Growth Slows for CDNs. Worse to Come?
The second quarter was a difficult one for content delivery networks, as seen in the results posted by industry leaders Akamai Technologies (AKAM) and Limelight Networks (LLNW). Industry watchers don’t see any immediate relief in sight, which could be trouble for newer entrants in the space.
“It’s now clear that the major players in the CDN space, the vendors that control the vast majority of the market share for video delivery, are all experiencing no growth,” Dan Rayburn writes at Seeking Alpha. “And with Q3 typically being a weak quarter for the CDNs and some of them setting guidance that shows no growth over Q2, we may have yet to see the bottom. … While pricing still took a decline last quarter, I see the bigger impact being that traffic growth with current customer is nowhere near the levels it once was and many smaller content owners continue to go under.”
“One can only wonder how this is affecting the dozens of smaller CDNs that were born over the last two years with a little venture capital money and big dreams,” writes Rob Powell at Telecom Ramblings. “It can’t be long before we start losing a few. … Deceleration of traffic growth should only be a short term effect, as companies try to stretch their current bandwidth commitments further in this environment. When times are good, there is a tendency to throw bandwidth at problems, only when things get tougher do we spend effort tuning things for bandwidth efficiency. What would really get ugly though is if this effect now triggers a truly destructive price war.”
For more than a year now, we’ve been noting analyst concerns about a consolidation in the CDN industry. It has taken longer to arrive than many might have thought, and been less dramatic than the level of competition might have suggested. This has become a rumor-rich environment, as evidenced by recent chatter that AT&T might acquire Akamai. But the turbulence in the content delivery sector bears watching, as CDNs are a key tenant class for many data centers.
This is only natrual. No doubt CDN and possibly other hosting services will hit a bump with all the financial issues. Give it until 2010 and growth will kick in again.