Netflix Rolls Out Its Own CDN: Open Connect
Netflix announced today that it is rolling out a new content delivery network of its own, called Open Connect, which will reduce its costs of delivery and could improve delivery of its content. But Open Connect isn't just about reducing …
Context & Ripple Effects
Netflix had already drawn attention to streaming quality across major ISP networks in its January performance comparison of leading ISP networks. Building its own delivery layer turns that operational concern into an infrastructure decision rather than leaving delivery entirely to outside CDN providers.
The move also follows a period in which Netflix was managing the consequences of earlier pricing changes while reporting $870 million in first-quarter 2012 revenue. Lower delivery costs and better playback quality address both the economics and the customer experience of streaming.
First-order effects
- Netflix gains direct control over a larger share of video delivery, reducing its reliance on third-party CDN capacity and targeting lower distribution costs.
- Subscribers are the immediate customer-facing beneficiaries if Open Connect improves the consistency of Netflix playback.
Second-order effects
- Third-party CDN providers lose part of Netflix's delivery spend and must compete more directly on performance, reach, and price for large streaming customers.
- Netflix can use the delivery-performance data it had already publicized to make network quality a more measurable operating advantage rather than a vendor-managed service.
Third-order effects
- The launch points toward major streaming services vertically integrating delivery infrastructure when bandwidth costs and playback quality become central to the product.
- If other high-volume video providers follow, CDNs shift from being default wholesalers of delivery capacity toward serving customers that cannot justify building their own networks.
The trend: Streaming services are beginning to treat content delivery as a strategic in-house capability, not merely a purchased network service.