Smart Data Pricing

Chapter 11CDN Pricing and Investment Strategies under Competition

YANG SONG, LIXIN GAO, and ARUN VENKATARAMANI

11.1 Introduction

A content delivery network (CDN) is a large distributed system that caches content at multiple locations on the Internet. When an end user makes a request, a CDN chooses the best server (usually the nearest one) to serve the content. CDNs enhance the user-perceived experience by reducing the delay and improving the availability of the content. By aggregating traffic across different content producers, CDNs also save individual investments in infrastructure for peak demand.

Owing to the technological and economical advantages, the CDN market has developed rapidly since its conception. The tremendous growth of Internet content further boosts the market. Today, 35–45% of the backbone traffic is from CDNs [1]. The majority of CDN traffic is delivered by three CDNs: Akamai technologies (Akamai for short), Level 3 Communications (Level 3 for short), and Limelight networks (Limelight for short). Their respective shares of the total CDN traffic are 48%, 25%, and 18% [2]. The rest of the CDN traffic is carried by relatively smaller CDNs such as Edgecast networks and Amazon CloudFront.

With CDNs competing with each other to attract business from content producers, the impact of this competition on shaping the CDN market is poorly understood. The unit price of CDN service has been dropping by more than 15% for at least five consecutive years [3]. It is unclear ...