Netflix noted that about 5% of its traffic is already being served by Open Connect.
Netflix said that as part of the project it is sharing its hardware design and the open source software components of the server used in the project. "These cost-efficient designs are suitable for any high-volume provider of large media files," Netflix said. "We welcome commentary and improvements, which will be shared with the community with the goal of a faster, less expensive Internet for all."
In a research note this morning, Jefferies analyst Aaron Schwartz noted that Netflix is one of the few Internet content providers with enough traffic to make a private CDN worthwhile. He also noted that the news is likely to pressure shares of the publicly traded CDN stocks.
"The Open Connect CDN platform will serve to reduce NFLX’s reliance (and associated costs) on commercial CDNs," he writes. "Netflix is often measured as one of the largest sources of Internet traffic and is one of a handful of companies (in addition to Amazon, Apple, Google and Microsoft, etc.) that have the required traffic levels, and business case, to warrant bringing CDN capabilities in house. We expect near term weakness in the commercial CDN vendors including Akamai, Limleight and Level 3 and expect the focus to fall to Limelight given customer concentration, as Netflix accounted for 11% of Limelight’s revenue in 2011."
In this morning's trading:
- Akamai Technologies is down $1.22, or 4.3%, to $27.14.
- Limelight Networks is off 5 cents, or 1.9%, to $2.65.
- Level 3 shares have not yet traded.
Update: The stock are taking a bigger hit now that the regular session has started:
- Akamai is down $1.76, or 6.2%, to $26.60.
- Limelight Networks is off 22 cents, or 8.1%, to $2.48.
- Level 3 is down 26 cents, or 1.3%, to $19.46.