CDN Pricing Remains Stable In Q2: No Indications Of Slowing Traffic

Comparing the data for content delivery pricing specific to video delivery in Q2 from the prior quarter shows pricing remained very stable in Q2 but with some new trends emerging. While pricing for Q2 is almost identical to Q1, there was a drop in the price per GB delivered for those customers who on average are doing over 1PB (petabyte) a month. While this is a small percentage of the total number of CDN customers overall, I did see new contract pricing as low as three cents ($0.03) per GB delivered on new 12 month contracts. In Q1, the lowest I saw was around two and a half cents but that was not the norm. (Note: you can easily find my latest pricing data at www.cdnpricing.com)

I think it is also important for me to point out that while many on Wall Street are implying that the CDNs are seeing slowing traffic or less CDN growth in terms of the numbers of bits pushed, that is not the case. I don't see any market indications from customers or CDNs to lower traffic last quarter or any signs that customers are delivering less content. To the contrary, all I see is more bits pushed, more often, at higher bitrates and to more devices. With Akamai, Internap and Limelight all reporting numbers in the next two weeks, investors should be asking them details on the products that make up the numbers Wall Street cares so much about. Analyze the products the numbers come from.

One of the biggest trends I am seeing in new contracts is no monthly commits required. In its place, customers are committing to traffic over the course of the entire 12 months. While this is not brand new and has been going on for some time, it is now almost the norm for new customers who have a lot of delivery. Anyone doing more than about 500TB a month and in some cases even lower, is committing to a yearly amount of traffic instead of monthly. While this does not have much of an impact on CDNs in terms of revenue, it is good for customers as it gives them more of an incentive to push as much traffic as they can with the CDN. And since you don't pay overages on a per GB delivered model, customers are getting more content online and available for viewing. (related: Content Delivery Pricing: Understanding CDN Overages)

While some customers I talk to as well as analysts in the industry seem to think that before too long CDN services will be almost free, that could not be further from the truth. While pricing has dropped year over year, pricing has remained very stable for the last three quarters and should remain so. There is a direct fixed costs to running and maintaining a content delivery network and the services of a CDN will never be free or close to free. And while some of the smaller, newer CDNs are willing to give away the business to grab market share and are losing money on those deals, well established CDNs will not give it away and lose money. While every CDN I speak to always says they aren't losing money on any deal, I know that is not the case. I see some of the pricing on these contracts that some of the newer CDNs are charging and I know they are losing money on various deals. When they are pricing things at one or two cents per GB delivered, and they don't have the size or scale of a larger CDN to take advantage of buying transit in bulk, money can't be made at those levels. For those that worry this may erode the pricing of more well established CDN players, it won't. Customers are not buying on price alone and many customers I speak to are willing to pay more to be with a well established player who has been proving for years what their network is capable of.

At this time, I don't see pricing on these large deals going much lower when the lowest is at three cents per GB delivered. Many of the CDNs have told me that at that level, they are just breaking even and aren't making anything on those deals, which is ok since so few of their customers are getting that level of pricing. As CDNs continue to scale their networks and learn how to better optimize their servers, which gives them the ability to push more bits with less infrastructure, we could then see a small pricing decline. But I expect that will be 12-18 months off as most of the established CDN vendors don't expect to be able to really advantage of their next major network upgrade, on the software side, until that time.

At the Streaming Media West show in September, I will be making two presentations on the CDN market. The first will be reviewing all of the latest pricing data and breaking down the numbers in greater details. This presentation is entitled "CDN Pricing: The Going Rate For Video Delivery".

My second presentation entitled "CDN Research Data: World Content Delivery Networks Market" will be my first report with Frost & Sullivan that will break down the CDN market specific to video. The data presented will also analyze the trends in different regional markets: Americas, EMEA, and Asia Pacific, as well as provide revenue and demand forecasts for CDN solution providers and peer-to-peer based solutions. Register for the show before Aug. 20th for the discount rate.

Comments

[Mio Babic]

It seems like everyone is concerned with pricing and not as focused on the quality of service (QoS) and value-added features offered by different CDNs. By features I'm referring to a full CMS offering that includes media and metadata management including transcoding services, playlisting that includes geo fencing and player templates that enable customers to publish their content to the web, advanced reporting and analytics, self-managed live events provisioning tools, multi-format support (at least WS and FMS), and various APIs to extend functionality outside CMS/CDN platform.

Above all this, all things being equal, customer focus (i.e., companies that take time to learn about their customers' challenges and objectives) and innovation (companies that take information learned from their customers and design technologies that ultimately become part of their product/service portfolio) are those who will succeed in a long run. And YES customers will pay more for products and services offered by companies with such mentality.

[Roger]

Dan,
I find your assessments on CDN pricing trends very valuable.
One thing to consider is that their are other technologies emerging that could be disruptive to the CDN's, specifically for long form video and community network gaming. These network technologies will allow for end to end video delivery,per user session,with guaranteed QOS from the access network,across multiple carrier transport networks directly connecting to the media servers of content owners,bypassing best efforts internet router networks. These approaches could be offered at a major cost savings to current CDN pricing. The CDN response will necessarily be to cut prices more aggressively or see this long form video segment migrate to these new carrier approaches.

[Dan Rayburn]

Hi Roger, not quite sure I understand what you are saying. You say "other technologies" but then don't say what they are exactly. Content owners for video don't have media servers of their own, that's why they use CDNs. I don't understand the new carrier approaches your are referencing?

[Jeff Turner]

Quality of Service (QoS) is not simply a technology issue -- although there are still some technical issues that must be resolved to do inter-carrier QoS with fine grain guarantees and the right level of security.

It is also an economic and policy issue. How ISPs receive compensation for providing "diamond lane" services across their networks in a fair, reasonable and non-discriminatory fashion is the root policy issue we're working through today.

[Karthik Kailash]

Hi Dan,

Thanks for the informative post. I was wondering, are CDN storage costs changing as well? Some things online say it's around 10c/GB, but I can't find any definitive resource.

Thanks,
Karthik