CDN Players Getting Squeezed by Margins & Telco Competition, Report Finds
Customer cutbacks and growing competition causes problems for CDN service providers and might lead to more market consolidation, says Light Reading's Insider
Sep 16, 2009
The combination of spending cutbacks by customers and growing competition from telecom network operators is creating a big problem for content delivery network (CDN) service providers and is likely to lead to further market consolidation and buyouts, such as the recent acquisition of CDN player Velocix by telecom equipment giant Alcatel-Lucent, according to the latest report from Light Reading Insider (www.lightreading.com/insider), a paid research service of TechWeb's Light Reading (www.lightreading.com).
Shrinking Margins Bring Big Changes to the CDN Market analyzes the impact of emerging business trends on the CDN sector, focusing on the entrance of established telcos into the content delivery market. It identifies and evaluates how CDN operators are changing their infrastructure and business models in response to shifting usage and demand patterns, how they are trying to differentiate their offers, and their efforts to capture more value from their customers by developing value-added services appropriate to their target markets. The report profiles 11 of the leading players in the CDN market, focusing on those with the greatest scale, reach, and innovative business models.
For a list of companies covered in this report, please see: http://img.lightreading.com/lri/pdf/lri0909companies.pdf
"Until recently, CDNs have been a good business to be in with healthy margins," says Danny Dicks, research analyst with Light Reading Insider and author of the report. "But evidence such as reduced earnings growth from the top players and significantly falling prices shows that basic CDN services are becoming commoditized, which is bad for small CDN players."
An increasing number of telecom network operators are now offering CDN services, and more such service launches are expected in the near future, Dicks notes. "The motivations of the telcos -- particularly those with a major global IP network of their own -- are clear," he says. "Their customers are asking for CDN services, and telcos see it as a way to offset declining revenue from traditional connectivity-based enterprise services."
Key findings of Shrinking Margins Bring Big Changes to the CDN Market include the following:
-- Falling prices for basic CDN services, along with overcapacity and the global economic slump, is speeding a shakeout in the sector. -- Carrier entry into the retail CDN market, particularly as resellers, is a growing trend, highlighting the overlap in service offerings between telcos and traditional CDNs. -- CDNs are struggling to differentiate their offerings and are rapidly building additional value-added service portfolios to capture more of their clients' IT spending. -- CDN performance is still a differentiator, but is difficult to measure; a mix of network metrics and user-experience measurement is important. -- The impact of Alcatel-Lucent's move into the CDN business through its purchase of Velocix remains to be seen, but it opens the door to yet another shift in the underpinnings of the CDN sector.
Shrinking Margins Bring Big Changes to the CDN Market is available as part of an annual single-user subscription (12 monthly issues) to Light Reading Insider, priced at $1,595. Individual reports are available for $900 (single-user license).
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