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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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  11. I rather doubt Akamai has any fear of Level 3 overtaking their business. CDN is a business unto itself and rightly so. Networking companies should be more concerned about maintaining and providing a solid network for it’s customers, diversification to some extent is admirable but you need to be careful about what you diversify into. Akamai has been at the forefront of CDN for a long, long time and I don’t see it being upended by anyone.

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  12. [...] by Edit Staff Saturday, October 6, 2007 at 2:00 AM PT | No comments Level 3 slashes CDN prices, and ups the ante for its [...]

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  13. [...] bandwidth was infinite — what would that change about the Internet itself? Level 3’s (LVLT) recent decision to slash prices on its content distribution network and rumors of new multi-terabit cables across [...]

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  14. [...] servers across the globe to ensure optimal content availability and performance. However, as CDN pricing wars rage, CDNs are increasingly looking for ways to protect their shrinking margins. Enter Hybrid P2P; a [...]

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  15. [...] are raging in the content delivery network business, driven largely by the entry of newer players including Level 3 (LVLT) and a gaggle of startups that are hell-bent on taking market share from incumbents such as [...]

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  16. [...] streaming, to its content delivery network services. The company’s pricing will match its disruptive CDN discounts, though it will charge a premium for [...]

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  17. [...] Level 3; CDN to support the entertainment site’s video delivery. (Are the CDN’s recent price cuts paying off?) [...]

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  18. With close to four months closing in since this post was published, I would state its safe to say that Level 3 has NOT “knocked content delivery networks Limelight (LLNW) and Akamai (AKAM) off their game”.

    Instead Level 3 has struggled with their ability to pull the CDN product together and to position their services as a viable offering in the marketplace. At a high level and from a strategic prospective it does make sense for large network carriers such as Level 3 to layer CDN service into their offering, however it does not seem to be working for Level 3. They continue to operate at a significant loss, they face internal challenges in terms of productizing their legacy CDN infrastructure and frankly they are eroding the marketplace which is hurting everyone. I find myself wondering how long will they be around or who is looking to buy them?

    In agreement with Ryan’s comment, I find that many of our customers have requirements for a multi-homed network infrastructure or at the least a diverse, direct peered network. Quite frankly I have seen limited traction with Level 3 and in retrospect I would personally change the title of this posting to “Level 3 Throws A Wrench In The CDN Industry”.

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  19. Level 3 is keeping the pressure on Limelight, this time by filing a patent infringement lawsuit against them. More on my blog at http://ikeelliott.typepad.com/telecosm/2007/12/level-3-files-a.html

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  20. [...] Om Malik, Monday, April 28, 2008 at 2:16 PM PT Comments (0) Voxel, a New York-based startup, wants to upend the content delivery network business by offering an ultra low-cost service that rides on the back of Amazon’s S3 offering. It’s a move that is sure to further exacerbate the woes of the CDN business, which has already been wracked by price wars. [...]

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  21. [...] move isn’t surprising as CDNs are engaged in a bit of a price war right now. Om wrote yesterday about new startup Voxel, which is offering an ultra-low-cost service [...]

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  22. [...] Voxel, a New York-based startup, wants to upend the content delivery network business by offering an ultra low-cost service that rides on the back of Amazon’s S3 offering. It’s a move that is sure to further exacerbate the woes of the CDN business, which has already been wracked by price wars. [...]

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  23. [...] final take on this news: Akamai is less likely to be impacted in the near term, but it further commoditizes the CDN business and forces a big shakeout in the industry, taking down the small and the weak. Akamai has been [...]

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  24. [...] flip side, the big companies seem to like Level3’s CDN model vs. those of its competitors. Since it owns its network infrastructure, it can play the low-price game better than its rivals. At the same time, the company has seen [...]

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  25. [...] like DT and Tata (and Level 3 and AT&T) have the advantage of owning their own infrastructure and thus not having to incur severe bandwidth costs. CDN [...]

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  26. [...] from outside, too. Other carriers such as Verizon, and even Internet backbone providers such as Level 3, have CDN efforts as [...]

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  27. [...] example, Level 3 even told people back in 2007 that it can deliver CDN services for the same price as Internet access– a feat made possible because it owned its own networks. So when Comcast pointed out that [...]

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  28. [...] example, Level 3 even told people back in 2007 that it can deliver CDN services for the same price as Internet access– a feat made possible because it owned its own networks. So when Comcast pointed out that [...]

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