CDNs Need To Evolve To Offer Tiered Performance And Pricing Plans

Some CDNs don't want to admit it, but today, delivering video bits over the Internet is commoditized. While the performance and scale that comes with delivery is not commoditized across the board, Akamai, Limelight and Level 3 all have very similar performance when it comes to delivering video. Of course, they would probably all disagree with that statement, but the simply fact that so many content owners use two out of the three of them, to deliver the same content, proves the point.

Not to mention, when was the last time you saw any of those three CDNs put out any release talking to increased performance of their network? Their releases have been about adding new functionality, moving up the stack, ecosystem solutions, value add services and the like. Not performance. The fact is, the performance of Akamai, Limelight and Level 3 are considered by most to be very identical to one another for video delivery. This notion is only reinforced by the fact that all three of them are at the top of the list in the market in terms of CDN revenue.

While some CDNs may be able to show customers slight performance or network coverage differences between one another, for the most part, customers are not willing to pay a premium for that difference with regards to video delivery. In the app delivery, commerce and ad delivery business, fractions of a second can and do impact the customer's business. But when it comes to delivering video, having a video start up on one CDN two tenths of a second faster than another CDN has no real impact on the customer's business. So why should any CDN think the customer is going to be willing to pay a premium for that service? Some may, but most won't when the performance difference between the networks are so similar, not to mention, very difficult to measure. Of course, if one network is starting streaming seconds faster than another, that's a different story, but today, that's not the norm between Akamai, Limelight and Level 3.

Neither myself nor the vendors dictate anything in the market, rather, customers decide what they will and will not pay for and what the value is worth to them. While CDN vendors and others in the industry may not like this, it's reality. In general, CDNs have been very good over the past year to work on adding value added services and continue to try and solve many pieces of the video ecosystem. While they are moving in the right direction, they need to once again look at the commoditized video delivery piece and how they charge for it. Most CDNs don't distinguish between what is commoditized and what isn't and they need to start offering different tiered performance and pricing services to the market. This is not an option for them, but rather something that they will be forced to do and should start to embrace it now. This is where the industry is moving and what customers are starting to demand in the market. The smart move by CDNs would be to get in front of it now.

Many times I have customers tell me that they are willing to pay less to have good performance, but not the best performance known to mankind. Other times, customers say they don't need any reporting, self provisioning tools or other ecosystem pieces and as a result, should not have to pay a high per GB price to help the CDNs build out a platform they are not using. Other times, content owners will tell me that the vast majority of their traffic is passed over the CDNs during off peak hours and wonder why they aren't getting a lower rate. 

In all of these instances, customers are looking for a tiered pricing plan based on different levels of performance. Like it or not, before too long, CDNs are gong to be forced to offer tiered performance pricing. While some may say we already have this in the market today, we don't. Don't be confused by tiered pricing which simply changes based on the different level of bits you push, but not at a different rate based upon varying performance.

While I have not heard many CDNs talk about this type of model, I do know that some are already thinking about it and viewing it as something they know they will have to adopt, sooner rather than later. It's also possible that services like HTTP streaming will help drive different performance and pricing plans to the market sooner and that one day, there will be a valid reason to charge more or less for delivery, based on the protocol that's being used. Before long, I see a big shift coming in the CDN market regarding the way customers want to buy these services and the way CDNs are selling them. That's a disconnect that the CDN vendors can't bear to have. Before too long, the CDNs are going to have to change and adapt to market conditions based on what customers are demanding and I think this change is coming a lot sooner than most CDNs may realize.

Comments

[stef van der Ziel]

The CDN market may be commoditized in the US, not in Europe. That is not just my opinion, it is also an important conclusion in a recent Streaming Media Magazine (EU) article. The EU market is fragmented. Content is served locally. There is less need for global CDNs. Smaller, innovative, regional players have an advantage overhere.

Not a sales pitch, but as an example: StreamZilla already offers finer performance and capacity granularity than other CDNs. In our vision it is important that a CDN operator can assign any number of resources in the CDN individually per customer account. the operator should also be able to tune the popularity thresholds individually per customer account.

For example: customers should be able to choose how much burst capacity they want reserved in the CDN. They pay a small monthly fee for every Gbps reserved burst capacity.

Another example: setup and assign dedicated resources within the CDN for specific customers. The costs are a bit higher, but these customers can now benefit from guaranteed hardware and network capacity, and still use the bursting power of the shared CDN resouces.

A final example: by tuning the thresholds a CDN operator can manage how much traffic is delivered from core or edge servers. A high threshold means that most content is served from the default servers. It saves storage on the edges, so the costs are lower. A low threshold means that content is replicated faster to edge or burst servers.

I think that CDNs will have a hard time to realize such granularity because of their technology choices. For instance, if a CDN uses an asset sync or a geo file system, all assets are always everywhere. Or if a CDN uses a caching system, it may harder to tune thresholds individually.

[Anon]

I also work for a CDN (not one of the three mentioned in this article) as does the first poster, but I will keep this comment objective - just a couple things to note:

1) CDNs have many circuits from carriers at many locations. The carriers bill the CDNs for the added up amount of the 95th percentile for EACH location, as opposed to the 95th percentile of the AGGREGATE usage across all locations. Therefore there is much less benefit for a CDN to discount off peak traffic as there would for a web hosting company with one location where the off peak traffic is free for the hosting company.

2) Another important note is that some CDNs bill for all traffic across the CDN (inbound, outbound, edge to origin, etc), whereas other CDNs only bill for the edge to end user traffic. Therefore, a GB or Mbps price from one CDN that is the same price as another CDN might in reality be DOUBLE the price of the other CDN if one CDN is charging for all bandwidth usage on the CDN and the other CDN is only charging for the edge to end user traffic.

[damien wetzel]

hello dan,i don't agree with your position. If CDN are to be considered as selling a commodity product, it would need to be a One Size Fits All type of selling. if you start to allow a tiered model depending on what the customers want, it's going to be a nightmare to administrate for the CDNs. having sold tiered products in a big ISP, i can't tell you it makes the sell much more difficult and longer.
when i meet a prospect that wants to many specifics things, i send him to the competition and look for an other one ;) The only tiering that could be interresting would be the tiered pricing. but at the end i always favor the KISS (keep it simple and stupid) way of doing buziness. Best regards,

[Steve Lerner]

Here is a puzzle for you: what is the #1 reason that CDNs don't all offer comprehensive tiered pricing as a standard billing option?

Is it because the CDNs:

a) are trying to keep margins as high as possible
b) are afraid that somehow customers will try to game the tiers in some way and create lower pricing
c) don't understand pricing tiers
d) have services that are impossible to bill using tiers
e) have billing systems that don't support tiered pricing

If you answered e), you agree with what my experience has been for the last ten years. Tiered pricing is very easy to write into a sales contract, and often accepted by the pricing desk, but the reality is that the CDN billing systems can only take a single number, per service, against which to applying unit pricing.

CDNs- YOU KNOW WHO YOU ARE! If you don't get your billing systems in order you will be losing customers, losing money as customers refuse to pay until the bill is right, or losing money because the bills are just wrong.

We have caught all kinds of billing errors not just with CDNs but with hosting, managed services, and bandwidth providers all who have the same problem. It makes for a great business in contract lifecycle maintenance for us, but ultimately hurts the client and provider.