The Do-it-Yourself CDN model and Multi-CDN strategy are the latest rage of the industry. Everyone is jumping on the bandwagon, from the behemoths like Apple, Facebook and Netflix to their smaller brethren such as Tesla. The primary reason why DIY CDN is taking off is cost savings. Some brave companies that deliver petabytes of content monthly have implemented a hybrid CDN strategy, which means they deliver content over their own DIY CDN and Multi-CDNs. Apple, Facebook and Netflix have taken this approach, as it makes a lot of sense. However, there is something on the horizon that is going to completely shatter the DIY model and it looks ugly.
In fact, not only is this new trend going to push the DIY CDN model into obscurity, it’s going to put some companies out of business. We call this trend, which will be upon us soon, the “003 Model” which stands for $.003/GB. The mechanics behind the 003 Model are simple: CDN data transfer price will drop to $.003/GB. That means 1 petabyte of data transfer will drop to $300/month in recurring revenue. And the price drops won’t stop there – we expect them to decelerate to $.001/GB. Once that happens, revenue streams for some will drop by 5x to 10x.
Let’s do some data transfer math for 003 and 001:
003 (1,000,000GB = 1PB)
- 1,000,000GB/mo. x $.003/GB = $3,000 per month in sales
- 3,000,000GB/mo. x $.003/GB = $9,000 per month in sales
- 5,000,000GB/mo. x $.003/GB = $15,000 per month in sales
- 10,000,000GB/mo. x $.003/GB = $30,000 per month in sales
- 1,00,000GB/mo. x $.001/GB = $1,000 per month in sales
- 3,00,000GB/mo. x $.001/GB = $3,000 per month in sales
- 5,00,000GB/mo. x $.001/GB = $5,000 per month in sales
- 10,000,000GB/mo. x $.001/GB = $10,000 per month in sales
The pricing above is shocking. Just imagine that 10PB of data transfer/month costing $10,000 to $30,000 per month. There is a lot of blame to go around. It’s starting with Akamai and Level 3. However, it’s going to end with Amazon CloudFront, Google CDN and Azure CDN. Expect the Cloud Trio to drop prices to the floor, as they have done with cloud compute and cloud storage.
How can CDNs survive in this type of competitive environment? Innovation. CDNs must develop features and services which no other competitor has, and then charge premium prices so when data transfer prices drop 5x to 10x, they can remain standing profitably.