Akamai Slashing Media Pricing In Effort To Fill Network, Won’t Fix Their Underlying Problem

With Akamai’s top six media customers have moved a large percentage of their traffic to their own in-house CDNs over the past 18 months, Akamai has been scrambling to try to fill the excess capacity left on their network. Over the past few weeks I have been tracking media pricing very closely and now have enough data points directly from customers and RFPs to see just how much Akamai is undercutting Level 3, Amazon, Verizon and Limelight on CDN deals.

On average, Akamai is coming in about 15% cheaper trying to win new CDN business or keep the traffic they have. The lowest price I have seen Akamai quoting is $0.002 per GB delivered. To date, that is the lowest pricing I have ever seen on any CDN deal ever. That price is for very large customers, but even for small deals where Level 3 is at $.005 and Limelight will be at $0.0045, Akamai has come in at $0.003. Akamai is making it clear with renewals and with new deals that they want to keep/win the traffic. And while lower pricing might help them with some RFPs, I see deals where they don’t win it, even with the lower price. And many times if they do, it’s harder for them to keep all the business they have, even with lower pricing, because many content owners are now using a multi-CDN strategy, sharing traffic amongst multiple CDNs. So in many cases, even when Akamai keeps a customer, they are keeping less traffic, at a lower price point.

While selling on price alone has the potential to give Akamai a little bump in revenue if they can grab some more market share, it’s not a long-term strategy. When you can no longer sell media delivery based on metrics like performance and have to win business based solely on the lowest price, that’s a recipe for lower margins. In the first six months of this year, Akamai’s margins were down 150 basis points. Value add services which have healthy margins can make up for a lower margin service like CDN, but Akamai’s year-over-year growth in their performance and security business has also slowed.

Akamai, and all CDNs for this matter, can also get burned if they offer too low of a price and then realize a large percentage of the customers traffic is coming from regions like India, China or Australia. In those regions, it costs them substantially more to deliver the traffic and when they give a customer CDN pricing, it’s a number they are picking based off of blended traffic coming from a global audience. Get that wrong and your costs are higher, for business you already quoted at such a low price. While we don’t know Akamai’s true cost to deliver content since they don’t break out CapEx dollars, I guarantee that Akamai is not making money on a CDN contract priced at $0.002. That’s not a deal that is profitable to the company, standing on its own. Maybe it has a bigger overall impact based on who the customer is, or it gets them other business, but many of the deals I am seeing are for straight CDN, nothing else. Akamai is sacrificing margins on their media business, just to add traffic to their network. That’s not healthy for any business.

Akamai is also facing a massive CapEx problem, where they have to spend a lot of money to constantly refresh their network and the number of servers they have. Akamai has said they have 200,000 edge servers and Limelight has said they have 10,000 edge servers. Limelight has 1/3 the capacity of Akamai, but spends far less in CapEx. In the first six months of this year, Akamai spent $160M in CapEx, Limelight spent $5M. Even if half of Akamai’s CapEx is directed at their media business, it’s $80M or 20 times Limelight’s  CapEx spend. Based on those numbers and other data I have, by my estimate, it costs Akamai about $5M in CapEx to add 1Tbps of capacity to their network. Compare that to Limelight and Level 3 where I estimate it costs them about $1M in CapEx per Tbps of capacity, in the U.S. or Europe.

Highlighting this point even further is that on Limelight’s last earnings call, the company talked about their CapEx costs and capacity, when compared to Akamai. Limelight has less than 1/20th the infrastructure to deliver 1/5th the revenue, when compared to Akamai. We don’t know the exact capacity of Akamai’s network, but Limelight’s current egress capability is just shy of 15Tbps. And I think Akamai has said they hit a record 40Tbps. Also, Limelight added almost as much capacity in the first half of 2016 than they did in the full year of 2015, while spending $7.6M less in CapEx year-to-date. Meanwhile, Akamai’s CapEx costs are accelerating, while traffic growth has slowed, with declining growth in revenue.

Akamai’s got a short and long-term problem with their media business and really needs to decide if they want to be in a business that is so volatile, with little to no margins. You have a commoditized service offering, customers that now compete against you, cloud providers that have more scale and ways to make money and competitors that own and operate the network, and others with distinct CapEx advantages. Akamai would be better off getting out of the media business over time and putting all of their efforts into their web performance and security product lines.

On a side note, Twitter’s NFL stream, taking place Thursday Sept 15th, will be delivered by Akamai and Level 3 and I do not expect it to have a large simultaneous audience. My estimate is under 2M simultaneous streams. Also, Apple’s iOS 10 update that came out on Tuesday, the vast majority of that is being delivered by Apple’s in-house CDN, with only a small percentage of the overall traffic going to third-party CDN providers.

Conviva Drops Patent Lawsuit Against Nice People At Work

In March, QoE platform provider Conviva filed a patent infringement lawsuit against Nice People at Work claiming that NPAW was willfully infringing on a number of key patents, (8,874,725; 9,100,288; 9,246,965) which relate to the computation and summarization of video streaming metrics as well as delivery resource selection and switching. Last Thursday, the judge in the case heard oral arguments on all of the motions and two days later, before the court had a chance to render its decision, Conviva made the decision to dismiss the case and dropped all of its claims, putting an end to the litigation.

I haven’t had a chance to speak to either of the companies involved as they are at IBC this week, but whatever the reason for the change, it’s a smart move for Conviva. Patent suits rarely benefit any company and while Conviva is larger than NPAW, both companies are small, don’t have the resources for a long drawn-out lawsuit and their time could be best spent focusing on their customers. The best way to compete with a new competitor in the market isn’t in the courts, it’s with your product. Make it better than your competitors and it will stand on its own.

The market for QoE related services is starting to get very crowded. Along with well known vendors like Conviva, Cedexis and Adobe, there are a lot of new entrants including NPAW, Hola, Touchstream, Tektronix, Erisccon, VMC (owned by Volt Information Sciences), Interferex and others. And while not all of these vendors are doing the same thing, or would be an apples-to-apples comparison in each case, they are all working on improving QoE in one way or another. You will also see some of the online video platform (OVP) providers and CDNs roll out their own QoE solutions by the end of this year.

Thursday Webinar: Delivering OTT Experiences that Keep Audiences Hooked

Thursday at 2pm ET, I’ll be moderating a StreamingMedia.com webinar on the topic of “Delivering OTT Experiences that Keep Audiences Hooked“. In the hypercompetitive OTT market where success hinges on a provider’s ability to attract and retain a loyal audience, sharing quality content is just the start. To really stand out from the crowd, you need to tackle a range of challenges that are critical to providing the great viewing experience your audience expects. Join us for an expert discussion on issues you can’t ignore, including:

  • Delivering content to diverse devices without sacrificing quality
  • Ad insertion technologies that optimize monetization
  • Security strategies that protect your content and your viewers
  • How to meet scalability and global reach requirements
  • The surprising role storage can play in reducing latency

This presentation will include case studies of OTT platforms that are successfully providing fast, reliable, secure experiences that keep audiences engaged and coming back for more.

REGISTER NOW to join us for this FREE Live web event or the on-demand recording after September 15th.

“Have our troops hoist the colors to its peak, and let no enemy ever haul them down.”

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Many Industry Analysts Need To Rethink Their Role, Should Not Be Pay-To-Play

I know some industry analysts are going to disagree with this post but lets cut right to the chase. No company should have to pay anyone, just to be able to talk to them or give them a product briefing. And yet every week, vendors keep telling me that many analysts they contact, in the effort to give them a briefing on their company, get told they have to pay the company, or sign up for their subscription service, just to get a meeting. That is wrong. The job of an analyst is to educate themselves on as many of the companies and products in the market they track. Without all the vendors, no analyst would have a job.

If you are only talking to, meeting with, and taking briefings from vendors that subscribe to your services/research, then you’re not an analyst – you’re a consultant. An analyst’s job is to show the market what value they bring to the discussion, what expertise they have in the verticals they follow, and what knowledge they have to share with everyone. I get that analysts can’t give away all of their data and analysis on topics, but not even doing a briefing with a company, that isn’t paying you, only hurts your analysis. It means the analyst doesn’t have a grasp on the entire market if they are only concentrating on a limited set of vendors in the market they follow.

The other problem I hear from vendors all the time is how hard it is to get the analysts contact details. More often than not, trying to get an analysts email or phone number, is difficult to do. They don’t list it on their website, blog, Twitter etc. and maybe you can get an email if you are lucky, but a phone number is almost never listed. It’s as if the analyst doesn’t want to be bothered with pitches when that’s exactly what they should want. A good analyst should want to talk to and meet with companies and not just exchange a bunch of emails. While email can be useful to start the conversation, no email thread will ever take the place of what is accomplished in person with a handshake when you meet with companies.

I also find it so odd that so many analysts don’t even make themselves available to the media. No good analyst shies away from the media, those are the opportunities you should want, to help educate those writing about a topic or market that they don’t follow as closely as you do. You have the opportunity to shape the focus of the article being written and give the author some data points that others will remember. That is where an analyst can shine, help the market as a whole and display the kind of data and analysis they have. And yet many don’t want to be bothered with the work of educating the media, since they aren’t getting paid to do it. In my opinion, far too many analysts are only concerned with talking to those who pay them or their company, which is very short-sided.

As an analyst myself, I can only control what I do, what I share with the market, and the time I give to others. But it would be nice if many analysts saw the bigger picture of what it means to be an analyst and the responsibility they have, when the industry is looking to them to help set the right expectations and share market data.