Netflix Open Connect cuts out data-slinging middle men, eases load on ISPs

Netflix_UINetflix announced Monday its introduction of the Open Connect content delivery network (CDN), an in-house system of servers that will handle the company’s delivery of streaming content to its customers, potentially improving service.

Up ‘til now, Netflix has used third-party CDNs such as Akamai, Limelight and Level 3 to help distribute the petabytes (read: a bajillion or so bytes, give or take) of data arriving daily to your computer in the form of streaming episodes of The Wire and/or Buffy the Vampire Slayer.

The decision to begin building its own infrastructure seems to have been influenced by its surprising performance over the last year. Despite angering (and confusing) its customers with a dramatic price hike and bizarre head fake toward splitting its DVD-delivery and instant-streaming services, Netflix finished 2011 strong. The company announced that its customers had consumed approximately 2 billion hours of content in the fourth quarter and outpaced Apple’s iTunes as the largest U.S. online movie service in revenue, according to IHS iSuppli. UK network solutions firm Sandvine estimates that customers streaming Netflix content currently account for a third of all peak network traffic in the US.

That is a lot of pithy Joss Whedon dialogue for Netflix to entrust to external CDNs, who charge for the transport costs of shuttling the content from data centers to your device. Netflix’s strategy in deploying Open Connect involves cutting down on those transport costs by both installing caching hardware closer to points of distribution, and eliminating the middle men CDNs.  In doing so, the company follows in the footsteps of several service operators such as Comcast, who have already begun using private CDNs. Companies with giant data centers such as Google, Apple and Facebook are increasingly looking at implementing such systems to both save money and establish autonomy from third-party service providers.

The big losers in the deal are, of course, the CDNs; shares of Akamai plunged upon news of the announcement.  While Open Connect currently handles only 5 percent of Netflix’s content, vice president of content delivery Ken Florance stated in a blog post that while Netflix “will continue to work with [its] commercial CDN partners for the next few years… eventually most of [Netflix’s] data will be served by Open Connect.”

While problematic for the CDNs, the ISPs stand to gain from Open Connect. In addition to reducing costs for Netflix, Open Connect may also free up some of the massive amount of traffic created by the company’s streaming customers, lightening the load on ISPs. It’s a potential incentive for ISPs, whose adoption of Open Connect Netflix badly needs. Florance has said that ISPs have the choice of either installing Open Connect caching hardware appliances within their data centers, or peering with the Open Connect network at common Internet exchange points. Both options will be provided at no cost to the ISP.