Level 3 Communications Inc. (Nasdaq: LVLT) is lowering prices for content delivery network (CDN) services to match the same price customers pay for high-speed IP transport.
By matching transport prices, Level 3 is doing away with any premium it charges for caching and downloading online content, and is setting prices at a point it hopes its competitors can't match.
Lisa Guillaume, VP of CDN Product Development for Level 3, says CDN services are usually carry a 20 to 30 percent premium over the cost of transport.
Level 3 claims it can do this because it owns the backhaul network its content is delivered on. In contrast, it says competitors such as Akamai Technologies Inc. (Nasdaq: AKAM) or Limelight Networks Inc. (Nasdaq: LLNW) depend on Level 3 and other carriers for transport services.
"We have a significant advantage here," says Guillaume. "We provide underlying services for what is our direct competition. What this means for them is that we're able to offer CDN services at the same price that they're able to buy only one component to offer CDN services."
Level 3's lowered pricing comes on top of heavy discounting already reported in the CDN marketplace. Over the past several months, Akamai and Limelight have seen shares fall due to disappointing earnings in light of discounting and other pricing pressures. (See CDNs See 3 Price Pressures, More CDN Pressures Ahead, and Analysts: Akamai Was Too High.)
Since then, Level 3 announced the availability of caching and downloading services in May, and purchased the assets of European streaming media provider ServeCast in August.(See Level 3 Enhances Platform and Level 3 Buys Servecast.)
For now, the lower prices are for caching and downloading only. Level 3 hopes to have its streaming services ready by mid-November. That will allow the company to compete with Akamai, Limelight, and others not just for static and progressive media downloads, but for rich media streaming as well.
In addition to integrating ServeCast's streaming functionality into its service portfolio, Level 3 hopes to incorporate ServeCast's end-to-end video management platform by the first quarter of next year.
While Level 3's pricing will certainly get customers' attention, representatives say it's the company's service portfolio that really sets it apart from the competition.
Graham Williams, director of caching and downloading services for Level 3, says the company's CDN story is "not just about trying to lead with price. It's about giving customers business models, and passing on cost savings with an end-to-end service."
I miss the old days of Light Reading where this story would have resulted in a discussion of whether the costs of transit and caching/serving were the same.
I would guess that excluding the large fixed cost of their network, that CDN would be more expensive operationally than transit.
"On the money Phil. I say to L3. bring it on. I think they will also figure out how to sell services to make quality margin."
Level 3 makes money as in revenue, not money as in income. From mid-2001, they have done nothing that excites Wall St. except buy companies with revenue (not earnings) to meet their debt convenants.
On the money Phil. I say to L3. bring it on. I think they will also figure out how to sell services to make quality margin.
From the comsumer perspective this is great. I will have more options for content and content creators will be able to afford to push great stuff out into cyberspace.
As for Limelight, put your seat belts on, could be a tough landing.
I clarified information attributed to the Level 3 exec and updated the story, but none of the direct quotes in the story are wrong.
As someone else pointed out, the real news here is that Level 3 is claiming that it will offer CDN services for the same price competitors would pay for just one component of their CDN services.
Still, leave it to Level (3) to start a price war and trash a whole industry. So long as they have money to burn, they will torch the industry. Will they ever make money this decade?
Ryan, this is what i predicted last time your wrote about it. Only thing Akam can offer is service layer products, but you are the money, Akam and especially Limelight will feel the pain from L3. The game has now changed. Great news for us consumers
Is there any way other CDNs (especially smaller companies and startups) can compete now that Level 3 has priced its content delivery services at the same cost it takes others just to deliver those services?
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