Verivue CEO: Tier 1 telcos look to build CDNs as video traffic surges

Verivue CEO Jim DolceVerivue's corporate website quotes a forecast from ABI Research: "More than a trillion videos will be streamed worldwide in 2013, up from 32 billion in 2006." And that, says CEO Jim Dolce, could be just the tip of the iceberg.

Dolce and Verivue today announced the company had acquired Princeton, N.J.-based CoBlitz (see this related story and press release), which provides CDN infrastructure solutions for service providers. The deal gives Verivue, which employs about 100 people in its Westford, Massachusetts headquarters, immediate access to Tier 1 telcos looking to solve their looming capacity challenges as massive amounts of video traffic begins to stream into their networks, and it puts them into head-to-head competition with companies like Cisco and Alcatel-Lucent, a position Dolce, when he spoke with FierceIPTV seemed to relish.

 FierceIPTV: How did the CoBlitz deal come about?

Verivue CEO Jim Dolce: Over the past year or so we've been pursuing new markets in the area of CDNs, specifically for over-the-top-video, and we came across CoBlitz in the market. They were introduced to us by several of our European customers, and they were highly regarded and so we engaged them about six months ago. We consummated the deal about two weeks ago.

FierceIPTV: What's the immediate impact?

Dolce: For us, it expands our market from just primarily managed video networks to also include over-the-top video services. Now we include a broad range of solution for our customers in term of managed video, video on demand to over the top.

FierceIPTV: What's the issue with the OTT market that you were looking at before you ran across CoBlitz?

Dolce: Service providers are getting hit with all of this new video content coming from origins like Google TV, Hulu and Netflix... Apple has a new iTunes offering, Amazon's got a video offering, and so they're just being assaulted by all of these new services. Of course, there are also all the devices that are out there as well, with the Apple TV, Boxee, all the game consoles--the Xbox, Wii, PlayStation-so, lots of terminating devices, consumer electronic devices in the home, certainly lots of origins or the content, especially now with Google and Apple getting into the game. The result for the broadband service provider, for the telco, is their networks are being assaulted by this bandwidth hungry video.

FierceIPTV: So, do you just build more capacity into the network?

Dolce: The real problem is that it's almost all uncompensated traffic growth, and that's the important terminology here. It's a term every Tier 1 service provider recognizes today... "Uncompensated traffic growth." A provider gets $39 a month for that broadband service that, just two years ago, was only carrying online shopping. Today, instead, the consumer is streaming Netflix through a Blu-ray DVD player at 3 megabits per second for a couple of hours a night, and he's still getting $39.

So, he sees this uncompensated traffic growth and has to ask, "How do I resolve this? How do I build out my networks in a more cost effective way since I'm not getting paid for this?"

He could do it with brute force. He could just buy more routers, more core routers, more network bandwidth transmission capacity, wavelength, more gear and just pile on a bunch of capital to address the bandwidth requirements. But that's not cost effective, because it's uncompensated traffic growth; he's getting no revenue for it. One of our customers just the other day had a different term for it; he called it "unbillable revenue."

FierceIPTV: What's changed in the way the Tier 1 telcos are looking at the market?

Dolce: In the past year, service providers have all discovered that, perhaps, a better architectural approach to addressing all of this video traffic is, in fact, to build a CDN, rather than expand their own network. Video is very cacheable. A CDN basically reduces the network traffic load by replicating popular content onto strategically placed edge servers and then redirecting the client to the closest edge server. That frees up backbone capacity and also addresses performance. In the end, it also lowers network costs overall.

We've seen an onslaught of RFIs and RFP activity coming from the top-tier telcos who are looking to build CDNs to optimize their network bandwidth.

FierceIPTV: Does that mean that telcos begin to compete with existing CDNs, like Akamai?

Dolce: A lot of people get confused when they hear "A telco's building a CDN." They immediately think the telco will be competing with Akamai. That's not the case. The business case for building a CDN comes in the form of cost optimization, or cost avoidance. I can pay for the CDN in the savings I'm going to get on my network infrastructure And that is their primary objective.

FierceIPTV: So, no competition? Or...

Dolce: A few were looking at it and saying "well, once I have the CDN in, and it's optimizing my network bandwidth costs, then, perhaps I can go utilize it and sell it a wholesale CDN service and generate some revenue on it," but that's just not the primary objective. The primary objective is: optimize the bandwidth, address the issue of all of this video coming over the top--which is only going to get worse as Google and Apple now enter the market-and this is where we came across CoBlitz.

 About a year ago, we set out ourselves to develop a technology to address this over-the-top video and in the process of promoting that technology, these new products to our customers, we came across CoBlitz in an RFP process for a customer. Many customers told us this was the best product they'd seen out there.

FierceIPTV: What's the competition like? And where does Verivue fit?

Dolce: There are other players out there, Cisco plays in this market, as does Alcatel; those are the prime competitors in the over-the-top market. But the technology from CoBlitz is well regarded and you can see from the credentials of the two founders, Leonard Peterson and Vivik Pai, they're both professors of computer science at Princeton University, and the technology is actually a product of their research over the pat six or seven years or so. And they are joining the company, in fact, they already have.

FierceIPTV: Why doesn't a telco simply follow the model of, say, an Akamai? Why buy CDN components from Verivue?

Dolce: You know, there's a lot of confusion about the over-the-top market and especially as to why carriers would want to build CDNs. People ask "What does it mean, for example, to Akamai? Does this mean Akamai is going to go out of business?" Or, "Is somebody going to buy them?" It really has nothing to do with the core Akamai service offering. Telcos are building CDNs for an entirely different reason ... they're building CDNs to solve the problem of bandwidth that over-the-top-video is causing them. That's all.

As to how they differ, well, an Akamai builds all its own technology, they've built their own software, their own servers, they deploy their own gear, they are an engineering organization.

When a telco wants to get into a CDN, he doesn't have the time to go develop all the software and hardware; he wants to pick up the phone and call a vendor and say, "I need to be a CDN next quarter. Come in and sell me all of the infrastructure I need to become a CDN service." That's what we provide, the technology, software and hardware. They deploy the hardware and deliver a service.

FierceIPTV: Is it all about Tier 1 telcos, or are Tier 2 and 3s going to look at this as a solution as well?

Dolce: Right now, the only ones we've actually called on to date with this technology are the Tier 1s. I would venture to say that every Tier 1 on the planet is either in trial or in the early stages of reviewing CDN technology. I don't think there's any Tier 1 carrier that doesn't realize he's got a problem with videos and that the solution is a CDN.

FierceIPTV: How far away are they from moving on it?

Dolce: They're all in different stages. Some have actually deployed, some of them are in trials, and some of them are just in the RFI stage. They're looking for information. I'd go out on a limb and say that every one of them recognizes the problem and understands that CDN is the solution.

FierceIPTV: What does this mean to you as a company, as far as putting you in with the big players? How much forward does it push you?

Dolce: This is huge. We recognized this over-the-top opportunity about a year and a half ago, and started to invest in development. But the time to be in the market, the prime time, is right now. Our products were not going to be available to market for another year. And so we were going to miss that market window. You want to be out there and be the established leaders in a new market. The time to do it is now. If we came out with product a year from now, it would be too late to establish ourselves as the CDN market leader.

This was a great opportunity for us to accelerate that product availability. In terms of strategic importance to the company, the acquisition allowed us to be in the market right now today with a turnkey CDN solution, at a point where these Tier 1 carriers are looking for exactly what we're offering. Remember, we have competition here, Cisco and Alcatel are competitors here. Another year would have given those competitors enough time to establish a base of interest that would have been very difficult for us to penetrate.

FierceIPTV: How big is the market?

Dolce: The market is in the hundreds of millions of dollars this year. And I would say that-based on reports we've gathered, it is projected to be a $1 billion market size around 2014. It's a fast growing market.

FierceIPTV: The last six months, this online video, or over the top market has gone crazy...

Dolce: You're right. The interest of the Tier 1 carriers in the last six months has grown from just subtle interest to "this is my highest priority initiative right now."

And that's what pushed us into the acquisition. We realized it was building momentum too quickly that we couldn't wait for our own products to hit the market a year from now. We needed to be in the market now with a full turnkey solution. And that's what CoBlitz brought to the table.

FierceIPTV: How big do you think the OTT market can be?

Dolce: Cisco's VNI index projects that 90 percent of Internet traffic will be video by 2014 or something. Projections are one thing, but I can tell you what our customers are telling us. One particular Tier 1 carrier measured his backbone traffic and discovered that nearly 50 percent of his traffic was http, and that the vast majority of that http was video.

So, those VNI projections are saying that we're going to hit 90 percent by 2014, I think it's coming a lot faster than that... and so do the Tier 1s. They see it almost at 50 percent already, and that's without Apple or Google hitting their stride.