Media Companies Should Continue To Choose CDN Network Performance And Scalability Over Price

Darren Aftahi, VP of Digital Media Research at ThinkEquity Partners has some of the best institutional research in the Analyst community about companies in this space. While he covers a broad spectrum of digital media technologies, much of what he writes about has to do with content distribution and online video.

I'll be doing a round up of all the analysts I like in this space over the next week or so. If you are an analyst that wants to get on my radar please contact me ASAP.

This morning, he did a write up on Akamai's stock price and one of his points in his brief was that "Media companies should continue to choose CDN network performance and scalability over price, to enable their online media businesses, especially when models are monetized via advertising dollars." It's a great point and one that many media companies don't adhere to. Many major media companies I speak to always seem be looking for the lowest price as opposed to the lowest price WITH good performance.

As content delivery pricing has already pretty much hit rock bottom, I expect we will start to see customers become more aware in the market in regards to more than just price. I think in many cases, we are already starting to see companies win business based on performance, customer service, reporting and other value add services, which in my mind, aren't really value add, but more things that you HAVE to do right if you want to keep customers happy.

I am already starting to see the signs of the price per GB delivered going up slightly from where it was last year and the content delivery networks not prcing large volume deals as low as they use to. It's not a drastice change, but I expect that by the end of this year, we will actually start to see prices for content delivery rise for the first time in many years.

Comments

[MD]

Actually many users of CDN services have already felt the pain of "cheap bandwidth" in terms of unexplained video dropouts and QOS issues. The "value proposition" is less and less about bandwidth cost and more and more about demonstrable quality, dynamics, metrics, traffic management, etc. Cost of bandwidth in many cases is already so low (as compared to production/license/hr/etc costs), that it's low enough.

[Trevor Sumner]

Ballsy. Cost of storage and hardware is going down, but bandwidth will go up? A lot of the media businesses that are being enabled are struggling with the advertising model. Many of our competitors who are known specifically for advertising delivery simply aren't making their customers any real money. In an early market where a lot of big media companies are screaming for ROI and smaller niche players are looking for immediate revenue and profit, increasing CDN costs will close a lot of doors and there will be room for less pricey competitors. With the economics in question, cost will continue to be a factor in buying decisions, IMHO.

[Dan Rayburn]

Agreed, cost is always a factor in these decisions, but the point is that cost should not be the only factor on how a company picks a CDN provider. And price is going up slightly. I hear from customers all the time that they are willing to pay just a little more to a CDN who is going to provide a better level of service. The CDNs hear that as well and are charging for that if they can.

[Dwight Merriman]

Trevor makes a great point. Having been at DoubleClick for ten years before Panther, I know how hard it is to get the economics to work for a publisher. It is a big challenge on an ad-supported site to get the average CPM high enough to cover video bandwidth costs and all other expenses.

"Lowest price WITH good performance" - I agree with that. We are trying to find the right price/performance balance. We see competitors in the market who have very good performance but are very expensive, and others who have poor performance but are not so expensive. Our whole business plan is to achieve a good mix of performance and low cost.

It will be interesting to see what happens with CDN prices. Our budget calls for our prices to decrease further, although perhaps not as fast as market prices have dropped in past years. One thing that is expensive right now is power.