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Stream This: It’s Time for Tiered Performance and Pricing Plans: CDNs Must Evolve
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This article first appeared in the December 2009/January 2010 issue of Streaming Media magazine. Click here for your free subscription.

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 perform similarly when it comes to delivering video. Of course, all three would probably disagree with that statement. But the simple fact that so many content owners use two out of the three of them to deliver the same content proves the point.

When was the last time you saw any of those three CDNs put out a release about increased network performance? Instead, they’ve been talking about adding new functionality, moving up the stack, ecosystem solutions, value-added services, and the like—not performance. The performance of Akamai, Limelight, and Level 3 is considered by most to be very similar to each other 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, for the most part, customers are not willing to pay a premium for that difference in terms of video delivery. In the application delivery, commerce, and ad delivery businesses, fractions of a second can and do impact the customer’s business. But when it comes to delivering video, starting a video 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 pay, but most customers won’t when they see that the performances delivered by the networks are so similar; the differences are very difficult to measure. Of course, if one network is streaming seconds faster than another, that’s a different story. But today, there’s not that sort of significant speed difference among Akamai, Limelight, and Level 3.

But I don’t personally dictate anything in the market, and neither do the vendors. Instead, customers decide what they will and will not pay for and what the product is worth. While CDN vendors and others in the industry may not like this, it’s reality.

In general, CDNs have done well over the past year to work on value-added services and continue to try to solve many pieces of the video ecosystem. While they are moving in the right direction, they need to look once again 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 tiered performance and pricing services to the market. Ultimately, CDNs will be forced to do so, and they should start to embrace the idea now. This is where the industry is moving and what customers are starting to demand. The smart move by CDNs would be to get in front of it now.

Customers often tell me that they are willing to pay less to have good performance but not necessarily the best performance possible. Other times, customers say they don’t need any reporting, self-provisioning tools, or other ecosystem pieces. And as a result, they should not have to pay a high per-gigabyte price to help the CDNs build out a platform they are not using. Other times, content owners tell me that the vast majority of their traffic is passed over the CDNs outside peak hours, and they 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 going to be forced to offer tiered performance pricing. Some may say we already have this in the market, but we don’t. People are confused by tiered pricing that changes based on the different level of bits being pushed but at the same rate based upon performance.

I have not heard much buzz from CDNs about this type of model, but 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 such as HTTP streaming will help drive different performance and pricing plans to the market soon; there also will be a valid reason to charge more or less for delivery based on the protocol that’s being used.

I see a big shift in 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 afford to have. Before too long, the CDNs are going to have to change and adapt to market conditions based on what customers are demanding; I think this change is coming a lot sooner than most CDNs may realize.

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