Apple, Microsoft and Netflix Are Making Big Moves With This Technology

Apple is rumored to have spent $100 million building its own content delivery network. Here's what content delivery networks are and why consumers stand to benefit.

Aug 7, 2014 at 11:00AM

One of the hottest trends in big technology today is to control all facets of the way information is sent and consumers receive services, by building content delivery networks, or CDNs. In the past, these networks were essentially rented from companies such as Akamai Technologies (NASDAQ:AKAM), but as the need for data increases, with more and more users utilizing certain platforms, companies such as Netflix (NASDAQ:NFLX), Apple (NASDAQ:AAPL), and Microsoft (NASDAQ:MSFT) have all set out on a risky yet potentially valuable path of delivering their own networks' content.

What is a CDN?
CDNs deliver applications, content, and services from the developer to the user. Because of the scale involved, and the speed at which such information is delivered, technology and services companies have historically relied on large CDN specialists such as Akamai, or companies that have knowledge in dealing with the minor problems that can arise in such a business, such as having enough fiber, wavelengths, IP transit, and other infrastructure that's imperative to a successful CDN.

Cdn Example

While a CDN might seem like a small piece of a company's core business, it really is the backbone that holds everything together, being instrumental in how users experience their applications, view streaming videos, or access important software. Therefore, is it any surprise that building these delivery platforms has become the latest trend among the largest technology companies?

Netflix and Apple go solo with content delivery
Obviously, Netflix, Microsoft, and Apple are all completely different types of companies, relying on CDNs for different purposes. Of the three companies, Netflix was instrumental in starting this trend. Netflix essentially built its own specialty servers to conserve space and power, thus creating better connectivity and faster transfers of content to hosts. In other words, when you watch Orange is the new Black or The Walking Dead, slow uploads are less of a problem, as Netflix built its network to deliver content directly to Internet service providers instead of the content being sent to a third-party CDN and then requested by the network operator, meaning it removes the middle man. 

Apple has a network of more than 700 million users with iTunes accounts, and most of those users have Apple devices and applications or multiple devices connected through the iCloud. Reportedly, Apple has already spent more than $100 million building its own CDN, one that's capable of handling 10 times its current capacity.

While Apple is unlikely to see a tenfold increase in its user base, the company is probably anticipating that its newer products, such as Yosemite and iOS 8, will require more capacity than its current content. In other words, it will take less time to download applications, stream music, etc. Also, you most likely remember trying to download iOS 7 last year, and how long it took. With Apple now having more capacity, such downloads should occur much faster with Apple's CDN having so much capacity, making the Apple experience that much better. 

Microsoft is quietly making big moves
Not to be outdone by Apple, Microsoft already has its own CDN and is selling it to smaller developers through Azure, which is part of Microsoft's cloud service that's growing at more than a 100% clip annually. Dotweekly.com reported last week that Microsoft registered Sway.com along with registrations for its potential use, sway-CDN.com and sway-CDN.net, and that move has created quite a bit of interest in the technology blogging community, as the trademarks for software-as-a-service and computer software have many speculating that Sway could be used for everything from boosting Microsoft's Azure CDN offerings to potentially delivering content for a new streaming service.

Whatever Sway may be, it's clear that technology giants are betting big on CDNs, and why wouldn't they? CDNs give them full control of content, solidifying themselves in a crowded cloud market and completely breaking them away from third-party CDN providers that provide no edge to any one client over the other.

Foolish thoughts
This is nothing but bad news for companies such as Akamai, which was believed to have received north of $100 million from Apple last year for CDN services. Currently, Netflix is one of the only companies that rely solely on its own CDN services, but that's a fact that's sure to change soon enough.

These companies are expanding data centers and building specialty servers, and for you, it means improved quality, faster speeds, and fewer service interruptions, which makes us wonder what took so long for so many big techs to make the move, and how much longer till all others join the independent CDN party.

 

Brian Nichols owns shares of Apple. The Motley Fool recommends Apple and Netflix and owns shares of Apple, Microsoft, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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