CloudFlare Business Model Refresh

CloudFlare is on a revenue run-rate of $40M for 2014. They currently have 2M websites, with only 4% – 5% paying for services. That means 1.9M websites are receiving free CDN services. That’s very generous of CloudFlare, but is that a sound financial strategy? I can’t figure it out for the life of me, why is CloudFlare doing the opposite of all CDNs, including Akamai, Limelight, EdgeCast, MaxCDN and Level 3? CloudFlare is the only pure-play CDN in the ecosystem to sell CDNs services on a non-usage basis.

Currently, they offer three payment plans: $20/mo, $200/mo and $5,000/mo. In the footnotes they state “CloudFlare will never bill you for bandwidth usage…..” Thus, if a customer buys a $20/month plan, and delivers several dozens TBs/month of data transfer, the bill remains $20/month. Under normal circumstances, the same data transfer volume with another CDN would generate thousands of dollars per month. Also, what if a customer is paying Limelight $2k/month, and they decide to move to CloudFlare. CloudFlare is going to lose a significant amount of customer spend, because the customer will likely select the $200/month plan, and CloudFlare will miss out on several hundred dollars per month in additional revenue. There is no middle ground with CloudFlare’s pricing plans.

 CloudFlare Pricing Plans

Plan

Cost

Features

Free

Free

CDN, security protection and stats

Pro

$20 per month

Features above + WAF, SSL, real time stats and mobile optimizations

Business

$200 per month

Features above + advanced DDoS services, and dynamic content acceleration

Enterprise

$5,000 per month

Features above plus dedicated account manager, 24/7 support and SLA
Conclusion

CloudFlare should seriously consider revamping their pricing plans so its more in line with the industry. Maybe CloudFlare can offer free CDN services up to a certain monthly volume, like 200GB per month, and charge a nominal fee like $5/month for each additional 100GB block of data transfer. There are a hundred different ways to price out CDN services, and CloudFlare needs to figure it out soon or it’s going to impact revenue growth in the long term. CloudFlare might lose a few hundred thousand customers in the process, but it might gain tens of thousands of paying customers contributing tens of millions of dollars to the top line every month.