Today Adobe announced the public beta of a new Flash Player that is going to change the way we all use the Internet. More importantly, the new player changes the economics of the Internet.

Interestingly the two really key features are not getting much play in the news yet as people have focused on the new graphics capabilities. But graphics is not what is really interesting here.

The first key Flash Player feature is a peer-to-peer (p2p) technology from a company they acquired called Amicima in 2006.

The second key feature is that Flash can now save files directly to your local hard disk.

These two new capabilities together make any type of p2p application trivial. Whether you are trying to roll your own LimeWire, or you have more honorable intentions such as implementing a server-less voice over IP (VOIP) application such as Skype, the new Flash Player will make these kinds of applications trivial.

What is even more interesting than cloning existing applications, is the innovation that will be unleashed by making p2p technology an assumed part of the web protocol stack. For example, it will be a few hundred lines of code to write an AIR application that will allow you to drop a file onto an icon and have that file appear on your buddy’s computer.

But the most significant impact of all of this will be economic. As I see it, this is death to the content distribution networks (CDNs). The CDNs make their money providing companies the ability to centrally store and serve heavily accessed and/or large files. For years, companies like Kontiki and Red Swoosh tried to popularize p2p delivery networks that would make it possible to move large files without using such central servers. So if you wanted to watch a video or download a large game, these p2p systems would pull that file from other users who already had it instead of from the central store.

The problem with these p2p delivery networks was that not enough people wanted to download an application that only had the purpose of saving the service provider money. In other words, companies like Red Swoosh and Kontiki didn’t have enough end-user benefit to get people to download them.

But because people download Flash anyway, the chicken/egg problem associated with getting the p2p software onto people’s computers is eliminated.

What all of this means is every major video site will now be able to deliver video streams, while using only a trickle of bandwidth. When the Skpye founders introduced their video service Joost, this was what they hoped to be their secret weapon. They wanted to operate a video network in the same way they operated Skype, i.e. at very low cost. But people preferred to watch videos in their browser without downloading anything special.

But baking p2p into Flash means *all* web video sites will be able to deliver video using minimal central server bandwidth. As a result, the largest and best CDN customers will disappear, or at least will radically reduce their needs because, in effect, every video website will have the low cost of operation of Joost.

Of course this is not just about video. If you have any large file movement needs that require a CDN, Flash-based p2p will be on your short list of engineering imperatives.

This new version of Flash, combined with Amazon’s super low cost S3 storage system will be fatal to many CDNs. Personally, I’d be shorting every public CDN stock around the time that Adobe leaves beta with this stuff, because it spells real trouble for that market.

And if you ignore me now, don’t say I didn’t warn ya. For the CDN market, this is Armageddon.

Post Author: Ruby H. Rosenbaum

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