Why Amazon’s CDN Offering Is No Threat To Akamai, Limelight or CDN Pricing

As expected, I've already read half a dozen posts this morning from those who are saying Amazon's new CloudFront CDN offering is either going to challenge CDNs such as Akamai and Limelight for business or will force CDNs to cut their pricing in the market. This assumption could not be further from the truth and people should look at the facts of what the Amazon service is and how that compares to Akamai or Limelight.

For starters, have any of these writers spoken to Amazon about their offering? Because if you ask Amazon directly, even they agree that they are not trying to compete directly with Akamai or Limelight. Today, they are going after different sized customers with very specific needs, who only need HTTP delivery. Sure, there are a lot of those kinds of customers out in the market but that is not who the major CDNs are going after. Akamai is not interested in your business unless you are doing a few grand a month. Limelight's minimum is a bit lower, but again, is not targeting a thousand dollar a month customer. That's not to say that Amazon won't sign up larger customers, but that's not who the service is targeting.

This is a great service for smaller customers who have very specific needs but it won’t challenge any of the major CDNs for years to come. Amazon would have to add so much additional functionality to the service that it would take years just to build and deploy it. Too many people are under the wrong assumption that all you have to do is deploy a bunch of boxes and turn them up and then all of a sudden you can then compete with the major CDNs. It takes a lot more than just a ton of boxes and bandwidth to compete with Akamai or Limelight in terms of size, scale and functionality, not to mention revenue. Which is proven by the fact that after Limelight, the next closest company in terms of CDN revenue is doing less than half of Limelight's total revenue for this year.

Even Amazon's own video on demand service isn't using CloudFront. Today, they still use Limelight Networks to deliver all of their videos since they are delivered in the browser using streaming protocols. And the notion that Amazon's new CDN service is somehow going to put pressure on the major CDNs to reduce their pricing is so laughable it's not even funny. For starters, Amazon is more expensive when it comes to large volume but those that are writing about pricing would not know that as they don't have any idea what the major CDNs charge. Limelight, CDNetworks, BitGravity and others are half of what Amazon's lowest pricing is at for large volume deals. The fact that Amazon's sliding scale of usage only goes to 150TB gives you an indication of what some of their average sized deals will look like. The major CDNs have customers doing three or four times that much volume and have a sliding scale that goes to 800TB a month or more.

When Amazon announced they would offer this service, many rushed to write headlines saying it would challenge the major CDNs. Now with the service out, again people are rushing to use generic phrases on how this spells doom and gloom for Akamai or Limelight. Yet, in none of these articles that I have seen have the authors provided any analysis or insight into why they think Amazon will challenge the major CDNs. Where is the reasoning behind this thought? BMW and Hyundai are both car manufacturers. Does that mean they compete with each other? Of course not. Yes, Amazon now has a CDN offering, but that does not mean that they now automatically compete with every other CDN in the market.

If you think otherwise, I'd love to hear your thoughts on why in the comments section.

  • Rob Green

    Thanks for keeping things rational Dan. More than one “professional” journalist could learn a few things from you.

  • TJ

    Dan -
    I agree that this isn’t much of a challenge to the big guys. I think the pay-as-you-go model is very useful in terms of starting up a small but scalable business. You can be prepared for a serious amount of data without negotiating a complex deal with a CDN involving commits, risky projections, etc.
    S3 and EC2 have been great incubators for good ideas; I think Cloudfront will add to that environment. These tools make it possible to run ever-larger businesses out of a garage, but once they move into office space, they’ll want to move to the big guys.

  • http://www.buydrm.com Christopher Levy

    Nobody in their right mind selling content online is going to use their competition, Amazon, to deliver their bits and provide Amazon better costs of scale.
    This is just fundamentally a broken model. Yes it’s a cool service from a company with some bright minds. No the larger video distribution sites are not going to use it.

  • http://blog.lookery.com Scott Rafer

    As a very happy customer of both Amazon and “real” CDNs, this is really silly commentary. “Full-featured” is exactly the wrong basis for competition.
    http://rafer.tumblr.com/post/60334606/this-is-a-great-service-for-smaller-customers-who

  • Jim Leach

    Great insights from Dan Rayburn.
    My thought was not whether Amazon CloudFront CDN would take a piece of the CDN pie from established players, but rather will Amazon CloudFront CDN grow the overall CDN market pie? And, if the answer is yes…how much and how fast?
    Will Amazon CloudFront create a new market segment for CDN services?

  • http://chrisco.wordpress.com chrisco

    TJ nailed it. CloudFront is for smaller users. What I want to know is what’s wrong with that and who is surprised by that. Apparently Dan is. Down boy. Nobody is going to enter the market and on day one going to threaten the incumbents, Akamai and Limelight. This is not to compete with them, it’s to add something to startups and smaller businesses. And that’s great. Thank you, Amazon. Keep ‘em coming! It’s funny that people get their panties all in a bunch over a nice offering for smaller folks. Love it!

  • blazespinnaker

    Of course it’s a challenge to the big guys.
    They have to lower their prices, otherwise Amazon will have incentive scale up to be able to compete with them.
    The longer they wait, the more time Amazon has a chance to make it off the runway.
    Gee!

  • NC

    Amazon has larger customers, the pricing you see is their public pricing for smaller/medium-sized customers.

  • Marcia Hagel

    I agree with Dan on this: Basic web caching versus true streaming, No service level versus high service levels, No support versus professional support, no statistics versus high statistics, pay your largest competitor versus pay a service provider, pricing entry is aggressively low but volume pricing is high.
    But!
    Amazon starts small and does not over invest in infrastructure. Amazon does not need a large sales staff Amazon understands the web: e-commerce!
    I know a fast runnerup CDN that is doing best of both worlds. But Dan never mentions them…

  • http://www.BusinessOfVideo.com Dan Rayburn

    Ok, then who is the “fast runner up” and what metric are you using to classify them as a “fast runner up”? Revenue? Number of customers? Total bits delivered?

  • Matt

    Couldn’t they add streaming capabilities relatively easily. And didn’t Amazon quickly put SLAs on their other services after about a year? And won’t the small businesses they attract now tend to stay with Amazon as they grow?
    Of course it’s not a threat on day one, but it is over time. It can’t be helping Akamai and Limelight…

  • http://www.BusinessOfVideo.com Dan Rayburn

    Adding streaming media functionality is complex and costly if you want to support multiple formats and support live and on-demand streaming. Not to mention, ramping up to truly scale such an offering is not easy or quick to build and deploy.
    Amazon added SLAs to some of their AWS services two years after they launched in beta. I think it does help Akamai, Limelight and other major CDNs as it will help the whole CDN market to grow and become more transparent, which is a good thing for everyone.

  • http://www.BusinessOfVideo.com Dan Rayburn

    Someone commented that the pricing Amazon is quoting is only for smaller customers and that you could get better pricing from Amazon for their CDN services if you are a larger company. Amazon says this is incorrect and stated “we are not making custom deals for CloudFront”.

  • GreenField

    Great comments all.
    Perhaps it is not a threat – TODAY. But it will be a threat sometime in the future when the greatest new startups originate with AWS [due to the economics] and grow within the AWS platform. This will have a potential side effect on AKAM/LLNW/L3 since these new burgeoning companies will not make the jump to a traditional CDN, rather they will stay with AWS and be comfortable. This, of course, is out the window if the AWS service starts to show outages or cannot sustain the growth needed by the next Facebook, MySpace or even YouTUBE.
    Time will tell.

  • manny

    dan,
    one minute you are defending AKAMAI and the next you are dogging them, WHY? There is no doubt that AKAMAI is “King KONG” and no one – NO ONE – is going to change that anytime soon. There are plenty with hidden agendas who are trying to make my AKAMAI look bad, but in the long run, we will see who will be standing. Wallstreet is full of crooks! CROOKS! where is the justice? Even judges are protecting LIMELIGHT when it is obvious they stole AKAMAI’s idea. Why are they paying the piper right now?
    M.P.

  • http://www.saurik.com/ Jay Freeman (saurik)

    As the article even states, comparison to Akamai is kind of silly. Akamai /is/ looking for an entirely different scale (and even type) of business than Amazon is targeting. (Akamai is also twice as expensive as most of the players in this field, which is not mentioned in this article, and I’m rather certain their floor is way higher than a “few thousand a month”.)
    The major players who are actually in this space, at this level, are companies like CacheFly and EdgeCast: these are the products to which CloudFront should be compared. I will personally say that as recent customers of both the above mentioned services, I am /very/ anxious to use CloudFront: Amazon seems to be the first CDN in the “couple thousand a month” price range to actually handle small-file, non-streaming, static data in an intelligent manner.
    (Frankly, I’m sick of all the importance that people put on streaming data in the CDN field: if that’s all the functionality that CloudFront is missing, and this is the only example this article actually puts forth, then Amazon is going to make a /serious/ impact. CacheFly, EdgeCast, and companies in this range should be frightened.)

  • http://www.BusinessOfVideo.com Dan Rayburn

    How am I “dogging” Akamai? By publishing news that they had layoffs? That’s reporting what’s taking place in the industry, it’s not “dogging” anyone. It sounds like you have a vested interest in Akamai due to their stock price, but I don’t. I don’t own any shares of any public company, including Akamai, so I am not emotionally tied to the company.

  • Manny

    Dan,
    As my post indicated, “My AKAMAI”! Of course I have an interest in AKAMAI. It just baffles me that when supposed competition enters the battlefield, analysts point to AKAMAI losing business – if that were to be true, all the minions would be losing much more. Don’t sit there and try to convince anyone that you have not dogged AKAMAI because you have. You need to reread your old blogs and see for yourself, but you won’t since you already know. AKAMAI is not a CDN. What are their main sources of revenue? What has their average yearly growth over the last 4 years? For someone who seems to know what he is blogging about, don’t play naive. Goldman had AKAMAI on their conviction sell list – they just bought over 1 million shares of AKAMAI. What’s that all about? Why don’t you blog that! If this economic slowdown is killing anyone – goodbye to any of the AKAMAI pretenders.
    Answer one question, please! In the areas that AKAMAI is entrenched, name one competitor and its revenues as compared to AKAMAI. Please, enlighten me! What is the true value of a great company – free CASH flow my friend.
    Manny

  • http://www.BusinessOfVideo.com Dan Rayburn

    Well you got me confused.
    My post says that even with Amazon entering the CDN business, they won’t compete with Akamai. But your complaining that “when supposed competition enters the battlefield, analysts point to AKAMAI losing business.” I didn’t point to them losing business, in fact I said they won’t because Amazon won’t compete with them.
    You say Akamai is not a CDN, yet they will do over $400 million dollars this year in content delivery services. As I have said in multiple posts on my blog, when it comes to CDN revenue, no one is even close to Akamai’s revenue. But your saying Akamai is not a CDN, but then saying they do a lot of revenue? Huh?
    Why would I report on how many shares of anything Goldman bought? In the past 2 years my blog has been around, have you seen a single post from me talking about who bought what shares? This is not a finance site and I could care less who is buying shares in what. I’m not a stock trader.

  • http://akamai.com Manny, STFU

    Manny, stfu, you’re making Akamai looks bad.

  • Benxamin

    Wow! 2008 is a long time ago. We’re leaving Limelight’s poor service for the DIY convenience of AWS.

  • Gordino

    Well, both Akamai and Limelight have some areas of support
    issue. I have used both and with the latter as of right now and I’m happy. This
    can change obviously. We want performance and reports, both offered by these
    two guys. AWS is not the best performer but it is cheap and better than
    nothing. No reports as such I find useful. Now, on support try and call up CloudFront
    to discuss. Oh wait that’s nearly impossible as that’s Amazon’s model of email,
    email, email only.