Rayburn: CDN Video Pricing is Stabilizing

The cost of video delivery over major content delivery networks (CDN) continued to trend lower in the first quarter of 2010, but at a more gradual rate than seen in recent quarters, according to industry analyst Dan Rayburn.

After a 40 percent price drop in 2009, video delivery pricing is on track for a 20 percent decline in 2010, according to Rayburn, who presented his latest industry pricing report at the Streaming Media East conference Tuesday in New York.

Better 2010 for Major CDNs?
"Pricing has stabilized quite a bit," said Rayburn. "This points to a good 2010 for CDNs if traffic goes up. If pricing only declines 20 percent and CDN traffic grows 50 percent, these companies will do well." Rayburn noted that the two leading content delivery providers,  Akamai (AKAM) and Limelight Networks (LLNW), reported strong earnings amid signs of traffic growth.

Rayburn's survey (also available at CDNpricing.com), which is based on feedback from 1,000 end users of video delivery services, found that customers using 500 TB or more a month reported an average price range of 2 cents to 6 cents per gigabit in the first quarter, compared to a range of 2.5 cents to 8 cents last quarter. At lower volumes, pricing was either flat or slightly lower.

Rayburn noted that the data provided a snapshot of a broader CDN market that has become more diffuse, spanning software downloads and file downloads as well as delivery of video via both streaming and progressive downloads.

"We know the delivery of bits from point A to point B has been commoditized," said Rayburn. "That's a fact. It's not a new technology."

The New Focus: Value-Added Services
That's why CDN providers are now touting value-add services that can provide stronger margins than basic video delivery. Rayburn says that's a welcome change from price wars among a growing field of venture-funded CDNs.

"CDNs have learned over the years that you can't give your services away to gain market share," he said. "That's not a sustainable business model, and the current CDNs know that. The lowest cost leader is never the one that survives in the market."

Rayburn said Amazon's CloudFront CDN offering has not been disruptive because its offerings are more limited than other CDN specialists and it doesn't offer a service level agreement (SLA).

"Amazon's got an awesome service," said Rayburn. "But it's offering a service that's different from what other providers are offering. Amazon is self service. They're going after a customer that will give them their credit card and immediately begin distributing content."

CloudFront's focus on small and medium-sized businesses sets it apart from most providers, who focus on enterprise users with large volumes of content. "They want to provider a service to as wide a universe as possible," he said. "Amazon is also very deliberate about rolling out new functionality."