Over the last few weeks, I am getting more and more customers asking me why Akamai (AKAM) is quoting one price for streaming delivery and another price for HTTP based video delivery. And I'm not talking about 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 its 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 it is 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.
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HTTP traffic carried in a caching network is sent out to end-users via a collection of servers that are all based on general white box hardware, free versions of cache software and Operating systems. When it comes to Streaming, any type of content (Windows, Real, Flash, Silver light) these applications tend to require infrastructure and servers that are a little bit more powerful than the standard cache deployment and Streaming services typically require specific operating systems (like Windows...) which much be bought, deployed, and managed in a different function. All of this relates to higher costs. Additionally, most companies who consider themselves "experts" in streaming generally require more support versus a regular caching client, again, relating to higher costs. If you consider all of the different points where these costs creep in and the general size of Akamai's infrastructure, it’s no wonder that there is a different charge model or rate plan.
You also need to look at your comparisons and I caution you in your general stumping for your clients (such as AmazonCDN). You are comparing apples and oranges- Most of the companies you review or compare to Akamai are similar only in the respect that they offer a service called "CDN" services; however, they fall far short of customer support, tech support, and reporting features.
On a superficial level - you are right, It doesn't make sense to price 2 delivery services differently- but from a support standpoint it does make sense. the rational you employ is what is driving the CDN industry into a non-profitable status and has in fact stifled technology and innovation. In the early 2000's, there were many different revolutions in CDN - That is what brought rise to Speedera and Netli and other vendors working on a large variety of infrastructure problems - However over the past 3 or 4 years (since the advent of ESI - Akamai Standard) there has been little to not innovation. The only reason to innovate right now is to bring down delivery costs, which is eroding the value proposition of CDN in general - to nothing more than a commodity, which is a shame, because there are so many things that can be done from the "cloud" perspective.
I do not work for Akamai, however I have worked for several companies they have acquired and several others in the industry over the past 8 years.
blog.streamingmedia.co...
In addition, why not comment under your own name? I find it amusing that so many people that comment are so sure of themselves and want to argue a question so badly to prove their point, but are not willing to put their name behind their words. You want to question my creditability, even though I make it clear on my blog that I don't work for any CDN, yet you post anonymously. Wonder why.
Your comment that "however over the past 3 or 4 years there has been little to not innovation" is not just a bad "opinion", it's flat out factually wrong. In 2004 CDNs could not handle the type of large-scale live events, at high bitrates, like they do today. That is just one of many innovations. And was Flash Media Server deployed on CDNs three years ago? Nope. But I guess the advent of Flash streaming for CDNs does not qualify to you as an "innovation" even though Flash is so prevalent.
In addition, as I have clearly wrote on my blog many times, streaming is more expensive due to the licensing costs, but the question I was asking was not why is streaming more expensive. The question I am asking is why Akamai is the ONLY CDN that charges more for streaming, even with Windows Media? You didn’t answer that question.
"As I have said on the blog before, of the 40 CDN companies I list, none of them have ever paid me any money for any work, ever, except Mirror Image which is public info. My work with Mirror Image ended almost a year ago."
And that being said, show me one post anywhere on my blog where I wrote about Mirror Image.
Lets stick to the facts.
Rolling out a new codec and increasing capacity isn't really an innovation. The technology that made that possible was actually the backbone and broadband providers, and the CDNs rode on top of that infrastructure. So that’s not really CDN innovation. When I began in this business, 33.6 and 128K were ridiculously high in terms of their bit rate - and that is where the ability to handle this traffic comes from - expanding to a 500K stream is more or less in terms capacity and routing, which while core to the CDN industry - does not make it revolutionary.
I did not identify myself, because I am not speaking on behalf of my company - which is in the CDN business - and from the above assessment it is not necessary because I am defending a competitor and not my own company.
Next, If we take your Codec (flash Streaming) and capacity (high throughput events) off the table, where is the innovation? Streamlined player design? Not important. Compression - Wait that's been around for 10 years... Show me the innovation! It is a common economic principal that when Margin continues to get squeezed, the only thing left is really innovate to reduce costs and that is what we see in the CDN industry. A bunch of content owners who, themselves can't make money on media forcing the price of services down, which has stifled the innovation and an increase in the portfolio of cloud computing services. All of the major CDN players should be working on application clouds and cloud computing, not simply innovating to reduce costs.
My contention that you are stumping for Amazon is based on the articles you shared on your own blog discussing their CDN and future functionality from an "inside" perspective. If you don't work for them, my apologies. You are in an interesting position where you make your predictions and bet on the winners in the press, calling prematurely for the top four CDNs to be Akamai, Limelight, Level3, and CDNetworks - Who knows, maybe you are right, but from a revenue perspective in the Americas, you have forgotten Panther, who is by far (on a revenue basis) more widely adopted than CDNetworks.
My goal wasn't to drag you down, but to point out your flawed thinking and understanding of a market in which you are a consultant or figurehead. If you can't understand why streaming is more expensive from a server, software, storage, and infrastructure standpoint - then there needs to be attention called to qualifications. Being in the CDN world since 2000 and working for multiple players in the space, I think I have a good grasp on the economics and market forces behind the market, which was my intention. I wanted to share with you where this pricing comes from and why.
When I talk about who the top three largest CDNs are, specific to video revenue globally, it is Akamai, Limelight and CDNetworks. We know this to be fact as all of those networks are public. Panther Express' revenue specific to video delivery in the U.S. is very_small. I know their revenue and speak to their management who has provided me with details in addition to the number of customers they have specific to video delivery. Panther Express would not be in the top 5 for U.S. based video delivery revenue. Akamai, Limelight, Level 3, Internap and AT&T all do more video delivery revenue in 2008 than Panther Express will. And I don't think there is anything wrong with that as Panther Express is not trying to be an Akamai or Limelight.
your comment on your relationship with Mirror Image, is in the comments section, not in your disclosure. As you mature and syndicate your content to more sites, one of your editors is going to call you on this. It is a simple issue, state it in your disclosure, not in the thread following it.
or multiple articles in the press where i have done interviews:
www.mediaman.com.au/in...
www.econtentmag.com/Ar...
I don't have to list every single company I have ever worked for in the past 10 years.
I think you will find that as akamai continues to bolster their dynamic app serving and content practices, they will continue to let slip away the low margin business of streaming. Let Limelight and Level3 have streaming business at bad or below cost margins, that what I advise my folks to do. Let the bottom feeders take what you don't want and hope they get sick on the dregs. Overtime, this will lead to better margins for the big players.
Having said that, Akamai indeed is in trouble, and you are right on some of your points. Their biz plan should be adjusted and maybe the pricing model is one way to attack it.
Later
Akamai has huge monthly revenues from streaming customers.
Lowering their fees would mean lower margins from customers they already serve. They feel the increase in new customers attracted by the lower prices would not make up for the lost margin.
Why do they think this.....?
Because, as market share leaders, they create the price umbrella under which the others operate. If they lowered their price, the others would simply match it and the resulting situation would be unchanged **except** that Akamai just left a lot of money on the table.
Akamai just doesn't believe it's selling similar products to everyone else, and has very rarely tried to compete on price. Given that, while Akamai might not _owe_ anyone an explanation, I think they are being morons for not producing one. They wasted a great opportunity to talk someone's ear off with their sales pitch as to why their streaming services were different.
Also, lots of people think online anonymity is almost always best unless you get some specific advantage to using your own name. Mr. Rayburn, for instance, is a professional, so it would be dumb for him to use a pseudonym. Everyone else will always have more to lose than gain.
Akamai is not selling streaming delivery for *more*, they are offering a *discount on HTTP*. That would make the question "why is Akamai the only CDN that discounts downloads?" :-)
Let's say a small competitor owns a gas station and it decides to price its premium gas at the same price as its regular gas. Other stations follow suit. Should the market leader follow suit? Depends on how elastic the demand for their product is. If they have loyalty and some perceived difference then no. If is truly a commodity and people will switch to the other companies, then yes.
Akamai probably thinks that they have a perceived difference. They might be right, they might be wrong. Time will tell. I own the shares, but more because they are the market leader rather than their pricing strategy. I assume that if their pricing strategy results in declining market share they will match.
You obviously know that streaming is "more" expensive as stated in a post above, I assume since you work for streamingMedia.com that you know the benefits of streaming over HTTP delivery. I am surprised that you wouldn't realize that selling the premium product at a lower price is simply a way to try to gain market share against a market leader. Econ 101 really, a VP should know that.
Also, as a VP. I am surprised you get so easily rattled by comments to your posts, with the credentials on your bio, you'd think you'd be above a cat fight, doesn't look good on you.
Cheers.
No, Akamai should follow the lead of how customers want to buy services. All that matters is that customers like the pricing model and signs contracts. If they don't, then you have to realize it and change your strategy. And you can't wait a year to do it.
The pricing model Akamai has now for many video CDN deals does not work in the market. How long do they continue to price things differently than everyone else when the market tells them they aren't buying it?
"I assume that if their pricing strategy results in declining market share they will match."
That's a big assumption. They had a rough last quarter and from many, many of the new deals I see in the market, they aren't winning them and are not changing their pricing model.