Yesterday we noted that press releases from Akamai (AKAM) suggest the company is girding for a challenge from Level 3 (LVLT) in the content delivery network (CDN) market. Today Dan Rayburn predicts that Level 3 is about to raise the stakes with a low-cost streaming video solution. When Level 3 launched its CDN offering in May, we spoke with Level 3 execs Bill Wohnoutka and Lisa Guillaume about the company's ambitions in the CDN sector. Level 3 is closely tracking the Web 2.0 sector, but sees enormous opportunity within its existing base of connectivity customers.
"Many of our customers buy CDN today, and buy it from more than one provider," said Wohnoutka, VP of Business Development for Level 3's Content Markets Group. The group's customers include Internet portals, major broadcasters, sports leagues, movie studios and major advertising agencies, many of whom likely use Akamai or Limelight Networks for their CDN needs.
Level 3 owns its own backbone, which gives it a different cost profile than other CDNs who must buy transit. Rayburn notes this fact in a post today examining Level 3's likely impact on its CDN rivals:
I expect Level 3 will come to the market with an aggressive marketing campaign talking to competitive functionality and performance at a much lower price. And I don't mean slightly lower, I mean less expensive by a wide margin. While that would not be a new tactic by a CDN, (remember iBEAM?) it is unique to Level 3 since they own the network and should be able to have lower costs than anyone else. While other CDNs in the past lowered pricing to essentially buy market share, none of them ever succeeded, as in the end, their costs caught up with them. If Level 3 is this aggressive, we're going to have to wait to see what impact it has on the market and what tactics the other CDNs will deploy to combat Level 3. While we know that customers are not buying on price alone, and Level 3 still has to prove it has a good service, other CDNs will have to decide how to adjust to the shift in the market.
Concerns about a CDN price war have hurt the share prices of Akamai and Limelight (LLNW), the largest public companies in the CDN space.