GUEST Blog
Capex-Efficient Content Delivery Mitigates Margin Challenges
Guest author
VP of Research, Worldwide Telecommunications at IDC
Ghassan has been at the forefront of emerging technology solutions including virtualization, SDN, Cloud, IoT and mobility. At IDC, Ghassn leads efforts in delivering value to large telcos, CDN providers, and technology vendors in managed edge services and managed SD-WAN. Prior to IDC, Ghassan spent 22 years at Hewlett Packard in product management and business development.
The shifting sands of the CDN market
Video streaming dominates the internet, representing around 70% of all internet traffic. In all its forms, on-demand, linear, and live, it is expected to grow at double digits for the foreseeable future. Despite these rosy projections, video streaming is a challenging business for content delivery network (CDN) providers. The price per gigabyte (GB) of video delivery continues to erode at a material rate annually, while increases in traffic demand additional network investments.
For CDN providers, this begs the question of what their options are to counter increasing demand for delivery capacity with tight margins. Traditional CDN providers with large network investments are diversifying into new revenue streams such as security and edge services. While this provides alternative margin expansion options, it does not solve the dilemma of offering video streaming.
This blog explores the option of offering video streaming with a low capex strategy that capitalizes on available edge infrastructure aligned with a cloud consumption model. This alternative model can counter decreasing margins while addressing the need for scale and availability.
A new deployment model for CDNs
Investments in edge infrastructure by communication service providers have resulted in excess capacity as the initial euphoria for delivering multiple use cases faces slowing adoption. Bare-metal capacity can be rented on a pay-per-use basis. Video streaming is a compelling use case for bare-metal edge infrastructure. In this case, a video delivery provider hosts the caching engine at the communication service provider edge on a pay-per-use consumption model.
This deployment model aligns revenue and cost on a utilization basis. For this to succeed, the revenue margin should exceed the marginal cost of transferring 1GB of traffic capacity. The model needs to scale capacity as live events introduce peak traffic demands that far exceed traffic patterns related to linear or on-demand video streaming. It presents a great opportunity for a provider to participate in multi-CDN offerings, the norm for video distribution by large studios such as Disney, Paramount, Prime Video, and others. An orchestration layer is needed to manage the full life cycle of media delivery including deployment, configuration, support, and reporting.
The accrued benefits to this deployment model include:
- Aligning revenue with variable costs to maintain margin targets
- Scaling by using a distributed edge infrastructure with diverse routing options
- Achieving high-availability targets with a distributed and highly available edge infrastructure
- Meeting security targets with a dedicated network along with embedded video security such as DRM
- Meeting the peak traffic demands of live events with a scalable edge network
- Providing coverage in a wide footprint based on the availability of edge infrastructure
The CDN model that scales and still drives superior QoE
While this model entails numerous benefits, it faces competitive challenges from CDN providers that continue to expand network capacity and focus on value-added features such as programmability, edge use cases, and expanded security services. The low-capex model can nonetheless evolve its capabilities. It can move from an initial focus on video delivery toward a programmability paradigm, introduce personalized and interactive media edge use cases, and expand security services such as DDoS and BOT management. These developments will expand an already attractive business model for video delivery toward higher growth and margin services. The goal ultimately is to drive superior customer experience.
Looking to the future of content delivery
Investments by communication service providers in edge infrastructure have opened the possibilities for media use cases. A new breed of media delivery providers can leverage this infrastructure to provide video delivery on a variable pay-per-use cost model. This can alleviate the degrading margins that traditional CDN providers experience due to declining GB prices to support a high-fixed cost network. This is an evolving market, especially with the emergence of inferencing at the edge and its related impact on delivery traffic.
Conclusion
At a velocity rarely seen in technology, the manner in which video entertainment is delivered to consumers is changing to a purely over-the-top (OTT) model. Especially when viewed through the lens of live entertainment, including sports, this places enormous strain on traditional CDNs. Clearly, technical changes are required in order for the business models of content streaming platforms and CDNs to flourish while at the same time delivering on the quality expectations of the most important entity in this entire equation–the consumer. Netskrt is leading the way with a CDN purpose-built for high-value payloads such as live sports streaming, delivering superior quality while disrupting prevailing economics.