The Market Now
After a sustained period of falling prices, the market for content delivery network (CDN) services has, in recent months, seen more stable pricing patterns. Despite this, the market for standard “bit delivery” is both commoditized and highly competitive, especially in established markets such as Europe and North America. In these markets, traditional CDN providers are facing competition from low-cost rivals and from companies offering more flexible “cloud-based” services.
The current state of the CDN market means that service providers have to find ways of capitalising on key strengths, specialising in under-served markets and focusing on the provision of more sophisticated delivery and content acceleration services. The latter include website and application acceleration, online security and content management.
A small number of global network operators are able to benefit from the ability to bundle CDN services together with a range of IP network products and services that include MPLS, transit, collocation, hosting and satellite ingest. For example, the partnership between Formula 1® and Tata Communications shows how CDN services can be packaged with other products – in this case connectivity, hosting and content delivery across 19 racing locations – to serve an enterprise’s wider needs.
One of the biggest trends that will continue to transform the market for CDN services over the next five to ten years is the expected growth in the number of broadband subscribers in so-called emerging markets, together with the accompanying rise in online content consumption. A growing wealth of data points to strong growth in the consumption of online video content, gaming, social media and e-commerce services from countries such as Brazil, China, India, Indonesia, Mexico, Russia and Turkey.
These countries have large and increasingly affluent populations and relatively low, but rising, Internet penetration rates. The growth of online content consumption in emerging market regions presents considerable opportunities to CDN service providers that are able to identify local online consumption trends, establish relationships with emerging market enterprises and strategically position themselves to capitalize on early market growth. By 2018, emerging markets are expected to account for over 20% of global CDN revenues. From Tata Communications’ perspective, its objective is to help businesses expand their presence in emerging market regions. These include US and European multinationals looking for a CSP partner to help them expand their business in places such as Africa, Asia or the Middle East. As they do so, these multinational enterprises will require support for delivering and accelerating a growing portfolio of web content, services and applications.
According to DatacenterDynamics, emerging markets are expected to experience the strongest CDN traffic and revenue growth over the next five years. This is largely a reflection of their relatively immature CDN markets, all of which are developing from a relatively low base. By the end of 2018, markets in Latin America, the CIS, Africa, the Middle East and developing parts of Asia, including India, are expected to account for over 20% of global CDN revenues, up from around 12% in 2013. Over the longer term, there is a need and an opportunity for global CDN providers to move further up the value chain and to offer a more sophisticated range of content delivery and management services such as mobile application acceleration, cloud storage and content-management services. At the same time, there are opportunities to specialize in serving the content delivery needs of specific types of enterprises, including media and entertainment companies, financial services firms and online retailers.
Specific requirements like the need to deliver large volumes of video content, or to cope with customizable content, demonstrate a demand for CDN services to develop specialist service offerings. Live online broadcasting presents its own sets of needs and challenges to CDN providers, some of which have developed the competencies, network resources and reputation to succeed in this sector. In some cases CDN providers will have to choose between continuing to expand their service offering or specializing in specific services and/or market segments. Choosing to focus their business strategy should be seen as imperative to building and retaining market share.