CDN Pricing: A Look Back, A Look Ahead
This week we have several data points for pricing trends in the content delivery network (CDN) market. The CDN market continues to have a dominant market leader in Akamai (AKAM), but has been flooded with start-ups in the past two years, with investors pouring nearly $300 million into new content delivery companies in the past 18 months. This has led analysts to expect that these new players will use aggressive pricing to grab market share from Akamai and other larger players like Limelight Networks (LLNW).
A survey of CDN pricing in the first quarter of 2008, which Dan Rayburn has summarized at the Business of Video blog, showed that prices remained stable at most tiers of the market. Dan identified a price range of 50 cents to 85 cents per gigabyte for customers with 50 terabytes of data transfer per month, with bulk discounts lowering that range to 4 cents to 8 cents per gig for customers doing a petabyte (1,000 terabytes) or more per month.
“The only place I saw pricing go down in Q1 is with a very small percentage of the largest customers who continue to push a lot more traffic each month; those doing over a petabyte,” Dan writes. “The lowest price I heard for 2PB a month was two and a half cents per GB delivered.”
While pricing battles appear to be limited to the largest accounts, that may change in coming quarters, according to Limelight CEO Jeff Lunsford. In an interview with Contentinople, Lunsford says that new players may compete on price, but the economics of scale will also come into play. Lunsford describes the CDN business as “a market where volumes are growing so rapidly that unit price has to come down. It’s an industry-wide mandate.” An excerpt:
We have customers whose traffic is five times higher this year than it was last year, but they don’t have five times the budget. They have to figure out a way to deliver that content. And they don’t have five times the revenue – a lot of these guys are still trying to figure out their monetization strategy. So it’s an industry-wide mandate to drive efficiency as units scale and figure out how to deliver it and still carry a decent margin. So I think that overall dynamic is what’s driving prices. Then, you know, you have carriers getting into the space and bundling in transit prices and things like that.
Those carriers include Level 3 (LVLT) and AT&T (T), which have both rolled out major content delivery expansions in the past year. At the lower end of the market, Velocix is offering free CDN services for users with less than 500 GB of monthly delivery, while Voxel recently announced pricing of 40 cents per gigabyte for up to 2 terabytes of transfer. As Rayburn notes, “anything under 50TB a month is now really impossible to give out an ‘average’ number for.”