CDN Pricing Implications

October 2nd, 2008 by · 9 Comments

At Streaming Media West, Day Rayburn updated his CDN pricing report for Q3, with interesting results.  The biggest drops came at the low end - the 250Tb level - and were 35-50% in a single quarter.  I think this drop and the report that many smaller CDNs are now shopping themselves are directly linked.  It's a simple relationship: the more revenue you have, the more likely someone will buy you.  In such a crowded space with similar products, it is inevitable that pricing will get aggressive and I doubt we have seen the end of it.

It's ironic in a way that Level 3 (LVLT), which was reported last year as a pricing threat, is apparently staying above the fray.  Akamai (AKAM) is doing more than staying above the fray, they seem to be watching it from the bleachers.  Likely this is because they just aren't after the smaller customers and there are fewer viable bidders for the larger deals, although there was some compression at the 1000Tb level as well.  It is also very interesting that the *middle* of the market, the 500Tb and 750Tb levels, was basically flat.  This sort of trend can't really continue, either the top and bottom stabilize, or the middle will start to move in tandem.

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Categories: Content Distribution · Mergers and Acquisitions

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9 Comments So Far


  • iSiS says:

    Rob –

    Its completely false that Akamai and Level3 are “staying above the fray.” L3 for all intents and purposes is THE catalyst in the market right now driving prices down, by offering transit/CDN bundles (either/or) in the “you can’t believe they’re offering these prices” realm. They are desperate for revenue and market share, and showing it. Also, Akamai, from what I can see, is starting to play ball more often on the lower cost deals (read in the L3 price ranges). They would still be the most expensive CDN on average, but they absolutely play in the single digit range (95th … not GB)

  • Rob Powell says:

    That’s interesting, iSiS, thanks for that perspective. Of course my comments were second hand from what Dan reported. I can see L3 attacking with cdn/transit bundles, that would be their strength. Do you have any idea why pricing would be stable in the middle? Do you see L3 on the high end or on the low end?

  • Dan Rayburn says:

    Level 3 is absolutely NOT the catalyst for driving down CDN specific pricing. You can’t compare the price Level 3 is offering customers for multiple services under one contract like transit and CDN when the other CDNs don’t sell transit.

    When you compare the major CDN contracts for just CDN services, Limelight is cheaper than Level 3 every time. Three contracts I saw this week alone Level 3 was at $0.14 per GB, Limelight was at $0.09 per GB. On another, Level 3 was at $0.25 per GB delivered, Limelight was at $0.19 per GB delivered. And on the last one, Level 3 was at $0.20 per GB delivered, Limelight was at $0.15 per GB delivered.

    Level 3 is not the cheapest in the market nor the most expensive. They are higher than Limelight, but lower than some of the other CDNs.

    Also, saying Akamai plays in the “single digit range” does not equate to them being more aggressive on pricing. As an example, if others are charging three cents and Akamai is at nine cents, yes, they are in the “single digit” range, but they are still 3x more expensive.

  • iSiS says:

    Dan – Sorry, but I disagree with you.

    – Pricing and “single digits” meant 95th percentile and not GB transferred. Most people I know speak in 95ths and not GBT – GBT tends to be more “analyst speak” 😉
    – LL will absolutely play the price game, but CDN service at the prices folks are now offering just didn’t exist until L3 introduced it – ergo I consider them catalysts.
    – Can LL match a low price? Definitely, and they usually will. So will Panther, Bitgravity, and others. Its a buyers market!
    – As we push a lot of traffic, I’m really referring to larger customers, but with your pricing examples it appears that you’re gauging smaller customers? L3 probably doesn’t want just any customer, they want the big/important ones. Anyone paying $0.20 (or around $34/Mbps) is not a large customer – unless they’re a sucker of course!

    At the end of the day, from my dealings with CDN’s and feedback from my colleagues, if you’re 1) a big name, or 2) push multiple Gbps of traffic, you will pay below $0.05/GB

    Rob, as I just mentioned, L3 definitely plays ball on the high end and I imagine that is where they would like to play – though I can’t say that for sure. In terms of stability in the middle, this makes sense as its the same in the transit game – economies of scale tends to stay normalized from IP to CDN.

  • Dan Rayburn says:

    GB transfered is not analyst speak. It is the way the vast majority of CDN contracts are written, specific to video delivery. Before Limelight went public, almost 70% of their contracts were in per GB delivered pricing. If we are talking contracts specific to video delivery, more contracts are on a per GB delivered model than any other metric. In addition, StreamingMedia.com’s recent survey of over 1,000 CDN customers found that 59.3% of them are paying on a per GB delivered model with only 25.8% of them paying on a per MB sustained model. When you go to contracts that are taking additional CDN services outside of just video delivery, then those contracts are typically done on a per MB sustained model.

    I’ve tracked Limelight’s pricing for years, along with their contracts in the market. They were offering the kind of low pricing deals we see today way before Level 3 even came to the market with their CDN offering. And the data I give above from three recent pricing proposals shows that Level 3 is not the lowest in the market. They are not undercutting Limelight when it comes to pricing specific to video delivery. If you are talking Level 3 pricing for video delivery AND transit, then you can’t compare it to Limelight who does not sell transit.

    When you say you are “really referring to larger customers” that may be, but hard to know what you mean without a definition of what “larger” is to you. Everyone has different take on how to define large. There are only a handful of content owners large enough who are getting pricing at below $0.05 per GB delivered. They would not even make up 1% of all the contracts written by the maor CDNs.

  • iSiS says:

    Thanks for your perspective Dan. Couple of points:

    – Most CDN contracts are NOT just streaming video, but static, prog DL, streaming, etc
    – I guess we’ll just have to disagree on how low LL would go before L3 got serious
    – The 1% number in terms of contracts sounds about right. However, if we looked at percentage of revenue, I’d say this number goes up significantly, and revenue is much more important to any biz than number of contracts in hand.

    cheers

  • Rob Powell says:

    Thanks guys, this has been an interesting exchange! I suspect that over time, the per-GB model that CDNs have favored will move toward a 95th percentile model over time just as IP transit has and for the same reasons. But it will probably happen over a timespan of many years. I do think that L3 will use bundled IP transit as leverage whenever it can, but the industry will have to grow a lot yet for that to affect the majority of CDN deals.

  • Dan Rayburn says:

    Agreed, the 1% number in contracts is much higher in terms of revenue. For Limelight, last quarter, 20 of their customers made up 50% of their revenue.

    Many CDN contracts are just video. Streaming, no. Streaming is just a protocol. But I see hundreds of contracts per year that are video delivery only with the CDNs, no small object delivery, no transit, no co-lo etc…. there are many that are doing just video delivery, be it streaming and/or progressive.

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