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Summary:

Level 3 (LVLT) has knocked content delivery networks Limelight (LLNW) and Akamai (AKAM) off their game with an announcement today it will price CDN services at the same rate as normal Internet access. Shares of Akamai were down $1.06 to $30.01 at market close, and shares […]

Level 3 (LVLT) has knocked content delivery networks Limelight (LLNW) and Akamai (AKAM) off their game with an announcement today it will price CDN services at the same rate as normal Internet access. Shares of Akamai were down $1.06 to $30.01 at market close, and shares of Limelight lost 24 cents to close at $9.32. Meanwhile, Level 3 rose 21 cents to end the session at $5.

Because Level 3 owns its network, it has the infrastructure to cut CDN prices by what has to be more than half. The move is one that would be hard for Limelight and Akamai to replicate, because they don’t own backbones of their own — in fact, they have to buy bandwidth from companies like Level 3 to offer CDN services to their own customers.

“Our costs operate at the same rate across both products,” Grant Van Rooyen, Level 3′s senior VP of content markets told GigaOM. “A bit is a bit.” Added Lisa Guillaume, VP of delivery services, “The new pricing isn’t a promotion, it’s a strategy.”

Level 3 can afford to offer the service because it bought Savvis’ CDN for the low price of $135 million late last year. Another diversified provider is Internap, which bought Vitalstream last year.

This is the latest move in the rapidly escalating CDN price wars, despite the rising need for content delivery services for the huge amounts of video flying around the web. CDN salespeople are going to have a heck of a job selling their wares as “premium services” in the coming months.

  1. Level 3 didn’t buy Savvis, and Savvis isn’t just a CDN. They
    bought Savvis’s CDN business last year
    . Savvis is still an independent company. Their primary business is managed services.

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  2. Most CDNs do in fact have their own backbone. They aren’t tier 1 providers like Level3, so they do have to buy some amount of transit. However, that doesn’t mean it is cheaper for Level3 than other CDNs. Most CDNs have an open peering policy, which encourages non-tier 1 providers to peer with them on a settlement free basis enabling the CDN to avoid most transit charges.

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  3. You’re right Ben, I switched the two words accidentally.

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  4. Why would you ever want a CDN that lives on one network? Remember when L3 stopped peering with Cogent? What if the L3 network goes down? Redundancy is the name of the game in CDNs. I’m excited to see how this impacts prices :-)

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  5. Frank Coluccio Friday, October 5, 2007

    My first reaction, too, was that Level 3′s move was “beautiful”, to echo Andrew Schmidt’s earlier characterization today. Upon further thought, however, the following question occurred to me:

    How does one endorse –indeed, even cheer on– Carrier D for leveraging its own conduits to deliver without assessing a premium content that it controls, and then castigate in the name of network neutrality Carriers A, B and C if they ever did the same thing?

    I wonder: Could Verizon or AT&T get away with this type of pricing strategy without being cited for “predatory” or some other form of anticompetitive behavior? It appears that when one of the non-dominants (although L3 is “getting up there”) does something along these lines no one notices, or the public simply turns and looks the other way. Where’s the cutoff?

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  6. Parsing CDN Pricing Reports

    There was confusion among some CDN market watchers about Level 3′s new pricing and how it impacts Limelight (LLNW) and Akamai (AKAM).

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  7. Level(3) perplexes me. On the one hand it says that it wants to move up-market and handle $10K+ customers (mainly). On the other hand, on any given day it drops its pants on pricing. One day the IP is $100 per MB, then its $40, then its $19. Are they using a Magic 8ball to do pricing? How does cutting their prices in half on a “Premium” service help long term strategy of being a premium company that actually returns a profit?

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  8. I agree with the previous assessments.

    First, if they go down there is no recourse for the customer.

    Number 2, they leverage a nice backbone, but other CDN’s have larger CDN’s than Level 3.

    Number 3, this is 8 year old technology that began as Sandpiper and has been re-packaged over again.

    Number 4, there is no benefit to Level 3 improving their CDN offering at bandwidth prices, they are already losing on margins by giving this away. Therefore, the performance will be weak, non-redundant and non-responsive to new product demands.

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  9. [...] Level 3 Cuts CDN Pricing; people pushing around big video files will benefit. (GigaOM) [...]

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  10. Liz,

    I think you should make some calls to the Akamai folks as well, and understand what is involved in delivering a CDN service. Since Level 3 is one of the GigaOm sponsors, discerning readers may wonder if you are entirely objective in your rush of enthusiasm.

    I wrote a couple of pieces on Akamai this week, and also referred to one of my earlier technical conversations with Nick Rockwell, a customer of Akamai and the CTO of MTV. You can read them here.
    http://sramanamitra.com/2007/10/05/level-3s-impact-on-akamai/

    And for full disclosure, I am long on Akamai.

    Sramana

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