Is The 1 Cent Per GB Data Transfer Model Sustainable for Startups

There are some CDNs out there that have introduced a “1 cent/GB” data transfer model from day 1. In fact, one of them clearly touts the following on their homepage: “The lowest cost CDN on the planet: $01/GB”. To add insult to injury, the same CDN goes on to compare itself to CloudFront and MaxCDN saying it can deliver content “for 1/2 the cost”. The first thought that comes to mind – this CDN is definitely not a Bizety subscriber, because for the last several quarters, we have been publishing research on the coming collapse of the CDN price structure for basic caching and streaming services.

Well, low and behold, the day of the collapse is here. Dan let the rabbit out of the hat by saying that Akamai is quoting $0.0020/GB in data transfer for very large customers. These customers are likely pushing dozens of PB’s/month. Regardless of the monthly volume, it is the act of doing this that’s going to result in widespread ramifications for the industry. For now, let’s state the obvious:

  • Once data transfer prices fall, they never rise again
  • Remember the CDN touting the lowest price on the planet? Well, let’s just say they put their foot in their month because the $.01/GB is 5x higher than Akamai’s lowest price point. Lesson learned – never ever build a business model in this industry on low cost price structure because the larger rivals will beat you on economies of scale
  • Expect the Cloud Trio (AWS + Azure + Google CDN) to price match Akamai in the coming quarters
  • This new low-cost pricing structure is an existential threat to Level 3’s CDN Business
  • The benefit of the multi-CDN strategy completely evaporates at this low price point because the decision making process shifts from the CTO to the CFO

We’ll stop here for now. No startups should ever make their value prop a “low-cost structure” because they will be DOA (dead-on-arrival) before they open their doors for business.

The big question – can the $0.002/GB be profitable for a CDN? For some CDNs  it can be. Let’s do some math to prove our theory.

Pricing Example

  • 10PB/Mo x $.002/GB: $20,000/mo
  • 5 SSL Certs = $2,500/mo (unlike CloudFlare, most CDNs charge for certs and make a bundle)
  • Premium Features: $15,000/mo. (WAF, DDoS Mitigation, Bot Mitigation, DSA, FEO, Mobile Acceleration, etc)
  • Total: $37,500/month

The short of it, the CDN business is like the hamburger business – you can give away a burger at cost, but the goal is to sell higher priced items like drinks and fries. Thus, a CDN can provide super low pricing on data transfer, but they can make it up by selling additional features in order to increase the overall price/GB. And that is why we say their is an existential threat to Level 3’s CDN business since they have no other features to sell along with the low cost delivery.

 

 

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