Cidera Averts Crisis But Questions Linger

When Cidera temporarily cut off its service to ISPs, it raised questions about the viability of a variety of Internet services based on satellite delivery.

by Max Smetannikov [March 6, 2003]

Cidera recently shut down its services amidst a cash flow crisis, giving little or no warning to ISPs and their subscribers. As news group outsourcer WebUseNet approaches a deal to buy Cidera, questions concerning its longevity linger, raising further questions about the business model of delivering newsgroup services by satellite.

By some estimates, ISPs pay 20 times less to Cidera than they'd pay for a terrestrial newsgroup feed. While massively popular with ISPs, services offered by Cidera (as well as the now-defunct companies iBeam and ISPSat) are based on business plans with little or no margins for error. One hard cost that these ventures can't get around is access to satellite bandwidth, which is not declining in price as satellite capacity is not increasing rapidly, if at all. Meanwhile, the price of terrestrial bandwidth continues to decline.

"As a stand alone business, satellite-based newsgroup content distribution won't make you rich," said Avi Freedman, currently an executive with Akamai and former founder and owner of ISPSat, a Cidera competitor that closed 18 months ago.

Freedman's point is supported by back-of-the-napkin calculations. An average newsgroup feed nowadays requires (approximately) a $20,000 per month DS-3 (45 Mbps) leased line. To accommodate this kind of bandwidth, a newsfeed-over-satellite provider has to secure a decent size (30 Mbps to 60 Mbps) transponder, which costs between $50,000 and $200,000 a month. Covering U.S., Asia-Pac, and Europe requires at least two, and ideally three transponders because different satellites orbit above different sectors of the globe, plus at least two more for backup.

So, assuming that Cidera had 150 ISP customers (which company has suggested but not confirmed) and that each customer paid about $1,000 per month (say some industry insiders claim the actual service could cost as little as $800), it still came up short—or at best break even—assuming newsfeed distribution was the only service generating revenues at Cidera. But it wasn't.

Breaking ground in the sky
Cidera, known in its early days as SkyCache, is the brainchild of Doug Humphrey, an ISP entrepreneur who founded and built Digex into the first business ISP major managed hoster.

In the early days of the commercial Internet, Humphrey was an ever-present entity at Internet-related conferences, encouraging fellow entrepreneurs to run with their dreams with true stories of Digex, by then a multi-million enterprise, starting up in the basement of his home in suburban Washington; one of his first IP engineers, a paper millionaire by late 1990s, depending on his Mom for the ride to work as he was too young to drive; Digex staff counting its blessings when the growing company moved out of Humphrey's basement and into space above a Chinese restaurant.

Some of Internet industry's fascination with Humphrey's personality came with him in his next venture, SkyCache, which Humphrey founded after selling Digex to Intermedia for millions.

As is clear from its name, SkyCache was more than just a newsfeed distribution business. Humphrey blazed the trail that later on was trekked by Akamai, with SkyCache really being the first content distribution company. At its peak, SkyCache, soon to be renamed Cidera, aimed to distribute everything from newsgroup feeds to DVD-quality video that ISPs could sell to their customers. The network built by Humphrey and his engineers could handle multiple terabytes of data encoded in a variety of different audio and video formats.

Then came the Internet bust, and some industry watchers believe Cidera held on to its dreams for way too long.

On February 26, 2003, Cidera sent a message to its subscribers informing them the service was going to be terminated immediately. Humphrey confirmed the bad news and included a Haiku attributed to the technical staff: "Softly like a leaf, the autumn of Cidera, dishes fall silent."

WebUseNet's Dwight Ringdahl emerged as a buyer for Cidera's satellite distribution business. At press time, the deal was still being negotiated, and neither Humphrey nor Ringdahl could comment on it.

"Satellite distribution makes lots of sense for news distribution since the same content is going everywhere—Cidera's news service will fit nicely, I think, with the news products that WebUseNet offers," Humphrey told ISP-Planet in an e-mail exchange.

Ringdahl added that WebUseNet might keep some of Cidera's international coverage. "We are very close to closing an acquisition of Cidera, and would more than likely be turning up the UK satellite also," he said in an e-mail interview early this week. "At this point we have added some cash to the business to ensure continued operations during our due diligence period."

ISP appeal
Cidera's users say that, with the benefit of hindsight, it may be possible to find areas where Cidera could have improved its efforts to sell services to the ISP market. John Brown, who has been in the ISP business for 10 years and currently runs an Internet exchange for New Mexico ISPs, believes Cidera could do more to help ISPs figure out exactly how much traffic goes to newsgroup downloads within their networks.

"I did a recent analysis of ISP traffic for a couple of rural ISPs and discovered that between 17 and 23 percent of their bandwidth is consumed with people doing usenet news," Brown said, adding that figuring out how to measure newsgroup traffic among other IP traffic was difficult.

If Cidera were to show ISPs how much newsgroup downloads really cost them it would sell more of its service, Brown argued. Newsgroups are generally perceived as bulletin boards, which have been on decline since the mid-1980s. But newsgroup traffic is growing as more discover that newsgroups allow them to trade racy images, MP3 files, copyrighted software, and other similar material. Some ISPs that try to filter such material are losing customers.

According to Brown, this makes the need for a service like Cidera's even more pressing. Running a multi-terabyte news server is too much for an average ISP. Besides costing thousands of dollars in equipment and connectivity, it requires a specialized skill set. "Running a news server is not rocket science, but it is not trivial either," he said.

— End