CDN Pricing: The Going Rate For Video Delivery

At the Streaming Media East show on Tuesday May 20th, I will be presenting my latest data in a session entitled "CDN Pricing: The Going Rate For Video Delivery".

With more CDN players in the market than ever before, trying to figure out what you should pay for delivering video can still be quite complex. This presentation will offer real pricing numbers from large, globally focused content delivery networks and show you the average going rate when you outsource delivery to a third party. The session will also cover some of the variables that determine the final price and how you should accurately compare the delivery services of one CDN to another, and it will give you a list of providers in the market today.

Have a topic or question for the session that you want to see addressed? Submit it in the comments section and I'll add it to the Q&A portion of the session.

Registration is still open and you can see all the various pricing packages, including a one-day ticket on our website. Six years since we took over the StreamingMedia.com business and we've still managed to keep the conference very affordable for everyone to attend. A full two-day conference ticket is only $895.

Online Video Mergers and Acquisitions: Wall Street's View

At the Streaming Media East show on Tuesday May 20th, we have a special session entitled "Mergers and Acquisitions: Wall Street's View". Acquisitions, partnerships, funding, and failures are all making headlines at an increasing rate.

At times it is difficult to understand why these events occur, what drives them, who is involved, and how they affect the rest of the industry. This panel of venture capitalists, equity research analysts, and others will discuss their views on the state of the markets, what gets them excited, what concerns them, and how it could impact the way you do business.

Confirmed speakers include:

• Moderator: Brian Essex, Analyst (formerly at Morgan Stanley)
• Colby Synesael, SVP, Equity Research, Telecom, Merriman Curhan Ford & Co.
• Kevin Ryan, Co-founder, Chairman, Panther Express
• Neil Squeira, Partner, General Catlyst Partners
• Ray Conley, CFA, Palo Alto Investors

Have a topic or question for any of the speakers you want to see addressed? Submit it in the comments section and we'll add it to the Q&A portion of the session.

Registration is still open and you can see all the various pricing packages, including a one-day ticket on our website. Six years since we took over the StreamingMedia.com business and we've still managed to keep the conference very affordable for everyone to attend. A full two-day conference ticket is only $895.

CDNs Vendors Raised Nearly $300 Million In Past 18 Months

In the past year and a half, more than 15 video delivery vendors, including P2P based providers, have raised almost $300 million in capital. CDNetworks, EdgeCast, Panther Express, Grid Networks, Highwinds, Velocix, Itiva, Move Networks, Pando Networks, Rinera, BitTorrent, ChinaCache, Rawflow and Oversi combined raised $282.85 million in 07' and 08'. And that number does not take into account other CDNs who have already raised money but have not yet announced details. In addition, there are also at least four providers, some new, some not, who are out in the market raising a new round.

When all is said and done, at the end of this year, I expect we'll have over $400 million raised by CDN vendors for 2007 and 2008. And with the market size for video delivery services in the U.S. being around $450 million in 2007, that's a lot of money raised as compared to the size of the market. I'm afraid that many investors are going to need the CDN market to grow a lot faster than it can in order for them to see the kinds of returns they are probably expecting.

Give Feedback On Your Reporting Needs: Earn A $100 Amazon Gift Certificate

Following up on my post about customers needing better reporting and analytics, Skytide, a sponsor of this blog, is interested in doing 30 minute calls with customers to get their feedback on what additional metrics and features content owners want to see in the market. They would like to hear the pain points customers are having today and they are offering a $100 Amazon gift certificate as compensation for your time.

If you are interested in giving some feedback about your reporting needs and what is missing from the market today, they'd love to speak to you. Those interested can contact Lynn Anderson directly at Skytide.

Reporting And Analytics Number One Complaint Of CDN Customers

Of the 1000+ customers who took our CDN survey and were asked "What value added services are you willing to pay a premium price for", over 75% of them said something having to do with better reporting and analytics with the most common answer being something along the lines of "Better reporting - and did I mention better reporting!!!"

So it will come as no surprise that analytics and reporting was also the number one answer when we asked "In your opinion, what is the one thing your CDN needs to improve on". While most CDNs I speak to know how big of a deal reporting is, very few seem to be taking the issue seriously. Much of what customers are getting today in terms of data is very basic and is at most, raw data that is presented to look pretty but with no analytics to tell them what the data means. I know that some CDNs will say that reporting and analytics is hard as the log files they are dealing with are so big and that many customers have custom reporting needs. That is true, but there should be some base line minimums, and when many CDNs reporting interface can't even tell a customer during a live event how many simultaneous streams they are doing, the basics are missing.

Looking over the survey data, here were some of the most common comments from customers:

• real-time reporting for live events
• analytics reporting is technical only, not enough marketing oriented
• reporting based on geographic region
• reporting based on sub-accounts
• monitoring/analytics APIs
• self service reporting tools have a terrible interface
• access to geographical based reporting, such as the map in Google analytics to determine local advertising impact
• analytics for Flash content
• providing metrics in a timely fashion
• looking at how long each video is played on average, are people dropping half way through?
• Analytics a little bit limited, e.g. can't choose custom time frame (3 day for instance), also the reporting does not translate UTC to our local time
• Reporting over longer periods of time (currently only 6 months)
• detailed user analysis (who watched what for how long from where)
• an API for accessing and displaying the tracking data, so that I could create my own "dashboard" to show real time stats
• I would like an API where I can get raw metrics to feed into our internal report structure. We use several CDN's and each has their own reports. We spend too much time translating data to produce a single comprehensive report.
• reporting and analytics and the ability to parse it out by stream/customer
• push default reports I want to me, rather than me have go get them
• views per day, views per geographic location, length of each view then an aggregate % per day

From all the customers I speak to, the feedback I have heard is that Akamai and EdgeCast have the best reporting products in the market. That's not to say that others may not also have a good functioning products, but those two are the ones I hear the most compliments about from customers. I think every CDN in the business should have a real reporting account on their homepage that anyone can log right into so that you can see first hand what their reporting and analytics package looks like. Too many times customers tell me that when they ask about reporting, most CDNs send them a product sheet with some screen grabs of the interface.

Reporting, and more importantly analytics, needs to get better a lot faster. Customers have to be able to show the value in these services, measure their success and justify why they should spend more money to deliver more content. While I see many of the CDNs all going to the market with the same message about performance, reliability, high-quality etc.... most of which don't really mean anything to a customer anymore anyway, why not create a really good analytics package and use that as your go to market message? It would stand out from the rest of the commodity marketing terms CDNs use, would resonate well with customers and is a functionality of the service all customers need.

"Streaming Content to Generate $70 Billion By 2013" - An Unrealistic Claim

Insight Research is forcasting that streaming content will generate almost $70 billion in the U.S. by 2013. I don't know how they come up with that number as I have not seen the full report, but $70 billion? They say the revenue prediction comes from audio and video files transmitted over the Internet, via an IPTV network or to mobile phones. They say that advertising revenue will fuel this growth and that "Questions surrounding consumers’ willingness to pay for content have been dispelled by the popularity of satellite radio and iTunes." I would disagree. Customers are willing to pay for music via iTunes, but so far, not videos on a mass-market scale. Over time, yes, more video specific content via iTunes will be purchased but you have to  back up the $70 billion number with more than just iTunes as an example. And what does satellite radio have to do with streaming?

They also say that if pre-stream costs drop faster than expected, or IPTV or 3G takes off faster than expected "it could blow the doors off of our forecasts, propelling this industry into explosive growth." I am all up for reports that show growth and make predication based on accurate data, but $70 billion is just so far away from reality. If someone has a copy of the full report, I'd love to see how the $70 billion number is calculated.

CDNs Getting Ready To Benefit From Higher Bitrate Content

Of all the calls I do with analysts, money managers and others tracking the content delivery market, rarely do those I speak with ask about video birates. For me, the growth of the content delivery market and the very success of the CDNs relies heavily on the trend we see developing for increased bitrates. Most think CDNs can only grow their business by signing new customers or growing their existing customer base. But increased video birates has a huge affect on any CDNs bottom line and 2008 is the year that the bitrates of old finally turn the corner.

Five years ago, the average broadband video stream was encoded at 300Kbps. Last year, 300Kbps was still the norm but we saw many moving to higher quality. Within the last six months, the average broadband video is now at least 500Kbps. We have all seen bigger window sizes, better frame rates and all of that comes from increasing the bitrate. In just the past few days or weeks alone, MLB.com, MTV.com, Yahoo!, YouTube, and Daily Motion amongst many others have all increased the quality of their video.

Gone are the 300Kbps streams and small window sizes. Many content owners are now doing 750Kbps streams and come this year they are going to be delivering many more bits than last year. And with most content owners using some form of a CDN to deliver their content, the CDNs are poised for some explosive traffic growth this year. The average content owner I speak to says they expect to grow traffic 2-4x times this year, without the increased bitrate. Factor in moving from 300Kbps to 750Kbps and content owners could push 4-8x more bits this year than last. Of the over 1,000 content owners who took our CDN survey, 68.9% of them said they would increase their bitrates this year above 300Kbps.

Some say HD is going to be the biggest factor for CDN growth but HD viewing adoption in large numbers is years off. HD will have some impact this year, but most content owners are not encoding content in HD and are focusing on a bitrate around 700Kbps. But even with HD having a small impact this year, it still adds to the growth that CDNs are going to see in the next few quarters. Content owners are putting up more content, in more platforms, in higher bitrates and much of that content is longer in length. This all amounts to a huge increase in the number of bits being delivered via the CDNs.

That being said, the real question is will the CDNs be able to turn the additional traffic into additional revenue or will more traffic simply mean they will have to lower their price? As any content owner should know by now, the more traffic you do over time, the lower price you pay per GB delivered. But for most content owners, it's going to take a few quarters before they see that growth. Lower pricing is not going to come overnight and for those who aren't doing huge numbers to being with, even doubling your traffic may result in just small savings. Taking a look at contracts and pricing I see in the market, a large content owner doing say 300TB a month is only going to get about a 15% reduction in price on average for doubling their traffic to 600TB a month. Commitment levels and contract lengths play a factor in that percentage, but doubling traffic does not mean pricing then gets cut in half. For really large customers who grow their traffic quickly, they could see their price per GB cut in half. But if they are doing 4-8 times more traffic, even with the 50% price cut, the CDNs are still making more money. For some of the largest customers the CDNs have the increased traffic and lower price point could cancel each other out over time, but it will take many quarters for that to happen.

One of the best ways we could see the growth the CDNs are seeing from customers is if we knew how many streams the CDNs delivered each quarter. A few years ago, many CDNs use to give out that data each quarter or at least a few times a year. Some, like iBEAM, used it as a marketing vehicle to promote how quickly they delivered their 1 billionth stream. While the number of streams a CDN delivers does not equal a profitable company, as iBEAM found out, it would at least give us a way to see what type of growth customers and CDNs are experiencing. Today, the number of streams a CDN delivers each quarter and the growth they are seeing are one of the many data points that CDNs are scared to release to the market. Scared that if their number is lower than a competitor a customer may go with someone who did more volume. Scared because they won't be able to use some of the marketing language they use today if their numbers don't match. Scared because most CDNs in general are too focused on what customers "think" they do, as opposed to what they really offer. In the CDN landscape, they all seem to be focused on "perception" rather than reality, which keeps a lot of data from being revealed.

But the problem with this stay quiet approach is that as an industry, we need the CDNs to step up with this kind of data and show the growth. CDNs don't need to list out customers by name, but there is nothing stopping them from saying we delivered X amount of total streams last quarter. We need data points in the market that we can all rally behind to show Wall Street and others the value CDNs provide today and the role they are going to play when this becomes a billion dollar market. We need to show advertisers how many streams content owners are growing by each quarter and we need data points to show everyone how important the CDN market is. CDNs, think of the bigger picture. You hold the keys to being able to show everyone what the real growth patterns are for online video.

Content Owners Struggling To Compare One CDN To Another

I've blogged before about how most CDNs don't give out data points in the market or to customers for them to try and fairly compare one CDN to another. It's impossible to measure performance, capacity and many other aspects of a content delivery service offering from one provider to another. I got an e-mail this morning from a content owner who summed up what I hear all the time from customers:

"How do you think we should proceed looking for a new CDN and how do we get any data that will help us determine who we choose? All the CDN sales reps are blaming the other one in terms of network size, service quality, etc. and we can’t see the difference between many CDNs. Do you have research in terms of how much bandwidth, capacity, scalability, performance, etc?"

I know many of the CDNs hate these questions and say it is not fair for them to have to answer them since their capacity constantly changes and they are all making upgrades to their network footprint all the time. But why can't CDNs give some sort of metrics on capacity per format in each region of the world? Look how many CDNs say they are global when they truly aren't. Many CDNs that are in the Adobe partner program and listed on the Adobe site as supporting live Flash video don't support live. And how is it that every CDN, large and small, global and regional, has gotten an A+ ranking from Keynote on their network quality?

I am not the only one who notices this stuff. If any content delivery network thinks I am pointing out things customers don't already know, I'm not. I hear these kinds of points from customers all the time. And with more CDNs in the industry and more competition it is harder than ever for content owners to try and figure out who really does what in the space and what any one company's limitations are.

While I would propose some suggestions to the CDNs of the type of data they should talk about to fix this, it's pointless as it would then clearly show the differences between the networks. And too many of the CDNs want to be compared to all the CDNs as being on the same level playing field when in fact, they know that many times they aren't. I don't think there is anything wrong with not being as big as someone else or having as much capacity as someone else. Why would you want to tell a customer you are global, sign them up, and then have them find out the hard way that you really aren't? Why start off the relationship on the wrong foot? This happens much_too_often with customers.

CDNs should highlight what they do well, what their core strength is and what type of customers they should and more importantly should not be going after. If MLB.com were to put out an RFP tomorrow for all of their video delivery needs, I bet nearly every CDN would want to bid on that business, even though those of us in the industry know there are realistically probably only 2-3 CDNs today that could handle that level of traffic all at once.

The CDN facet of this industry has to get smarter and providers have to start evolving much faster in terms of the message they are delivering to customers. The service is already starting to be seen by many as a commodity. Now is the time to make it clear to the market and content owners what your real strength is. Looking at almost all of the CDNs websites, it is nearly impossible to find out what verticals they specialize in, what format(s) they support, what regions of the world they have delivery in (network maps don't count), what type of reporting they have, (put up a demo account on your home page), what your message is to the market, (speed, reliability and global reach don't cut it anymore), who your customers are, (case studies please) what your products are in detail (where are your product sheets?!) and for those that say they help content owners "monetize" their content, show examples of exactly what that means.

A CDN that delivers bits and who sells content delivery only with no tools or applications, that delivery service is not a monetization service. Pushing bits is not enabling content owners to monetize their content. Giving them tools or providing services to do targeted delivery, advertising, DRM and very granular reporting - those are monetization services. Simply shipping bits is not.

Too many of the CDNs are so focused on only using networking language right now that they are not delivering any real marketing message to customers. Go to the websites of the CDNs and look at the message on their home page. The majority of them, but not all, are not delivering any clear concise message with any real identity.

In my eyes, the content delivery market is going into the next big stage as we will see more growth in the next 2-3 years than we have seen in the past five years. Now is the time for CDN vendors to deliver a very clear and concise message to the industry and to customers of exactly what it is they offer and what the differences are between their company and others.

CDN Survey Data: Price and Customer Service Ranked Most Important

The StreamingMedia.com survey on CDN pricing is nearing its end and to date we've had 1,041 respondents. We're starting to compile all the raw data for the final report and will be giving away the iPhone this week.

When it comes to the factors that are most important to customers when selecting a CDN vendor, price and customer service came in number one and two. We asked respondents to rank multiple factors on a scale of 1-5 with 5 being most important.

• Price: was given a number five by 55%
• Customer Service: was given a number five by 52.7%
• Geographic Reach of Network: was given a number five by 44.7%
• Flexibility of Contract Terms: was given a number five by 33.4%
• Number of Formats Supported: was given a number five by 28.7%
• Technology and Product Road Map: was given a number five by 28.1%
• Value Added Services: was given a number five by 20.2%

While CDN customers are not buying on price alone, it comes as no surprise that pricing and customer service, followed closely by geographic reach of the network are the most important factors overall.

Exactly 50% of the respondents came from the media, entertainment and broadcast verticals. Enterprise and education made up another 30% and pharma and government made up the remaining 20%.

CDN Survey Data: 52% Have No Commit Contracts, 63% Use One CDN Vendor

The StreamingMedia.com survey on CDN pricing and trends has now been filled out almost 1,000 times. I'll be keeping it open for another week or so and then we'll start to compile all the data and give away the free iPhone. Taking a look at some of the preliminary data that has been collected reveals some great data points which I will be showcasing all this week on the blog.

When it comes to the length of CDN contracts, customer commit levels and dual-vendor strategy, there has a been a lot of speculation in the market on what the trends are. Here is the data we collected from nearly 1,000 respondents, 25%+ of which are doing over 25TB of delivery per month.

• 60.8% of respondents said they had a 12 month contract with their CDN. Only 12.9% had a two year deal.

• 73.5% said that when they renegotiate their contract, they don't plan to change the length. Only 12.4% said they planed to sign a longer term contract.

• 52.3% of respondents said their CDN contract had no revenue or bandwidth commitment at all. 25.3% have a monthly commit, 6.7% a quarterly commit and 11.4% have a yearly commit.

• 63.3% of respondents said they used only one CDN vendor for the delivery of video and static content. 26.% use two CDNs and 10.3% use three or more.

You can download the pie chart data for the questions here:(Download CDN-Contract-Data.jpg)

Akamai, Limelight and The Writers Strike: What It Really Means

Limelight put out earnings this week and once again, many analysts are unfairly comparing Limelight and Akamai numbers and data. Why is it that so many analysts and reporters are willing to make very specific statements about CDN providers, but do so using general terms? Sounds confusing just saying it but I'll prove my point in a second.

Yes, there is no question that Limelight did not show revenue growth from quarter to quarter and its yearly revenue guidance of ($136M) is a lot less than the pre IPO revenue guidance they gave ($179.2) for 2008. Investors want to see revenue growth quarter to quarter, but to me, who has no vested interest in either Limelight or Akamai's stock, the number of net new customers by Limelight each quarter continues to grow very well. Continued, long term, steady growth of customers is a good benchmark. Yes, being profitable is important, I get that, but this is not a dash to the finish line. This market is only just getting started and for Limelight, they are in this for the long term. And even without revenue growth quarter to quarter, the next closest competitor to Limelight in terms of CDN revenue for the U.S. has less than 25% of Limelight's revenue, so its not like anyone is bumping them from the number two spot.

I find it interesting that no one is saying Akamai only had 19 net new customer for the quarter and Limelight had 170? Why is no one comparing that and saying look how good Limelight is doing over Akamai? Because it is not a fair comparison. But that does not stop analysts and others from comparing Limelight's 15% decrease in the monthly average customer revenue, versus 20% increase by Akamai. That's suppose to be a fair comparison? What percentage of Akamai's revenue came from CDN services last quarter? How many new CDN customers did Akamai sign up? We don't know as Akamai won't break out those numbers. But did anyone stop to think that Akamai's CDN business could of been flat for the quarter as well but all of the other higher grossing products they have made up for it?

Limelight lives or dies by two things. It's CDN product, specifically for video delivery and the media and entertainment customers, which is its core vertical. Akamai offers multiple products not related to video and targets other verticals like enterprise and government. So when reporting numbers, we know exactly what product or service customers are buying. With Akamai, we don't.

Now some will say that Akamai stated on their call that a) the writers strike did not affect their business and b) they saw significant seasonal strength in media and entertainment. I agree with both of those statements, BUT, they are general statements. Did the writers strike affect Akamai. Absolutely. Doesn't Akamai have just as many if not more major broadcasters on their network than Limelight? While it did affect them, Akamai answered the question correctly when they said that it did not affect their business. Since Akamai is diversified in their product line, the writers strike had little impact on their revenue overall. But is that then fair to compare that to Limelight since they don't offer those other products? No.

And as for Akamai's statement that they, "saw significant seasonal strength in media and entertainment..." I don't doubt that. But for what product? Why does everyone assume that just because it is a media and entertainment customer that means they are doing video? Media and entertainment customers need other services Akamai offers as well. Why doesn't anyone question the general statements many companies put out and ask for the data behind it?

And before anyone writes in and says I am taking sides or am defending Limelight, I'm not. Yes, Limelight is a sponsor of the blog but Akamai has also nicely been a sponsor of the blog on multiple occasions. If the roles were reversed, I would still be making the point. It does not matter who the company is to me, it's the principle of how data is reported and conveyed to the industry and the market.

I probably saw over two dozen articles yesterday alone about Limelight's earnings. One said, "...it’s at least as likely that customers are pulling away from Limelight because of the costly patent lawsuits brought by Akamai and Level 3..." Really? That's a very specific statement, yet made in a general term with no details. Likely based on what? Customers you spoke to? Something Limelight said? Something you can point to? None of the above. If anything, Limelight's continued growth of net new customers each quarter says the opposite.

No, I don't own any shares of Akamai or Limelight. I have never bought, sold or traded their stock ever. And I know some investors are going to say that I am not a financial analyst so what do I know. That may be. But don't you think that is exactly what is needed in today's market? People who don't have any vested interest in public companies questioning what they say and asking for details on the products that make up the numbers? Anyone can look at a spreadsheet and P&L and all of that. But all of those numbers come from the products and every time I listen to a earnings call, nearly all of the questions are about ARPU and lots of financial data. That data comes from the products and services being sold. Why not ask more about them so you can see how the numbers evolved into what they are?

I'm sure some will say, why the hell do I care about this so much? Why am I always ranting about apples to apples comparison when I have no vested interest in the stock of any of these companies? The answer is simple. I want this industry to grow. I have been in this market for almost 15 years and I want to see it grow for another 15. In order to do this education, data, metrics and examples are the_best way that is going to happen. Maybe I am a fool for wanting companies and Wall Street to be more straight forward with info, ask the right questions and provide real data. I know when it comes down to it it's all about politics and the companies decide what data they put out in the market and what "perception" they want the industry to have.

My relative Sam Rayburn, former Speaker of the House said it best with the quote of "you can never remove politics from politics". That's what this industry feels like to me sometimes, politics.

AP Article: How Internet Video Is Clogging the Pipes

I can't figure out why we still have to read an article every few months talking about how online video is clogging the Internet. Last week the AP published an article titled "How Internet Video Is Clogging the Pipes". It's basis for the argument is that ISPs like Comcast and Time Warner Cable are shaping traffic due to file sharing. Ok, but what does that have to do with online video? Sharing files that may or may not contain video content is not "online video". Sharing a file via a download from one user to another does not involve the playback of any video online, it's played back locally from the users computer.

Yet, after saying that file sharing is the problem, the article then says that "Internet use keeps climbing, with video being the big driver in recent years. Google Inc.'s YouTube, which started up in 2005, already accounts for about 10 percent of Internet traffic." First, is there anyone out there besides the company who produced that report that believes that YouTube accounts for 10% of all traffic passed on the Internet? And second, how can you compare file sharing to YouTube? They are two different types of traffic. File sharing is usually very large files and most times at very high quality. YouTube is short form content at very low quality.

My point is that we keep having to read articles every few months about how online video is supposedly breaking, clogging, or filling the pipes to the point that the Internet is going to come to a halt. There is no data anywhere to back this up. Yes, video traffic has grown and continues to each year, but it has been doing that for the past 10+ years. Online video is not clogging the Internet and I have yet to see anyone with any real data to back up the theory that online video is going to fill up all of the capacity the Internet has to offer.

62% Of CDN Customers Surveyed Say Pricing Flat Year Over Year

I've been taking a look at some of the preliminary data that we have been collecting from our CDN survey and we've already got some great data points. While I expect a few thousand respondents over the course of a month, after a few days we already have over five hundred customers who have filled it out.

As Akamai's Q4 earnings from last night showed, much of the "pricing war" talk in the industry by analysts is overblown. Yes, there is some competition, especially when it comes to the largest customers, but for the most part, the "price war" is not as bad as analysts make it out to be and this data point below seems to reinforce that idea.

One of the questions in the survey is: How would you assess the pricing of your current CDN contract(s) versus your last CDN contract?

62% of those who have been surveyed stated their pricing was flat year over year. That point by itself is not enough as you really need to know what kind of volume those who fill out the survey are doing, but we're collecting that data as well and nearly half of those surveyed are doing over 50TB of transfer a month, so it's good sized customers.

The point is that not every customer is getting rock-bottom pricing and not every customer knows what price they should be asking for. If they did, we'd be seeing lower prices in the market more than we are, but in many cases, customers who already think they are getting a good price aren't trying to get the CDNs to lower pricing even more, unless the customer is willing to commit to more traffic, more revenue, or more services.

Take A 2-Minute CDN Survey: Win A Free iPhone!

Level 3 Winning Video CDN Business, But Not On Price

In October of last year, Level 3 announced that it would offer their content delivery services for video for the same price that it was charging for transit. Many in the industry incorrectly saw this as Level 3 saying they were undercutting other CDNs in the market and entering the industry as the low-cost leader, which is not the case.

If I remember correctly, Level 3 has over 2,000 customers for its IP transit services. It's only natural for them to roll out a pricing plan that they can use to target current customers buying other products like transit. But instead of many seeing it for just that, too many in the industry took it as a sign that Level 3 started a "price war" amongst the CDNs. For all those who have written about Level 3's pricing and a price war, why is it that none of them that I have seen have ever mentioned any real numbers of what Level 3 charges? Where is the data behind this Level 3 "price war" that so many talk about? How come no one will give an example of what Level 3 is actually charging? And if you aren't a Level 3 customer for IP transit services, their new pricing model gives you no indication of what they charge for CDN services without transit. Too many people want to make this more complicated than it is and want to talk to the "perception" of a Level 3 price war instead of finding out what they are actually charging for content delivery.

I've seen a bunch of Level 3 quotes and RFP responses and Level 3 is not undercutting the other CDNs in the industry just to win business. They are not the most expensive in the industry, nor are they the cheapest. From what I have seen, on large volume deals (over 50TB), Level 3 is a few cents more per GB delivered on average. But of the deals I hear Level 3 winning, like the one they announced yesterday with the Democratic National Convention, Level 3 is winning business where it involves more than just content delivery. In many cases it involves back-haul, transit, VYVX services, co-location and other products. Level 3's approach to the market is that they will gladly take on the customers who need high-volume delivery and commoditized CDN but they are really targeting the more complex business that involves more than just the CDN product. It's the same marketing angle and approach to the market that Internap is using and Level 3 and Internap are more similar in their services offered than Level 3 is to Limelight or Akamai.

I expect we will see more announcements about customer wins by Level 3 like the one from yesterday that involve multiple products and services outside of CDN. Is that to say that companies like Level 3 and Internap are eating into the market share of Limelight, Akamai and others? In most cases no, as they are all going after a core group of different customers with different needs. There is no CDN on the market today that is a perfect fit for every customers needs. Yes, all the CDNs are competing on some of the very commoditized business, but most of them are now distinguishing themselves by going after different sized customers, in different verticals, with different solutions. They have all become a lot more focused in knowing who they should target and who they shouldn't. A few years back, CDNs tried to be everything to every customer. Today, the majority of them are very good as knowing what business not to go after.

I'll be putting out more CDN pricing data over the next 30 days as we are collecting CDN data from customers via this survey. We've already had a few hundred CDN customers fill it out and I expect a few thousand over the next couple weeks.

Content Owners See Their Video Traffic Growing 2-4x Over Last Year

I talk to a lot of content owners large and small and no matter what subject we are discussing, I always ask them for their predictions on their traffic growth for 2008. While many of them share their numbers with me but don't allow me to make them public, the vast majority of content owners are telling me that they expect to deliver 2-4x more bits this year when compared with 2007. For most of them, that does not take into account the fact that this year, many content owners are bumping up their encoding bitrates from 300Kbps to 500-750Kbps. Taking that into consideration, with increased bitrates they could see their traffic growing from 4-8x over last year.

In most cases, nearly 100% of this content is being delivered via content delivery networks, so it's the CDNs who really make out from this growth. But the real question is while the number of bits goes up, does the price per GB delivered come down to the point of where the volume really does not make up for the reduced price? From what I can tell, even if a content owner increases their traffic by 4x over last year, the typical price break they are going to receive is somewhere around 35%. On a 200TB a month commit, a customer who is paying say $0.20 per GB delivered now, is going to be paying on average around $0.13 per GB delivered for 1000TB a month. Now that's not what ever content owner is paying, some pay more, some less, but if we use that as an average, CDNs should still see higher overall revenue based on increased volume.

Now for larger deals, that may not be the case. For a content owner who does 500TB a month today and grows to 2000TB a month this year, I expect they will see close to a 50% reduction in price based on the additional volume. So for some of the really large customers, increased bits delivered may not equate to more revenue for CDNs. For larger customers it may cancel it out. Bottom line, content owners are expecting to deliver a lot more bits this year and don't see the recession cutting back on their growth or spending.

Microsoft & Limelight Rumor: Understanding What Limelight Networks Offers

Last week seemed to be the week of many CDN rumors, one of which was Microsoft being interested in buying Limelight Networks. While I have no idea if that is the case, the blog posts and articles that followed the rumor were a great example showcasing how many people really don't understand the product offering that the different CDN providers have in the market today. Too many are still comparing one CDN provider to another unfairly. The term "content delivery" is used way too generically these days and folks tend to speak to it as if it covers every type of content under the sun, even when it doesn't.

Update: I am getting a lot of comments from those who are saying that Limelight does lots of other kinds of delivery and my choice of the word "only" is incorrect. While I know they do some, the majority of what they deliver is video and rich media content. But I did contradic myself when I said "only" video but then also said "mostly" video in another post. To be exact, I should have said "mostly" video in this post as well.

Numerous blogs all talked about how it would make sense for Microsoft to buy Limelight Networks so that Microsoft could accelerate it's own CDN build-out. SiliconAlleyInsider.com speculated that, "perhaps it (Microsoft) believes Limelight's infrastructure and expertise will help accelerate its transition to cloud computing. Specifically, instead of buying CDN services from Akamai, et al, Microsoft could now float MSN, Office Live, Silverlight, and other Software-As-A-Service products on top of the Limelight infrastructure." How is that? Limelight Networks does not offer application delivery, software as a service, static caching and most other forms of content delivery over their network today. Limelight specializes in running a network that is optimized specifically for the delivery of video content only. So Microsoft acquiring Limelight does nothing in the way of advancing their "cloud computing".

On the same day of this rumor, DataCenterKnowledge.com reported on some of the details surrounding the build-out by Microsoft of it's own "edge network". This gave some good insight into what Microsoft is working on however, the Microsoft person quoted in the post never used the word video. They said "edge network". Most video delivered on the Internet today is not delivered from the edge and most video is not cached like many seem to think. So what kind of content exactly is this Microsoft network going to deliver? I'd love to see a follow up story by DataCenterKnowledge.com talking to that.

Around the same time as this rumor, GigaOM.com ran a short post about Limelight's share price and revenue guidance and said, "Limelight spends about 60 cents on every $1 it earns just to provide service, whereas Akamai spends about 30 cents, I’m not sure how low Limelight can go. Or for how long." Yes, those numbers are correct, but not in the context they reported them. No one knows how much it costs Akamai to operate their network specific for video since they delivery many kinds of content. Again, Limelight delivers only video, so comparing Limelight's costs to deliver one kind of content, to Akamai's costs to deliver many kinds of content, is not a fair comparison. Using those numbers in that context is just plain wrong and set expectations wrong in the market.

I've said it many times before on my blog, you can only compare the CDN service from one company to another and not the companies themselves. The CDNs are out in the market making very clear statements about what they do and do not offer, yet it seems like no one wants to listen. At Akamai's recent analyst day, what did they focus most of their time on? Not CDN, but application delivery. They are trying to tell the market they do more than just content delivery of static images and video content. Limelight on the other hand is trying to educate the market about how they only delivery video and are the specialists when it comes to that kind of content. Level 3 is focusing on offering a bundled service of transit, co-lo, static CDN delivery, streaming etc.... same with Internap who is focusing on multiple products. In most cases, the CDNs are delivering a clear message to the market on what they do and do not offer in the way of a product portfolio yet it seems very few are paying attention to that and have a clear grasp of the products that make up the numbers.

Akamai Analysts Too Caught Up In Apple's New Movie Rental Service

All week long I've gotten lots of questions about Apple's new movie download service and what this means to Akamai. There is a lot of speculation out there about Apple's new service, but now that it has been officially released, I'm not sure why analysts who cover Akamai are so concerned about the impact they think this has on Akamai?

For starters, we all think that Akamai is delivering this content, but I have yet to hear anyone from Akamai confirm this in any public forum. Be that as it may, lets assume Akamai is delivering this content for Apple. What's the big deal? This is one customer, adding a video offering to the market that is anything but mainstream. Akamai is not going to be delivering so many movies over the next 2 months that it's going to have any large impact on Akamai's earnings for Q1. Apple's new movie service is anything but mainstream and won't me mainstream anytime soon. For starters, the service has a very limited library and the content only last 24 hours, which is going to turn a lot of people off. You can't transfer any of the videos to any iPod except for the absolute latest versions, the HD movies are not available expect when rented from an Apple TV device and for all of Apple's talk about their new MacBook Air, who's going to rent a movie to play back on that thing when the speakers in the new laptop are only in mono?

Bottom line, the new Apple movie rental service is a start, but it's not going to revolutionize the video market for movies anytime soon. Widespread adoption won't happen when you need a device to rent movies and when the amount of time you can watch them for is so limited. The number of Apple TV's that have been sold is very small and even if Apple sells a few million of them this year, that's anything but mainstream. Analysts know that the way any company like Akamai grows is by signing up many new customers or upgrading many current customers each quarter. Rarely does one customer have a direct impact on any vendor that results in a big spike in revenue in such a short period of time.

That's not to say that a new service like this by Apple is not good for Akamai or any CDN in the long run, but it is way too early to tell what real impact it will have on revenue and we won't be able to judge that impact for many quarters to come.

Apple/Google Update: Swiss American Securities Says No Statement Made About Apple

Swiss American Securities just called me after reading my blog post to let me know that they have no record of anyone at Swiss American Securities saying that Apple plans to drop Akamai and switch to Google for their content delivery.

Many analysts all sent me the same supposed quote this morning from Swiss American Securities but interestingly enough, no one seems to know where the quote actually came from, who said it, and where it was first reported.

Another reason why I am glad I am not a financial analyst. Way too much speculation without facts.

Apple Dropping Akamai's CDN In Favor Of Google? I Don't Buy It

That's the question that dozens of people have been speculating on and asking me about this morning. Swiss American Securities, a division of Credit Suisse is saying that it has learned that Apple will no longer use Akamai. They see Apple dumping Akamai for a Google-based content distribution network and expect Apple to announce that next week at Macworld.

I don't have any details on this "rumor" either way, but I highly doubt it and don't believe the information. Apple has spent many years working with Akamai to get the iTunes service down to a science and Akamai has a large infrastructure in place specifically for delivering live QuickTime content. I don't see Google building out a QuickTime infrastructure and supporting the kind of delivery Apple needs. I know many will say they are Google, they can build anything they want. Yes, they can, to a degree. But what would Google get from delivering Apple's content? How does this tie into Google's core advertising business? And what does Apple get from this? Maybe a lower price but it would have to be more than that for Apple to move CDN providers.

I just don't buy it. I don't see any value that Google or Apple would get from doing this. Now Apple could work with Google on some video initiatives and partner on things for the iPhone, Apple TV and what not, that would not surprise anyone. But replacing Akamai for Google for all of its content delivery, I don't see the rationale.

There was an Apple RFP out in the market a few months back for some CDN business, but it was not for all of their content, was not a large deal and from what I understand, Apple pretty recently re-signed with Akamai.

Analysts Covering Akamai Should Not Be Worried About AT&T

This morning, I had about half a dozen e-mails from analysts asking about AT&T and their CDN business. Yesterday, at AT&T's analyst day they announced that they will grow their streaming and caching services by 6x and said they were going to increase their CDN capabilities. Because of this, an analyst at Cowen and Co. downgraded Akamai on concerns of greater competition from AT&T.

Now I am the first one to say I am not a financial analyst, I don't own shares in any company and I have no vested interest at all whether Akamai or any other stock goes up or down. And while I don't pour over the numbers like financial analysts do, I listen and hear what is really taking place in the market from customers. Numbers and spreadsheets only tell you so much.

For the past 4+ years AT&T claims to have been in the CDN market for the delivery of static content and video. Yet in that time, I have never spoken to or heard of a single customer using AT&T for any CDN services pertaining to video. I have never seen AT&T even bid on any RFP, have not seen any customers listed on their website, have not found a single customer case study, have not seen AT&T put out any data on their CDN business and have not seen anyone from AT&T speak at any conference or event about their CDN business. If AT&T is in the CDN business today, and I don't mean via the way of customers delivering content via AT&T's co-location or IP services, where is the business?

Could AT&T be in the CDN business? Yes. But are they today? No. I find it amazing that analysts are going to think AT&T is competition to Akamai or anyone else when they don't have a real offering today, and even by the analyst's own omission, AT&T would not be a competitor until late 2008. You're downgrading a stock based on what a company "may" do a year from now? Am I the only one who does not see the logic in this? It took Level 3 acquiring the CDN assets of SAVVIS and 12 months of build out just to get a basic offering out the door. If AT&T does not acquire anyone, how long would it take them to  be at even 30% of the capacity Akamai is at today? They can't do that in a year. And what about streaming support? Whatever limited CDN service AT&T has today, it does not support delivery via streaming, live or on-demand, has no support for Flash, no content management system, no video reporting etc.... all things Akamai and others have today.

In the report the analyst wrote, "AT&T’s extensive network reach could shrink the average distance between a CDN node and a customer to as little as 100 miles versus Akamai's 25O-plus miles." Ok that may be, but what does that mean for Akamai? How does that affect them? That statement alone does not say how that is suppose to impact Akamai's business. Plus, AT&T is not going to place servers for CDN services at every location in their network, just like Akamai doesn't, so it's not valid to look at AT&T's entire network and say they can leverage that for one specific service offering like CDN.

If AT&T were to go out and acquire someone like Limelight Networks, which they should do if they are serious about being in the space, then they would have a real shot at the getting into the CDN business and providing real competition to the market in the next 12 months. But if they don't acquire any company or assets, they will have little to no offering when compared to Akamai or others 12 months from now.

Also, does anyone remember back around 2000 when Quest, MCI, AT&T, Sprint and others all had CDN offerings and divisions? They lasted about 12-18 months in the market before they all decided to no longer be in the CDN business. Yes, they had a lot of factors going against them in those years, especially being in the market in the wrong time, but how many people "assumed" they would make it just because they are big named networks?

In my opinion, many analysts are too quick to listen to what vendors tell them without doing enough research to really know what is taking place in the market. Speak to customers. Look at RFPs. Evaluate pricing trends. Know what products companies actually offer. Company product to product, not company to company. Anyone can say they are going to be a competitor in any market, but they don't get any creditability in my eyes just because they are a big company.

Market Size For Video CDN Was $450-$500 Million This Year: Should Grow To $800 Million For 2008

As we near the end of 2007, I've seen a few reports estimating the CDN space to have been anywhere between $800 million and $1.4 billion for the year. The reports I have seen do not break out what specific "CDN" products they are talking to and how those numbers were calculated. So with that in mind, here is how I sized the market for 2007 and the data I used to come up with the number. This does not include revenue numbers for P2P only based vendors.

The number I am talking to is for the outsourced delivery of video in the U.S. market and is specific to video delivery, be it streaming, progressive download, live or on-demand. I also looked at all outsourced CDN services and not companies who sold products or services for internal delivery, such as Cisco's CDN solution.

While not all of the companies listed below provide public data on their revenue, many of them tell me off the record what they are billing or I have other data to know their revenue. In these cases, I have grouped some of those companies together below so as not to expose data they have given me privately. In no particular order:

- Internap (run rate of about $24 million for 2007, nearly all of which comes from the U.S.)

- Limelight Networks (estimated to do about $105 million for 2007 and I estimate about $95+ million of that to be from the U.S.)

- Akamai (it is estimated that about $400-$450 million of their approxiametly $625 million $900 million in revenue comes from their CDN offering. What percentage of that $400-$450 million is specific to video and comes from the U.S. market is up for debate, but I estimate it to be about $300 million.) Note: The $900 million number I originally quoted is their 2008 revenue guidance, not 2007.

-  Level 3 (didn't do much in the way of video delivery in 2007 since their streaming product only recently launched, however their CDN product for video downloads has been around for about half the year. Estimated 2007 revenue about $2 million.)

- VeriSign (why I don't have exact numbers for VeriSign, taking the European business out of the picture, I estimate the CDN revenue in the U.S to be about $8 million for the year, the majority of which was P2P based from the Kontiki product.)

- Mirror Image, CacheLogic, Panther Express, CacheFly and Advection.NET (combined, they will do about $20 million in video delivery for 2007, U.S. based.)

- EdgeCast, CDNetworks and BitGravity (combined, I estimate these companies did about $5 million for the year as would be expected since they all just recently launched their services in the later half of the year.)

- PEER 1, NaviSite and Ignite Technologies (combined, I estimate they did about $8 million in 2007 for video delivery services in the U.S.)

- Regional service providers. While not typically not classified as CDNs as they tend to go after small and medium sized business, they still provide outsourced video delivery services and tend to focus in the U.S. market in particular. (all of these companies combined did under $20 million in 2007.)

So based on that data, the market for outsourced video delivery services in the U.S. for 2007 comes in at $482 million. Factor in an error margin of $20-$25 million and the market for video delivery services in the U.S. for 2007 was between $450-$500 million. Very different than the $800 million and $1.4 billion number that is being reported.

The real question is what it will grow to in 2008? Based on what I am seeing in contract terms, increased volume of bits, higher bitrates, etc... I expect to see the U.S. video delivery market grow to about $800 million for 2008. If you factor in the revenue for P2P delivery networks in the new year, that number could go up another $50 million.

I know some may disagree with my market size numbers and that is fine, but if you can't provide the data to back up the number you published in a report, it's hard for anyone to take that number seriously. Anyone who wants to quote any of my numbers above in a report, press release, on their website or any other format is welcome to do so as long as they attribute it to me by name.
 

New Book: Hands-On Guide To Creating Flash Advertising

Last month, the latest book in my series came out entitled "Hands-On Guide To Creating Flash Advertising", written by Jason Fincanon. Amazon has the book the cheapest for $23.

The book covers how to create awe-inspiring, mind-blowing Flash ads and microsites that engage consumers and demonstrate their worth to clients and delivers the nuts and bolts of the development process from initial design conception to ad completion. You can views the table of contents on the Amazon website and see more details about what the book covers.

Anyone who posts a review of the book on Amazon will get a free copy of the next edition of the book when it comes out. This goes for bad reviews of the book as well, as all reviews are welcomed.

CDN Pricing Data: Average Cost Per GB Declines In Q4 Due To Startups

With all the talk in the market about the"pricing wars" taking place in the CDN industry, each quarter I review what the average going rate is and how it compares to pricing in the previous quarter. (Q3 pricing details here) The pricing data below is from my presentation last week at the Streaming Media West show entitled "CDN Pricing: Costs for Outsourced Video Delivery". The on-demand video of the presentation will be available shortly.

Before I get into pricing, there are some crucial things to cover. For starters, these are the average prices paid in the market. This does not mean that this is what every customer pays, or should pay. I list a high and low price based on the fact that there are a lot of variables with regards to the CDN product that end up determining the final price a customer pays. It is also REALLY important to understand that customers are not buying on price alone. In addition you CANNOT compare one vendor to another and doing so is not a fair apples to apples comparison. You can only compare the product lines of one vendor with another.

That being said, below is the pricing I have seen so far in Q4 and how it compares with Q3. If you look at these numbers by themselves, you will NOT get a full picture of the market. First, read my post from Monday entitled "Pricing Pressure On Akamai and Limelight Overblown By Analysts" which will give more insight into pricing.

While the high and low pricing average went down from Q3 to Q4, the reason behind that is the fact that a lot of new CDNs in the market are undercutting the more established players to try and grab some market share. Can they do this for awhile, yes. But over time, they won't be able to as they will lose money. For now, many of them have raised a lot of cash and can survive pricing lower in the market for the time being. For a new CDN, it is hard to sell a customer on value when you are new to the space and don't have a lot of customers to talk about. Over time, if they are successful, they won't have to lower prices and can sell on value, but that takes time.

These numbers also don't mean that every CDN in the market is undercutting the major players. In some cases they aren't and are selling on different features and functionality, not price. The bottom line is that pricing is still very fluid in the market on large deals, over 100TB delivered a month, BUT there is not as big of an impact in the market as many make it out to be. The whole idea that the CDN space is about to implode because there is a "pricing war" going on is inaccurate and backed up by no data. Are some companies not growing as fast as investors may like, yes. But don't blame that sole reason on the current or future price in the market. Again, there is more to a CDN than just the price.

And next year, pricing will be going up. When the new players in the market have been around for 6+ months, pricing will stabilize and many will realize they don't need to lower pricing to do a land grab. By then they should also have enough in place on their network to have an angle to up sell. We are at the point now where pricing has pretty much leveled off. Sure, there is always going to be a fluctuation in the market, but come 12 months from now, you won't see that much change in pricing at all from the established players. They won't give this stuff away at a lower price just to win business if they are going to lose money on the deal. Those days are over.

The pricing below is specific to video delivery, streaming or progressive download, there is no difference. This pricing does not include the platform license fee that CDNs charge for Flash Streaming. Before long, some things will be announced in the industry that will affect those numbers and I will cover the Flash Streaming license fee numbers at that time. The below numbers do NOT include video delivery costs via P2P. I will break those costs out in a different blog post as I now track those numbers separately.

So with all that being said, below is what the going rate is for video delivery based on a per GB delivered model. These figures are based on actual contracts and RFPs I have seen in the market and comes from customers telling me on a weekly basis what they are paying.

You can download all of the slides from my presentation here (Download DanRayburn-CDNPricingQ4.ppt)

I will be posting details on P2P pricing and P2P market trends shortly and will also cover a lot of what took place at the Streaming Media West show last week pertaining to P2P.

Industry Drivers: Wainhouse, IDC, Tier1 and Morgan Stanley Discuss The Future Of Online Video

Next week at the Streaming Media West show I will be moderating a session with some of the leading analysts discussing future trends and business models in the online video industry.

This show wrap up session will be an open discussion about where the real opportunities are and what the disruptors will be in the ecosystem for online video. Come hear about new business and revenue models these analysts are tracking and find out what technologies they are most excited about.

The panelists include:

• Dan Rayburn, Executive Vice President, StreamingMedia.com (moderator)
• Ira Weinstein, Senior Analyst & Partner, Wainhouse Research
• Melissa Webster, Program VP, Content & Digital Media Technologies, IDC
• Jim Davis, Senior Analyst, Networks & Media, Tier1 Research
• Brian Essex, CFA, Morgan Stanley

It's not too late to register. While the early registration discount period has now passed, if you have not yet registered and want a discount code, let me know.

Looking To Join Research House To Cover The CDN Market

Over the past few weeks, I have gotten a few offers from some research houses to help them with their research reports on the industry, and in particular focusing on the CDN subject. I'm interested in working directly with a research house who plans on generating regular reports on the CDN market and I am interested in bringing all of my data, analysis, pricing and customers insight to an organization.

I don't have time to write reports all by myself, but I do want to work with a company to help outline the report topics, provide data, give insight into the market on many levels, introduce them to customers and provide some written editorial in the reports.

I'm listening to all suggestions and idea from companies, be it traditional research houses that sell their reports, or companies who generate reports and give them away to their customers. Please contact me if you have an idea or are interested in discussing further.

Updated CDN Pricing Coming Next Month At CDNPricing.com

Since my post in August entitled "CDN Pricing Data: What The CDNs Are Actually Charging For Delivery", I've gotten enhanced insight into CDN pricing thanks to many new CDN customers who have come across my pricing post and have reached out to share a lot of new data with me. I've probably seen close to 50 contracts just in the month of September alone and many new readers to my blog are sending in data on what they are paying.

Next month, I will be doing an updated post comparing the CDN pricing averages from 3-4 months ago. To make it easy to find on my blog, you can now go to www.CDNpricing.com which will send you directly to the latest post with the pricing data.

I'll be doing an update sometime in November and had been waiting for BitGravity and BitTorrent to have officially launched so they can be included in the pricing round up as well. I will also have pricing averages from Level 3 as they are expected to launch their CDN for streaming in the beginning of November and I'm already seeing pricing from them on CDN for downloads.

In the mean time, if you are a customer of a CDN and want to share your data, I'm happy to chat with you to share what I am seeing in the market. You can contact me at anytime.

Analysts Wanted To Join Panel With IDC and Wainhouse At SM West Show

At the Streaming Media West show next month, I am moderating a session on Wednesday Nov. 7th entitled "Industry Drivers: Leading Analysts Discuss Future Trends and Business Models". We have speakers from IDC and Wainhouse confirmed so far and I am looking to add two more speakers from large research houses.

You can see more details about the show and the session on our website. If you are an analyst covering the online video industry and would like to join the panel, please contact me ASAP.

Light Reading Quotes Level 3 Wrong On CDN Pricing Discount

UPDATE: On Friday, Barron's spoke with Level 3 and updated it's article. LightReading.com also updated their article and removed the quote in question. Good to see both sites do that to make sure the information is accurate.

I am amazed at how quickly some investors and analysts jump to conclusions based on any report on any website without checking facts. I like LightReading.com, but they quoted Level 3 wrong. Lisa Guillaume, VP of CDN Product Development for Level 3, did not say "the company will be offering CDN services at 20 to 30 percent less than its competition". She said to me that CDN services had typically been offered at a 20-30% premium over high speed Internet access. Nothing to do with the competitions pricing.

DataCenterKnowledge.com got is right by quoting Level 3 as saying that "CDN services have historically been offered at a 20 to 30 percent premium to transit." No where is any competitor even mentioned. Saying you are going to cut your pricing by 20-30% is one thing, but Light Reading is implying that Level 3 is cutting it's pricing 20-30% lower than the competition. That is wrong.

Now Barrons.com and others are quoting LightReading.com in their reports as the reason Limelight and Akamai stock is down in the market today. Is that the reason? Maybe, I don't know. But if it is, then it's based on an inaccurate quote.

Yes, I expect Level 3 to come to the market with a lower price when they announce their CDN for streaming later in the year, as I stated back in August. But to date, Level 3 has not announced any pricing discount numbers or percentages.

Content Delivery Pricing: Understanding CDN Overages

I’ve seen numerous reports lately by some in the financial community talking to “bursting” overages by CDN providers. Many of these references talk to overages incorrectly and some analysts might benefit from better understanding the two different ways CDNs charge for their services and exactly how “bursting” fees play into a CDNs bottom line.

The most recent example I read was coverage put out on Akamai where the analyst downgraded the stock based on their feeling that Akamai would not be able to get as much additional revenue for “bursting” overages as they have been getting in the past, due to the recent pricing pressure in the CDN industry. As the analyst stated, 30% of Akamai’s total company revenue comes from what he called “bursting”. That may be the case, but “bursting” and overages are not the same thing, especially when you’re talking about content delivery for video.

The first thing to realize is that no one knows exactly what Akamai products the 30% in overages comes from. Too many assume it’s from the delivery of video, but in most cases it isn’t. It comes from many of the other products and services Akamai offers like static caching, software downloads and application delivery. I asked Akamai for a breakdown of what products accounted for what percentage of overage revenue but they said it was not data they were making public.

Even without Akamai making that data public, all analysts should know the two different ways that all CDNs charge and how overages work. Every CDN charges for delivery of video, via streaming or download, based on two metrics. One is the total amount of Mbps sustained at any given time, over a 95th percentile. The second in the total GBs delivered over the network in any given month. These are two very different metrics with very different overage charges.

The majority of customers for video delivery have contracts where they are paying for the amount of GB delivered over the course of a month. With this model, there are rarely overages as typically when you push more bits then you signed up for, you get charged a lower per GB fee. For example, if you committed to push 100GB in a month and are paying $1.00 per GB, and then end up doing 150GB, typically your pricing then drops to a lower rate, say $0.95 per GB. Rarely do CDNs charge overages on a per GB delivered model and in many cases, some of them charge one flat fee per GB no matter how much you push. Years ago, CDNs use to charge overages with this model, but quickly realized that by doing so they gave customers no incentive to push more traffic on their network. This was how Speedera Networks really got traction in the market, by taking all the overflow traffic from customers who didn’t want to pay overages with their core CDN.

The other way CDNs charge for video delivery is on a per Mbps sustained model. This means that you pay for the volume of traffic you push at any one given time, and not based on the total bits pushed. Typically, this is the pricing model where you are charged for overages above the volume of Mbps sustained that you commit to. It’s also referred to by many as 95th percentile as with this model you are typically allowed to burst over your committed Mbps allotment for less than 5% of the month with no penalty.

There are a few reasons why understanding these different pricing models are important. For starters, don’t assume that you know what products the CDNs are getting overages from. Two years ago, Akamai stated that less than 10% of their contracts for the delivery of video were on a per Mbps model, the rest were per GB pricing. I don’t know what that number is today since Akamai won’t say, but too many are assuming that the 30% in revenue is from CDN for video when it isn’t. Much of what Akamai delivers is content of various types, static images, software, applications and video. When it comes to delivering the majority of content other than video, they are charged on a per Mbps sustained model where overages apply. So to assume that Akamai could take a hit in future overage revenue is to assume that they are seeing 30% of that revenue from video delivery, which they aren’t. How does Akamai compare to Limelight Networks in terms of contracts? Hard to know since we don’t know the Akamai number, but Limelight said on their road show that 40% of their customers have per Mbps sustained contracts.

So why does any of this matter and why do money managers pay so close attention to how much Akamai is making in overages? Simple. There is a fixed cost to any CDN to deliver bits of content and if you can charge two or three times that in overages, then that greatly affects your P&L. It all comes down to the bottom line.

That being said, this is not a prediction on my part of how any company’s stock price will perform now or in the future. I am not a financial analyst and have no vested interest in any company’s stock.

Video To Go: The Future Of Mobile Video

EVDO, DVB-H and 3G. The mobile market is still an alphabet soup of competing formats, protocols, and networks, and with the recent demise of Amp€™'d and ESPN'€™s MVNO initiative, no one can blame you for thinking that mobile video might never take off.

But that's not stopping carriers and content publishers from trying and the market is starting to pick up for video on the go. The October/November issue of Streaming Media magazine entitled "Video To Go" will help readers make sense of the confusion and reveal various experts take on what the future of mobile video holds.

For those who don't already have a subscription, what are you waiting for?!?! It's FREE! So join the nearly 20,000 other readers who get it bi-monthly and sign up today.

When It Comes To The Market, I'm Not A "Financial" Analyst

While I've mentioned this a few times in various post, I think it needs repeating in a post dedicated to the subject. While I provide a lot of data on the market, in particular the CDN industry, I don't provide any data so that I can speculate what a companies stock price will do in the short term, or long term. I don't own any stock in any company, in fact, I have never purchased, sold or