Are CDN Price Drops a Bad Thing

Akamai has previously reported that prices were under pressure. In fact, many in the industry have stated the same thing. However, analyzing CDN price drops by themselves in a vacuum can lead to faulty analysis. CDN prices only represent a small portion of the big economic picture. Are CDN price drops necessarily a bad thing? No. Its best to look at the entire economic big picture when analyzing the health of a CDN or CDN industry. In a server, RAM prices continue to drop year over year. However, RAM is only one cost object within in a server. The exact same analogy applies to a CDN. Sure, basic HTTP large file delivery prices might be dropping on big volumes from $.025/GB to $.02/GB or whatever, however, saying this in a negative light in regards to the CDN industry paints the wrong picture.

There are dozens, dozens and dozens of cost objects in CDN infrastructure. HTTP large file delivery prices might be dropping 35%, but guess what, server, hardware, or bandwidth prices might be dropping by 50%. Thus, a CDN is reducing their cost structure faster than customer facing prices are dropping. Or the  server prices might stay the same, but the compute and storage capacity might be able to support threefold the amount of customers. Lets also take into consideration that the online world is becoming more video-centric, and even thought bandwidth prices are dropping, the amount of video being consumed by the end user is increasing hundreds of percent faster than the bandwidth price drops. However, these other pieces of the economic puzzle are rarely mentioned in the same article that is talking about CDN price drops.

Key Takeaway:  Cost structure and trend analysis must accompany any discussion around CDN price drops.

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