Yesterday's announcement by Level 3 (LVLT) of aggressive new pricing for its CDN offering led to dips in the stock prices of and Akamai (AKAM) and Limelight Networks (LLNW). This isn't surprising, given the skittishness of investors in these stocks and analyst concern about the CDN pricing environment. But there was also some confusion about exactly what Level 3 is doing and how it impacts existing CDN players. Was Level 3 undercutting competitors by 20 to 30 percent? The meaning and implications of Level 3's move was discussed at Light Reading, Barron's Tech Trader Daily, The Business of Online Video and GigaOm
CDN pricing can be complex, as Dan Rayburn noted recently in his post about bursting overages. What Level 3 announced was that Level 3 caching and downloading would cost the same as Level 3 Internet access. Grant Van Rooyen, the Senior Vice President of Content Markets, said Level 3 wouldn't necessarily be the "cheapest" provider in the market. What's clear is that Level 3 intends to use its network to gain a cost advantage over its primary CDN competitors. That doesn't mean the choices will be simple for customers.
Rayburn noted in his June analysis of CDN pricing that pricing on requirements above 100TB are "all over the map."
Here's how it appears to be shaping up: Level 3 will compete on its pricing. Akamai will compete on its network. Level 3 already sells bandwidth to the largest content providers, and can leverage those relationships. It's also true that these large accounts are discerning about delivery quality, and Akamai will argue that its edge distribution is superior to Level 3's fewer but larger clusters.
The competition in the CDN market will be good for customers, who will have more viable choices and the ability to play providers off one another in search of the best deal. As Level 3 notes, it may also mean that customers make more use of CDN services, a trend which could float more than one boat. The Level 3 vs. Akamai vs. Limelight competition is likely not a zero sum game, but the math may remain murky as this fast-moving market evolves.