Over the last few weeks, I am getting more and more customers asking me why Akamai is quoting one price for streaming delivery and another price for HTTP based video delivery. Am I’m not talking Flash streaming where some CDNs still charge an Adobe license fee. Even with Windows Media, Akamai is charging a higher price to deliver content via a streaming media protocol as opposed to delivering content via HTTP.

I don’t know of any other CDN in the market that is pricing video delivery this way and as a result, I see Akamai not winning a lot of new deals in the market as customers don’t understand why they should be "penalized" for doing streaming over downloads. Why would Akamai care what protocol a customer is using? Does it cost Akamai more to deliver streaming on their network versus downloads? It shouldn’t. If this was simply about Akamai charging more for their services, no problem. It’s a free economy and if you can get more for your services, more power to you. But that is not what this is about. This is about Akamai charging more for one protocol over another and not explaining to customers why they are the only CDN in the market doing this.

I asked Akamai for more details on this so that when customers call me I can educated them on Akamai’s pricing strategy. Unfortunately, all Akamai wanted to say on the subject was "we don’t discuss pricing specifics publicly." I can understand if you don’t want to "publicly" discuss it, but clearly Akamai is not even discussing it with potential new customers or I wouldn’t have so many content owners asking me for an explanation.

This is a bad practice on Akamai’s part not only because of the effect it has on them winning new deals, but also because of the impact is has on the industry. As an industry, we need to move away from the idea that content owners need to make decisions based on protocols. Should a customer really care and have to decide on what protocol their CDN is using? Absolutely not. All they want to do is use the best combination of technology and protocols based on the type of content they have for the device it is being played back on. The pricing and bundling of content delivery services should be made as simple and easy as possible for customers. Every other CDN other than Akamai has already done this in the market and charges one rate for streaming or downloading video content.

Earlier this year, Sequoia Capital invested less than $5 million into a new CDN startup called Cotendo. After spending the past year on development, the company expects to launch their content delivery offering in "early 2009". While there are already too many CDNs in the market shipping bits, Cotendo assures me that they are not going to be focusing on simply pushing traffic and instead will focus on building applications and IP.

The U.S. based company, which currently has their R&D based out of Israel, continues to add new employees to the roster. Former Limelight Networks employees Gary Baldus is now running ops and Mike Sawyer is running marketing. While it is too early to talk in detail about Cotendo’s offering, it’s a hard time for any new company who plans to enter the content delivery market. One of the biggest things Cotendo has going for them is that they have to date, only raised a small round of funding. That being said, I would not be surprised to see Sequoia Capital doing a larger, second round, sometime next year once Cotendo gets up and running. Having only gotten a few million to start, it’s simply not enough capital to bring a product offering to the market with any scale.

More details on Cotendo’s offering will be released to the market later in the year, but in the mean time, the list of content delivery networks just keeps on growing.

While some are saying there was a lot of talk at the Streaming Media West show last week about consolidation in the CDN market, no major consolidation amongst CDNs is coming anytime soon. At any conference where there are 20+ CDN vendors represented, you are always going to hear some talk about consolidation. But notice that none of those vendors talking about consolidation think they are the ones getting acquired? They all talk about how they are going to acquire someone else and usually make the case as to why they themselves don’t need to be acquired. And the idea that some CDNs will have to sell soon at a cheap price when they go under and have a "fire sale" is just not reality.

The problem with all of these theory’s is that all the CDNs have raised a ton of money, so no fire sale is going to happen for some time. Even for CDNs that are burning through startup capital, they all have at least 14-18 months before they have to worry about getting another round of funding, or re-evaluating their business strategy. Aside from Akamai and Limelight, who are always potential takeover options with the revenue and market share they both have, no other major CDN benefits from acquiring another CDN today or anytime soon. Most of the CDNs have no applications, no ecosystem tools, no IP, no patents and very little revenue. So what do you get from combining two CDNs who both sell commoditized services? There is simply no value there. If you were getting applications, work flow tools and other assets that help a CDN charge for other value add services, then potentially it makes sense. But right now, most CDNs don’t have that functionality.

And if a CDN can’t sustain itself in the market, how does acquiring it change the business model? The only thing you can hope to do is drive down the costs and scale the business and the CDN to operate more efficiently and make money. But the business model remains the same, it’s really just the infrastructure that would change. And if any large portion of the revenue from the CDN being acquired comes from the enterprise or advertising verticals, that sector has seen some slow down in growth due to the economy. Unless someone is buying a well established player, who has real revenue and a large market share, it would be a huge risk purchasing a CDN anytime soon.

While some of the more than 50 CDNs are selling on future services like HD delivery, the bottom line is that services like HD won’t have any big financial impact on the CDNs for more than two years. This means that any CDN that is building out their services for the future is going to have a hard time getting enough sales today to even last into the future. Many remember when iBEAM Broadcasting came into the CDN market and undercut everyone to get a lot of CDN business quickly, even while losing money. The idea was that they could grow fast and be around a few years later when the market really took off and then raise their prices. It was the Amazon mentality of "get big fast". It worked for Amazon, but iBEAM went under after about two years. CDNs have to build revenue today, close sales today and think about the current market, not what the market will be 2-3 years from now. What good is the market 2-3 years from now if you are not around to see it?

And inside the CDN indsutry, amongst the vendors, there is really very little talk of consolidation. The idea of consolidation comes mostly from outsiders, Wall Street and some analysts who cover some of the CDN vendors, but don’t really know the market.

At last week's Streaming Media West show, I presented the latest CDN pricing from the third quarter for pricing specific to video delivery from the major CDNs. Overall pricing remained somewhat stable, but there was a large drop in pricing for some levels of volume compared with pricing earlier in the year. (note: you can easily find my latest pricing post at www.cdnpricing.com)

I saw the biggest drop in pricing at the 250TB a month level with pricing on the low end dropping by 50% over the previous quarter. While 250TB is not a huge customer, a lot of "average" customers are in this range. Pricing once again dropped for customers doing over 1000TB a month, but that is expected since that is such a large amount of traffic and the largest customers always have some pricing flexibility.

Overall, many of the CDNs are getting a bit more aggressive when it comes to pricing but still are NOT giving business away. I still see some of the major CDNs passing on business if the customer wants pricing that is just too low. Also, in the last two weeks, I have seen three RFPs where the major CDNs all bidding on the business were priced within four cents of each other. The exception to the rule was Akamai who was coming in at almost double to what all the other CDNs were charging and it should be noted, did not win any of those three deals.

While many report that Level 3 has the lowest pricing in the market, that is not the case. Limelight is the most aggressive with regards to price and every Level 3 deal I have seen is in line with what most of the other CDNs are charging. I do not see a huge gap between the CDNs in terms of what they are pricing deals at except with Akamai.

Below is my pricing slide from the presentation and all of my slides from the presentation can be downloaded here. Note: this pricing is for video delivery, streaming and progressive download. I don't distinguish any difference between protocols. Also, this pricing does not take into account any Flash license fee which only a few of the CDNs still charge.

The average contract length I am seeing for video only delivery is still 12 months. For contracts that include more than just video delivery, things like small object delivery, static caching etc. contract lengths average close to 24 months.

For those that think pricing will only continue to drop, think again. Once customers start pushing a lot more traffic, they will be at a level where the CDNs can't discount it much further or they risk losing money. The real question and the thing we have to watch closely is when the CDNs can drop pricing across the board AND still make money. This will only happen when the economics of scale kick in and the CDNs are able to operate their networks cheaper, with vastly increased scalibility than they are doing now. I think realistically, for many of them, that can happen by Q2 of next year.

I will have more thoughts on the CDN market and what I heard from the Streaming Media West show in posts later this week.

Thanks to all of those who helped make the Streaming Media West conference a success once again. Hard to believe but last week’s show was the 10th year that the industry has been getting together in CA to talk about online video. Most of the presentations from the sessions are now archived and can be downloaded here. All of the sessions are currently being edited and encoded and we will start posting them online in a few days at www.streamingmedia.com/videos

I have a lot to blog about from the show and am quite behind on my posts, but will be picking it back up this week. If you attended the show and have any follow up questions, please contact me at any time.

This morning, the Streaming Media West show kicked off with a keynote by Werner Vogels, CTO of Amazon, who highlighted some of the data around the usage of Amazon Web Services. Jordan Hoffner, Director of Content Partnerships for YouTube then presented on some of the challenges associated with making money from online video. I’ll get the slides from Werner’s presentation online as soon as I get them and you can download Jordan’s slides from his presentation here.

A lot of news has crossed the wire this morning, with more to come:

• Adap.tv Closes $13 Million in Series B Round of Funding

• IVT Debuts PrimeTime, the Enterprise Video Portal with Search and Social Networking Capabilities

• Octoshape and Highwinds Unleash P2P Solution for Live Streaming

• Qumu Breaks Down Video Barriers with Launch of Capture Studio

• RipCode Announces Latest Version of its Flagship Offering

• Akamai Accelerates Metacafe Leading to Significant Impact on Page Views and Video Consumption

• Kontiki Announces Delivery Management System, Version 5.4

• Gomez Adds Streaming Media Monitoring Service to the ExperienceFirst Platform

• Mirror Image Internet Launches an Easy To Use Media Management Platform for Monetizing Video Content

• DigiMeld Launches Online Video Portal for Independent Content Providers Using Its Grid-Streaming Platform

• DigiMeld Launches New Grid Streaming Technology for High-Quality Internet Video

• Abacast Inc. Announces the Acquisition of Tukati, Inc., Becoming the First Content Distribution Network to Offer Hybrid Peer-Assisted Distribution for Both Live and On Demand Streaming Media

• Ipera Leverages Revolutionary Video Enhancement Technology for Enterprise Video Server Market

• AP Taps ThePlatform For Broadband Video

• Visible Measures’ Viral Reach Database Surpasses 100 Million Unique Videos from More Than 150 Video Sharing Sites

I’ll get more news up as I get it. Don’t forget, if you are in the area, there are various parties and networking events taking place this week.

This morning, Gomez launched a new streaming media monitoring service dubbed Active Streaming XF. For the past few months I have been beta testing the new service and adding my own streaming media URLs into the system from many of the major CDNs. While the service gives you results on all of the usual items you would expect like startup time, packet loss, etc…. it also allows you drill down in great detail on each individual test stream down to the individual IP address.

This is a great feature as it enables a customer to quickly and easily find out if the content delivery network they are using is truly serving content from a specific region of the world. While some CDNs say they serve the content from a local POP, this new Gomez service can tell you if it’s really local delivery or not. Gomez has put a great deal of thought into the service, not only in terms of the technical details it provides but the ease of use you have in managing the data. All of the data that is presented has the ability to be managed simply by dragging a graph, data point or item in the tool bar. You don’t have to ask the system to re-sort the data, you simply drag any aspect of the data to drill down or change the way the data is presented. It is extremely intuitive and is the best interface I have seen so far for any monitoring service.

Right now, many CDNs use Keynote’s competiting monitoring service to validate their SLAs and it will be interesting to see if any of the CDNs being to use Gomez as well. From the testing I was able to do, this new Gomez service has really been thought out well and for some customers, is as cheap as a few hundred dollars a month.