Optimal pricing of content delivery network (CDN) services

Abstract

Content delivery networks (CDNs) intelligently cache content on behalf of content providers and deliver this content to end users. New services have been rolled out recently by CDNs that enable content providers to deliver entire Web sites from the distributed CDN servers. Using analytical models, we address the optimal pricing of these services. Our results suggest that, consistent with industry practices, CDN pricing functions should provide volume discounts to content providers. They also show that the most likely subscribers to CDN services are those content providers with high volume of traffic and with content having low security requirements. Significantly, our model also shows that larger CDN networks can charge higher prices in equilibrium, which should strengthen any technology-based economies of scale and make it more difficult for entrants to compete against incumbent firms. We find that CDNs have to lower prices in light of increasing security concerns associated with content delivery. Alternatively, they need to invest in developing and deploying technology to alleviate the security concerns. Finally, we find that declining bandwidth costs negatively impact CDN revenues and profits.