CloudFront and the CDN market

Amazon released CloudFront, their Content Delivery Network, earlier this week. It’s being touted by many as a game changer for content delivery services.

In PCWorld’s “Amazon CloudFront: No Threat to the Incumbents” Bernard Golden argues that Amazon’s CDN won’t hurt existing CDN vendors. Golden says that existing vendors have better products than Amazon offers and won’t find their larger clients moving to CloudFront.

He compares the CDN market to the automobile industry. Hyundai and BMW both sell cars, but obviously appeal to different segments of the market. People who buy the inexpensive option aren’t talking away from the luxury vendor. Lower-end cars expand an existing market by making autos accessible to more people.

That’s an inaccurate analogy, though. Cars aren’t commodities. There’s significant and obvious differentiation between different car brands. CDN delivery is quickly approaching the status of a commodity, where each vendor is offering a nearly identical product. There’s subtle differences in quality, but just like the bandwidth market, those differences aren’t appreciated enough by buyers to cause them to attribute significant value to them.

Existing CDN vendors have seen this coming for some time as is evidenced by the addition and bundling of premium services. They’ve attempting to make it harder to price shop by ensuring that the whole product they offer doesn’t have a perfect substitute in the market. If you can’t compare apples to apples, you can’t truly know how much of the total cost you are paying is for the delivery and how much is for the add on services.

Most CDNs currently charge up to $2.50 per GB if you have very low traffic. The more you deliver, the lower your prices, to the point that if you have massive traffic, your cost per GB will approach 2 cents. CloudFront destroys that low end of the market. Smaller businesses will have trouble justifying upwards of $1/GB when CloudFront provides an excellent alternative for $0.19/GB.

Golden says that at a really large scale, Amazon is more expensive than existing providers. Amazon’s lowest published rate is $0.09/GB in the US. Golden points out that in the existing CDN marketplace the largest users are able to negotiate lower prices. Data that I’ve seen from CDN vendors indicates that in order to get pricing lower than $0.09/GB you must use 750 terabytes of data each month. To get $0.09 from CloudFront, you only need to transfer 150 terabytes. Using the vendor numbers I have, it would appear that Amazon is less expensive until you’re transferring between 500 and 750 TB per month.

It’s likely that CloudFront will expand the CDN marketplace overall. Amazon’s lower initial prices, lack of long term commitments, lack of minimum purchases, and ease of implementation will help many smaller businesses start taking advantage of what a CDN has to offer.

(On a side note, this marks the first Amazon web service with a marketer-friendly name. Before CloudFront, we had geekier names like Elastic Compute Cloud (or EC2) and Simple Storage Service (S3). Does this signify the growing importance of AWS inside of Amazon?)