Limelight’s Recent Network Buildout Lowering CDN Pricing, Impacting Margins
Over the past few weeks, content delivery pricing for video is once again starting to show signs of major pricing declines coming in this fourth quarter. And while aggressive upstarts like BitGravity and others are leading the pack with some of the most affordable pricing in the market, Limelight Networks has quietly been getting a lot more aggressive on pricing, all the while reducing their own delivery costs.
The interesting thing I am seeing in deals is that Limelight seems to be lowering their price based on new messaging to customers telling them that due to Limelight's recent and continued network buildout, their costs to deliver video has dropped dramatically. If this in fact the case, Limelight is taking advantage of the economics of scale on their network faster than I was anticipating. I originally thought Limelight and others would be able to leverage their new scalability sometime in the first or second quarter of next year and at that time we would see another price drop in the market. Now, it appears that at least Limelight is seeing this cost savings even sooner and is passing that savings along to customers with lower pricing.
While that is good news for customers and potential bad news for Limelight's competitors, the question also has to be asked if Limelight is giving away business to grab market share and lowering their margins. While that is possible, I don't think that is happening. Limelight knows what happens when any company gives away business to grab a share of the market and Limelight is well educated on the economics of the CDN industry. If anything, I think the new scale of Limelight's network is allowing them to cut costs and should allow them to actually increase their margins.
If they can cut their own costs, pass that savings onto customers in the form of lower pricing and increase their margins all at the same time, we are going to see another huge shift in pricing in this quarter. Not to mention, Limelight is going to continue to grab a lot of the new business in the market and continue their momentum. I am already starting to see some big changes in pricing this month as compared to last quarter and if Limelight continues to put pressure on some of the other providers, we're going to see CDN pricing for video slashed over the remaining two months of the year.