MSFT, FSLY, Tik Tok, Bans Etc

At the moment until I read something well reasoned to dissuade me I think the TikTok risk to fsly is overblown for a number of reasons.

  1. While TikTok is a large (12%) part of fsly that will take only about a quarter to grow past assuming that tomorrow FSLY loses all of that revenue.

  2. I don’t think MSFT will be able to move TikTok off of fsly in the near to medium term. See below for more reasoning.

  3. I think there is a relatively small chance that TikTok will truly be banned. Legal issues, political issues, etc.

tl:dr Catastrophe has already been priced in and I don’t think catastrophe is likely in the near termRather if MSFT acquires TikTok then they may slowly move capabilities to azure over time.

Tiktok has almost assuredly developed their infrastructure for fsly. I have no idea how it is configured but if they are taking any advantage at all of fsly’s remarkably fast cold starts then the switch to azure will require quite a bit of engineering. On fsly they can engineer to things that start up in microseconds with a very small memory footprint. Azure’s cold starts are measured in milliseconds to seconds …a thousand to million times slow down. Memory use can be a similar story, fsly in the kilobyte range vs megabyte range for azure…a 1000 time difference.

I’m not suggesting that Tiktok would be a thousand to a million times slower on azure. Certain things that Tiktok does probably are not possible on azure so they would have to rewrite them and they would have to rewrite them in a way that would consume way more resources. Rewriting will take time and depending on the final form may consume so many resources that it is more feasible to continue using fsly until azure beefs up their serverless offerings. Caveats are…1)I don’t have any insight into tiktoks architecture other than they use fsly so I assume they are using fsly because of its advantages. 2)I have no idea what azure’s dev path looks like and how far along they are in developing fsly like capabilities

https://softwarestackinvesting.com/fastly-edge-compute-expla…
Message by You: https://azure.microsoft.com/is-is/blog/understanding-serverl…, Thursday, August 6 2020, 7:43 AM
https://azure.microsoft.com/is-is/blog/understanding-serverl…
E
Message by You: https://mikhail.io/serverless/coldstarts/azure/, Thursday, August 6 2020, 7:44 AM
https://mikhail.io/serverless/coldstarts/azure/

I’m not a software engineer so those of you that are in this profession please weigh in and correct any misconceptions.

best,
EThan

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Since Fastly and Microsoft Azure are partners, wouldn’t the risk of Microsoft’s ownership of TikToK moving from Fastly’s technology be extremely low?

https://www.fastly.com/partner/microsoft-azure

Long FSLY

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Good points Ethan. I’ll add a few ideas and conjecture on TikTok, as it relates to FSLY (this briefly dips into the political specter, so I’d ask the board managers for a little rope to quickly make my point).

My sense is Trump will really think hard about following through with the threat of shutting down TikTok before the 9/15 deadline (about 2 months before the election). Why? This would impact and leave a bad taste in the mouths of the younger demographic (Pew research shows that 1 in 10 eligible voters will be members of Generation Z, Americans between the ages 18 and 23) and Trump sometimes postures like this to set up negotiating leverage, but then doesn’t act on it to look like the hero. Also, some high profile TikTokers circulated a petition asking Trump to keep the platform alive. That said, if the deal were to fall apart before the 9/15 deadline, some high-profile TikTokers said they’ll take their followings to alternative platforms, many of which FSLY services today . I think that helped inform CEO Josh Bixby’s comments about reasonably making up the lost business.

TikTok gets acquired by MSFT: Although the deal isn’t guaranteed to happen, a purchase of TikTok not only would help MSFT, it would help FSLY because TikTok could grow even faster. Azure is compatible with FSLY but I suppose MSFT could use its own edge services to execute TikTok, so that would be an impact. (But as Ethan points out, TikTok would have to port their platform to MSFT’s edge product. It’s not impossible but it’s likely time consuming and tedious.)

So assuming worst case scenarios, how much impact? Parsing the conference call transcript, TikTok represented 12% of FLSY’s revenue in the last 6 months, of which, less than half was US based. Doing the math…
Revenue for the last 6 months (as of 6/30) was $137.6M.
12% of that = $16.5M;
less than half of that is $8.3M.
So we are talking about ~$8M, or at worst (if TikTok got shut down or if MSFT used their own edge CDN services,) ~$16.5M for 6 months, or call it ~$33M for the year, or about 11% of the top range of their 2020 revenue guidance that they’ll need to make up. Given FSLY’s growth, this would be a relatively easy fill.

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Let’s start by clearing things up:

I have no idea how it is configured but if they are taking any advantage at all of fsly’s remarkably fast cold starts then the switch to azure will require quite a bit of engineering. On fsly they can engineer to things that start up in microseconds with a very small memory footprint. Azure’s cold starts are measured in milliseconds to seconds …a thousand to million times slow down. Memory use can be a similar story, fsly in the kilobyte range vs megabyte range for azure…a 1000 time difference.

This is incorrect. Please, let’s stop using Fastly’s Compute@Edge blog claims as being applicable to their CDN performance. Content delivery is not serverless computing. CDNs do not spin up short-lived services in order to provide cached content. Matter of fact, one of Fastly’s CDN claims is that very high usage images are served out of processor MEMORY. To do that means you’ve got a long-running process that has the image and can send it out without having to pull it off of disk. So, there is no “cold start” of a CDN process as it’s already running. The memory footprint for the CDN process is probably quite large, as there could be lots of images it wants to keep in memory for performance.

Please, please, everyone, do not confuse Fastly’s Compute@Edge claims with its CDN performance. They are quite different animals.

OK then, on TikTok and Microsoft:

Let’s start with Microsoft’s Azure CDN (https://azure.microsoft.com/en-us/services/cdn/ ). MS built their own CDN to handle their own SaaS traffic from Office 365 and similar services. In May 2018, they decided to make that CDN available to others (see https://azure.microsoft.com/en-us/blog/new-locations-for-azu… ).

First, the one thing you’ll note is that when MS talks about their own CDN they are constantly mentioning Akamai and Verizon. Such as: “Microsoft’s own CDN was a natural expansion supplementing our world class partners Akamai and Verizon.” And when MS publishes its list of POP locations (latest here: https://docs.microsoft.com/en-us/azure/cdn/cdn-pop-locations… as of April 2020), it says things like “POP city locations for Azure CDN from Akamai are not individually disclosed” and furthermore it appears that MS’s own CDN is, in fact, reliant on Akamai and Verzion: “Because each Azure CDN product has a distinct way of building its CDN infrastructures, Microsoft recommends against using POP locations to decide which Azure CDN product to use.” There’s even an MS blog post on its Rules Engine update, which is actually MS supporting Verizon’s Rules Engine’s update: https://azure.microsoft.com/en-us/updates/azure-content-deli… It appears that the premium CDN variant is, in fact, Verizon’s CDN.

Secondly, it’s worth understanding that TikTok chose Fastly as its CDN for some very good reasons, tops among them being, I’ll bet, is that TikTok is almost all video. Yes, the clips are short, but there are tons of them. So, what CDNs are good for video? Is Microsoft’s/Akamai’s/Verizon’s CDN going to give the performance for video caching/delivery that Fastly does? TikTok is very much video delivery for the impatient. Clips are limited in length and need to come up instantly. TikTok apparently does have some AI or AI-ish algorithm for deciding what clips to show you, so how well does its CDN need to integrate with that?

Thirdly, we should remember that most big sites use multiple CDNs anyway. It’s unlikely that Fastly is TikTok’s only CDN. Looking at a previous Microsoft purchase, LinkedIn, I see that 2 years later LinkedIn was still using 4 CDNs, one of which was LinkedIn’s own CDN (https://engineering.linkedin.com/blog/2018/01/enabling-dual-… ).

My guess is full TikTok ban is very unlikely, especially in the short term. Look how long it took to get Hauwei banned, and the allegations and impacts there are much greater. Here’s a TikTok video of Trump himself on the ban: https://www.tiktok.com/@whatchugotforme/video/68557732925953… ;^)

OK, but seriously, what I keep coming back to is what my investing thesis for Fastly is based on. I’m actually not invested in Fastly for its CDN. Yes, it’s a great CDN and has advantages over other CDNs, especially on the push side, but Fastly’s CDN business alone is not going to provide the kind of high-growth that we look for here. The future for Fastly is Compute@Edge, which is still several months away from launch and the TikTok news has no bearing on that.

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Smorgasbord, thanks for weighing in.

I was not implying that the CDN=Edge . I can understand why you would think that is what I was saying from the part of my post you clipped however I think my point is more clear with the rest of the post which I clipped below.

"certain things that Tiktok does probably are not possible on azure so they would have to rewrite them and they would have to rewrite them in a way that would consume way more resources. Rewriting will take time and depending on the final form may consume so many resources that it is more feasible to continue using fsly until azure beefs up their serverless offerings. "

Iwas implying that TikTok was probably using some of the edge processing and that is why they chose FSLY instead of many of the other companies that have some edge compute and CDN.

Anywho, I don’t think that changes either of our points about fsly.

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I was implying that TikTok was probably using some of the edge processing and that is why they chose FSLY instead of many of the other companies that have some edge compute and CDN.

I don’t see how you can conclude that TikTok is using Compute@Edge. The beta customer list is private, except for a couple/few examples that Fastly got permission to discuss.

If you’re talking about the bit in the earnings call about TikTok using “APIs and other areas, not just the delivery of video” (Joshua Bixby), that doesn’t necessarily map to Compute@Edge, because the CDN side of things has an API as well: https://developer.fastly.com/reference/api/ but none of it is related to Compute@Edge.

I think the most important points remain:

  1. TikTok isn’t going to suddenly stop in the US
  2. Should MS or anyone else buy TikTok, they’re not going to change CDN providers right away
  3. Fastly still has one of the best CDNs for video, so there’s not much incentive to switch to an Azure-based CDN that isn’t optimized for video
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Glad that Smorg articulated the distinction between CDN and the IoT Edge computing capability. I think this is something people have been missing and it is important to weigh. I do own some FSLY but am not exuberant over the basic CDN capability. FSLY has added several clever incremental CDN improvements that I think are not that too hard to replicate (I SWAG ~1 year head start). IMHO these do not constitute any knockout punch or market grab threat to the existing major CDN players such as Akamai, MSFT or AMZN.

What FSLY has are some large key CDN customers with fast growing traffic volumes (e.g. SHOP) and a future Edge Computing model that could be a game changer. Watching the Edge Computing beta customer reports emerge will be revealing. I think it is not too early to begin planning for the beta customer reports in Q3/Q4. Once we have some visibility into the effectiveness of the technology and the size of the early adopters, we can reassess our valuation for FSLY. I am holding for now.

-zane

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