Update On CDN Market Trends: Latest CDN Data Shows Pricing Hitting Rock Bottom At $0.001 Per GB, Here’s What It Means For The Industry

I’ve recently completed my bi-annual survey of customers taking media delivery services from third-party CDNs and the data shows pricing on very large deals is now down to an all-time low of $0.001 per GB delivered. That’s one tenth of one penny and is the lowest pricing I have ever seen in the market. [If you are interested in purchasing all of the raw data including pricing, traffic growth, contract terms, CDN(s) used etc. – minus customer names, please contact me.]

That’s not to suggest that all customers for media delivery services involving video streaming and software downloads are paying one tenth of a penny per GB delivered, some are still in the $0.003-$0.005 price range per GB delivered. But for the largest customers, $0.001 per GB delivered is now the lowest price in contracts. With customers having so many different CDNs to choose from, both regionally and globally, and the ease of use of switching between multi-CDN vendors, media delivery simply isn’t a sticky product. Customers have a lot of choice and flexibility when it comes to video streaming and other media services and all of the mid-tier and larger customers have been using multiple CDNs for some time, with that trend growing.

Amongst all the major CDN providers, pricing for media delivery services is pretty on-par with one another, especially on new deals, and some CDNs, in particular Fastly, are passing on deals where the price is too low. Amazon Web Services is still very aggressive on price and loves to keep pushing pricing down, but customers need to be wary of Amazon’s egress charges which sometimes, can be larger than the CDN bill itself. [See my post here on that topic]

At the $0.001 per GB delivered price point it leaves almost no room for any CDNs to be profitable purely based on that traffic alone, so CDNs are finding other ways to squeeze out some profits. For example additional fees around low-latency, HTTPS, and live events. In most cases, for large one-off live events, customers also have to pay an RSVP fee for capacity, even if they don’t use it and they are charged based on a per Tbps sustained model. That’s not to say live events are a big revenue driver for CDNs, they aren’t, not even the Olympics or the Super Bowl.

Most large scale one-day live events are worth at most, a low six figures to any one CDN for the video delivery and don’t really move the needle from a revenue growth standpoint. But the point is that CDNs bundle media delivery in with other services and in some cases can charge certain customers for other pro-services help. The largest CDN customers don’t buy based on per GB delivered but rather on a per Mbps sustained model and many times, that is bundled in with other non-media services all wrapped up into one price per Mbps, across all of the vendor’s services.

Of course at the $0.001 per GB delivered price, many are going to suggest doom and gloom for the CDN vendors in the market, since pricing is still falling and Amazon Web Services continues to be so aggressive overall. While CDN vendors are still needed in the market and will continue to grow, it will be slow when it comes to OTT video delivery in particular. The largest growth of video on the Internet is being done by companies like Netflix, Facebook, Google, Microsoft and others who do all or most of the delivery themselves. Yes, we do have quarters where someone like Apple or Microsoft will give third-party CDNs more traffic, but it’s short lived. 

And even with new services coming out from Disney, Apple, AT&T and others, much of that will be delivered from the customer themselves. And the portion of traffic for new OTT services that does go to third-party CDNs will be split amongst multiple vendors. So if you think new OTT traffic is going to drive a big upswing in revenue to any CDN vendor quickly, you’ll be disappointed. Video traffic on CDNs is growing, but organically and it’s the product with the least amount of margin and the highest portion of CAPEX.

You also have some OTT services LOSING subscribers, as is the case with AT&T’s DIRECT NOW service, which lost 350,000 streaming subscribers in the last six months, which means less traffic to multiple CDNs, for that specific customer. AT&T is also currently in the stages of building out their own CDN for their WarnerMedia OTT product for those on AT&T’s network and I would expect that over time, some other new big OTT players might go the DIY route as well.

It’s also important to note that when CDN vendors say the gaming vertical is one showing good growth, it’s simply downloads of gaming content. No traditional CDN is doing the actual live streaming of multi-player gaming. That’s not something the CDNs offer and if you want to know all the details on how multi-player gaming video streaming is done, game companies like Riot and others have tons of technical details on their blog.  CDNs do help the gaming companies primarily with large software downloads and that’s still a great segment of the market for all CDN vendors, but third-party CDNs will not be “streaming” any video for Google’s Stadia cloud gaming service or the like.

With Fastly due to go public on Thursday May 16th, many will be looking forward to having another CDN in the market that releases P&L numbers each quarter, giving the industry a better look at the costs of operating and selling a host of CDN services, including those outside of media like web performance and security. With media delivery pricing continuing to fall and CDNs not being able to make up for the lower price based on additional traffic volume, on a consistent basis, the business of media delivery will continue to be challenging. It will grow, but slowly from a revenue standpoint. And the CDNs that will do the best are the ones that will be strategic about which traffic they bring on their network and which customers they say no to.