Is Apple Developing Its Own Content Delivery Network?

General Facebook image from press centre

Apple (NASDAQ:AAPL) may soon be ditching middlemen providers in favor of its own content delivery network, according to industry news site StreamingMedia.com. Content delivery network providers (or, CDN providers) serve content providers such as Apple by delivering content to end-users via a vast distributed system of servers stationed in various data centers. As noted by StreamingMedia, Apple currently uses CDN providers such as Akamai (NASDAQ:AKAM) and Level 3 (NYSE:LVLT) to deliver multiple types of content, including iTunes videos and software updates for the iOS and OS X operating systems. However, several new hires made by Apple and a recent earnings announcement from one of its major CDN providers suggests that this arrangement may soon be coming to an end.

According to unnamed “networking community” sources cited by StreamingMedia, Apple has assembled a team that has been tasked with creating a new content delivery network for external use. The team is composed of recently hired workers who have lots of experience in building large content delivery networks.

As noted by StreamingMedia, CDN provider Akamai is widely believed to get a large portion of its business from Apple. According to StreamingMedia, Apple is estimated to have paid Akami over $100 million for CDN services last year. However, Akami recently warned its investors that it was involved in contract renegotiations with one of its largest media customers that could result in “several quarters of negative revenue.” Akami’s predicted revenue decline appears to be in line with the rumors that Apple is moving toward establishing its own external content delivery network.

Although it is unknown how extensive Apple’s CDN plans are and what types of content it will be delivering, StreamingMedia noted that Apple’s initiative follows similar moves from other major content providers. Facebook (NASDAQ:FB), Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT), Netflix (NASDAQ:NFLX), Twitter (NYSE:TWTR), and Yahoo (NASDAQ:YHOO) have all established their own content delivery networks for a substantial portion of their content.

StreamingMedia’s sources noted that Apple’s interest in building its own CDN may have been sparked by recurring problems with its iCloud storage service. Apple had several brief, but well-publicized iCloud outages last year that highlighted many users’ increasing dependence on this service. Apple is well-known for the tight control that it keeps on its products and services in order to ensure a quality experience for the customer. In this sense, Apple’s move to expand its control to the way content is delivered to the customer fits with its overall company philosophy.

Follow Nathanael on Twitter (@ArnoldEtan_WSCS)        

More From Wall St. Cheat Sheet: