • Best Practices for Search & Discovery in a Connected World
  • How To: Producing and Distributing HEVC
  • Replacing Flash: Adaptive Streaming and DRM in HTML5
  • Streaming Deployment Architectures in Higher Education
  • How To: Building Enhanced Video With JW Player
  • The Risks and Rewards of Employee-Generated Video
  • The Business of Delivering Multi-Platform Content
  • How To: Building a Streaming HTML5 Video Player
  • Using Media Optimization To Improve Streaming Performance
  • Building Streaming Apps: Choosing The Right Devices & Platforms
  • How To: Changing Viewer Engagement with Second Screen Experiences
  • Building an Immersive Online Television Experience

Thursday Webinar – Enterprise Video: On-Premises vs InThe Cloud

Thursday at 2pm ET, I’ll be moderating another StreamingMedia.com webinar, this time on the topic of, “Enterprise Video: On-Premises vs Cloud.” In this webinar, you’ll learn how enterprise IT organizations can make the right decisions about moving from on-premises video platforms to cloud based solutions. Hear why on-premises vs. cloud is not only about security but also relates to functionality and total cost of ownership. Learn about security controls that will scale to hybrid and public clouds, how smartphones and tablets are driving the consumption of video within the enterprise and get a thorough understanding of the technical requirements for securing a cloud based infrastructure.

In this webinar, speakers from MediaPlatform, Kaltura, VBrick and Qumu will also discuss:

  • How to choose your deployment wisely with new hybrid models
  • The importance of deployment flexibility
  • The benefits of the cloud for scalability, elasticity and redundancy
  • Practical tips for moving from on-premises to the cloud
  • How content is secured in a cloud environment
  • Using existing WAN for economical, bandwidth-efficient and secure video delivery

These questions and many more will be covered in this webinar so REGISTER NOW to join us for this FREE Web event.

WAN Optimization & CDN Provider Aryaka Carves Out A Niche To Address Enterprises’ Content Delivery Problems

Aryaka_logoAryaka Networks recently launched a new CDN in the market that is purpose built for B2B enterprise content delivery, something a bit different than what most CDNs are offering today. Those who track the CDN market have probably never heard of Aryaka before because the company focuses on cloud based WAN solutions that have been deployed across 3000 customer sites in 280 cities and 48 countries. Their value proposition is an enterprise grade private core network with a built-in proprietary software stack for WAN optimization and application acceleration.

Aryaka’s founder and CEO, Ajit Gupta earlier founded Speedera Networks, which was a acquired by Akamai for $130M in 2005. Aryaka brings together an integrated optimization platform for all applications, both, inside and outside the firewall with best practices from WAN Optimization and CDN to introduce a content and application acceleration solution on a private network. A CDN purpose built for the enterprise, which aims to be disruptive in the market.

As websites have become increasingly personalized and interactive, the percentage of dynamic content on the web continues to grow and replace static content as the predominant form of content on the web. In parallel, the push for applications into the cloud is becoming real. Enterprises are putting a web front end on CRM and ERP applications to make them easier to use from any browser worldwide. Providing acceptable user experience to these applications is critical to enhancing brand reputation and sales conversion capabilities.

Traditional CDNs from the late 1990s were built for a read-only web where they delivered faster load times by caching static content closer to the end users. Today, most traditional CDN vendors continue to serve static content along with streaming video while a handful have successfully expanded their products to offer dynamic site acceleration services through middle mile improvement with TCP optimization, intelligent routing, connection management, SSL acceleration and dynamic compression. These solutions are built over the public internet and congestion, packet loss, latency and jitter are common on intercontinental Internet links.

Aryaka says the global cache eviction policy of these CDN vendors dictates that B2B enterprise content suffers heavily as it competes with cache space that is monopolized by large content providers/aggregators whose content is more frequently accessed because of its popularity. This means that with many traditional CDNs, B2B enterprises don’t get the same level of value as content providers with popular content would get, which is why Aryaka is focusing on B2B enterprise content delivery with their new offering.

Aryaka’s says that one of their differentiators is that their CDN delivers content over a stable, low latency, private core network built for enterprise content delivery. Unlike traditional CDNs offering static caching or dynamic acceleration, the middle mile is both intelligent and private, a key differentiator. This ensures that customers are not subject to the vagaries of the public internet, especially across long distances. The private core offers consistency in performance compared to the Internet, no matter the time of day or traffic spikes due to global events. Aryaka’s customers use the private core network for data acceleration as well as real-time TCP and UDP based traffic.

Aryaka has also designed and implemented a multi-segment TCP optimization stack optimized differently across the first, middle and last mile – not just from the origin out to the edge like some other CDNs. The multi-segment stack is unique because it takes advantage of the underlying network characteristics which are known and predictable on the private middle mile. As a result, Aryaka says this results in superior bi-directional dynamic content acceleration for enterprise customers who continue to deploy web and IP based applications, as well as real-time data and APIs in their websites. With the growing importance of user generated content in the form of uploads, posts, forms, etc., Aryaka promises their customers a much faster experience for all traffic.

All of Aryaka’s customers get access to a multi-tier cache system providing what they say has better performance, significant gains for increasing cache hit rate and reduces connections to the origin.  This allows Aryaka’s CDN to achieve significant gains over other vendors in reducing the total load that the customer’s server needs to handle per user for both cached and dynamic content. For static content, Aryaka has implemented a large memory cache that enables faster content access compared to physical disks that are used by many CDN vendors. Each customer is assigned certain resources which ensures they are not affected by unfair cache eviction due to the popularity of other customers’ content even if delivered off the same server.

Aryaka’s CDN is purpose-built for the B2B enterprise and they are not focused on broadcasters and social media companies with large bandwidth and commodity delivery requirements. B2B enterprises do not have to fear competition for cache performance due to large video, social media or ecommerce and retail content that is popular and therefore more frequently accessed. Aryaka’s network has 25 globally distributed POPs in Tier 3+ datacenters worldwide and are strategically located just 30 milliseconds away from 90% of the world’s business users.

While some CDN players still continue to commoditize and crowd the low end of the industry, while trying to move up the value add services chain, it’s certainly interesting to see Aryaka Networks taking a different approach by going after customers at the high-end of the market. They have become an interesting company to keep an eye on and I’m watching them closely for when they share data points on how quickly they are growing their business and what their CDN deployments look like. You don’t hear the term B2B used often when talking about CDN services, and Aryaka is out in the market to prove that they have a unique and unparalleled understanding of specific customer needs for B2B enterprises when it comes to content delivery.

Apple’s CDN Now Live: Has Paid Deals With ISPs, Massive Capacity In Place

Since last year, Apple’s been hard at work building out their own CDN and now those efforts are paying off. Recently, Apple’s CDN has gone live in the U.S. and Europe and the company is now delivering some of their own content, directly to consumers. In addition, Apple has interconnect deals in place with multiple ISPs, including Comcast and others, and has paid to get direct access to their networks. Doing trace routes on OS X downloads from multiple ISPs now shows them coming from directly from Apple’s CDN, as you can see with the example below.

- te-0-7-0-9-sur02.lowell.ma.boston.comcast.net (68.87.159.37)
- be-21-ar01.needham.ma.boston.comcast.net (68.85.106.45)
- he-1-12-0-0-cr01.newyork.ny.ibone.comcast.net (68.86.90.253)
- he-4-15-0-0-cr01.ashburn.va.ibone.comcast.net (68.86.87.197)
- he-0-11-0-1-pe04.ashburn.va.ibone.comcast.net (68.86.82.222)
- as714-2-c.ashburn.va.ibone.comcast.net (66.208.228.214)
- usqas1-vip-sx-003.aaplimg.com (17.253.0.223)

From ISPs I have spoken with, they tell me Apple has put a massive amount of capacity in place, with many saying that Apple has more than 10x the capacity they are using today, all ready to go. With Apple planning to release the beta version of their next desktop OS today, Yosemite (10.10), and with iOS 8 expected to come out this fall, Apple’s putting in place a lot of capacity to support upcoming software releases. Apple is still using Akamai and Level 3′s CDN services for iTunes (Akamai), Radio (Level 3) and app downloads, but over time, much of that traffic will be brought over to Apple’s CDN. It’s too early to know how much traffic will come over and when, but Apple’s already started using their own CDN much faster than I expected. The pace of their build out and amount of money they are spending on infrastructure is incredible. Based on my calculations, Apple has already put in place multiple terabits per second of capacity and by the end of this year, will have invested well more than $100M in their CDN build out.

While Apple will probably never completely move away from third-party CDNs, like Netflix did, they will rely less on third-party CDNs over time, just like we have seen with Microsoft, YouTube and others. Level 3 will be able to make up for lost CDN business as they are one of the vendors that Apple is buying wavelengths, IP transit, fiber and other infrastructure services from. From a revenue perspective, Level 3 benefits more from Apple building out their own CDN and buying network services from them, as opposed to using Level 3′s commercial CDN platform. Akamai will see the most negative impact over time since almost 10% of their revenue comes from Apple and they can’t sell Apple wavelengths, transit, co-location or other network related products. When YouTube, Microsoft and Netflix all took their CDN delivery to in-house platforms, it took them about 18 months before they moved enough traffic away from third-party CDNs to impact their business. Apple has now been working on their CDN build out for about 12 months now, and are quickly scaling their network. So while I’m not predicting doom and gloom for Akamai overnight, make no mistake, it will have a negative impact on their business at some point.

It is also important to point out that decisions around who (Apple/Akamai/Level 3) delivers what (updates, streaming, apps, radio) to whom (ISP customers, different devices etc.) are under Apple’s control. These content providers manage these choices according to their business rules and usually don’t inform the ISP when something changes. If adequate server and network capacity exists, switching from one CDN provider to another (such as moving iTunes downloads from Akamai to Apple’s CDN) or changing encode rates should not impact performance, so we should not expect consumers to even notice the change. What CDN to use – internal versus external – depends on cost, contracts, capacity, and technical readiness to in source among many other factors. Companies like Apple, and previously Netflix, make variations in CDN choice by device, by ISP, by service – download, streaming, etc.

Apple already controls the hardware, the OS (iOS/OS X) as well as the iTunes/App store platforms. Right now they control the entire customer experience, except for the way content is delivered to their devices, and they are quickly working to change that. While Apple doesn’t own the last mile, paying to connect directly to it (in some places) and delivering content from their own servers allows them much more control over the user experience, especially for cloud based services. Over time, this is something that will make the experience and performance for consumers even better – and Apple’s only just getting started.