Segmenting The CDN Market

As new startups enter the CDN industry with innovative business models, it is becoming increasingly difficult to tell the difference between the competition, especially since much of the messaging revolves around performance and security. Although there are a couple of startups with unique business models, everyone else falls in a similar bucket.

The process of identifying the strengths and weaknesses of each player is challenging at best. One method that we found useful for identifying the innovators within the sector is to classify them under a segmentation model. We developed a simple model below that works for evaluating everyone, from the Internet giants like Akamai to the recently founded startup like PacketZoom.

We define segmentation as a category, or a group of products and services being offered by a company that solves a specific set of problems. Incapsula, for example is focused on security, Verizon EdgeCast on video, Aryaka Networks on SD-WAN, PacketZoom on Mobile APM, and so on. Understanding market segmentation goes a long way when conducting competitive research.

There is no one segmentation model that works for all use cases. Thus different parts of the industry create different segmentation models for its own purposes. Akamai segments its product line and services to essentially appease Wall Street. Startups create their own models primarily to differentiate themselves from the competition. In other instances, industry pundits create theirs to understand the competitive landscape.

Our model is one of the latter examples. If you come from the outside looking in, our model helps you gain an understanding and overview of the sector, from the fifty thousand foot view seat to the feature set. It’s not perfect, but it does help in grasping the rich and diverse business models alive in the industry. And we hope, will be of use to those of you on the outside looking in – the analyst, the investor, the private equity firm, Wall Street, partners and possibly buyers of CDN services.

CDN Segmentation Model

A segmentation model is needed because the Content Delivery Network (CDN) is the most complex business model in all of technology. It is made up many different parts, including long-haul telco, cloud compute, cloud storage, global networking, cloud security, and so on. 

In the diagram above, we have broken down the CDN features and services into layers. If you’re from the outside looking in, the bottom two layers are commodities. Sure, some companies have better caching platforms than others, maybe even significantly better services, but everyone does caching these days. The video streaming and encoding markets are mature and pricing is at a historic low. Therefore, if a company has an extremely fine-tuned caching and video streaming platform and that is all they do, they will struggle because there is so much competition.

The vertical layers are the core differentiator of any CDN business model. Most companies in the industry fall within one of these categories. Here are the highlight vertical layers:

  • Video Intelligence: This is the next generation of value-added services that leverage machine learning, metadata enrichment and creation, recommendation engines, and so on. The cloud giants own this market.
  • Edge Security: This is the group of CDNs focused on security. They offer WAF, Bot and DDoS protection. Presently, there are three clear cut winners in this category.
  • Converged Network: These are the companies providing SD-WAN and VPN on CDN infrastructure.
  • APM: CDN and APM functionality are converging. Currently, there are three companies in the industry providing this new service – correlate performance to conversions and revenue based on historical data.
  • Edge Compute: This business model is in the process of being developed. We are likely to see further developments in this area in late 2018 or 2019.
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