CDN 2017 Review: License and Price Wars, Differentiated Competition is the Key to Survival

In 2017, with the rapid development of mobile Internet and big video, network traffic has skyrocketed, enterprises have an increasingly strong demand for network acceleration, and the role played by CDN companies has become increasingly important. At present, 60 companies have been recognized by the Ministry of Industry and Information Technology and granted CDN licenses, and the CDN market is booming.

However, in this year, with the strong involvement of many heavyweight companies such as operators, Alibaba Cloud, Tencent Cloud, and Huawei, the original industry structure was broken. At the same time, due to the repeated "price wars", the reshuffle of the CDN industry accelerated. Under this situation, traditional CDN companies and innovative companies will face major opportunities and challenges. In the future, how to find new breakthroughs and footholds will become the focus of the industry.

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The issuance of licenses is not a safe bet

In order to further standardize the market order, strengthen network information security management, and promote the healthy and orderly development of the Internet industry, the Ministry of Industry and Information Technology issued the "Notice on Cleaning Up and Regulating the Internet Network Access Service Market", investigating and punishing illegal activities such as unlicensed operation, operation beyond the scope of business, and "layer-by-layer sublease" in the IDC, ISP and CDN business markets in accordance with the law, and stipulated that from January 1, 2018, companies that fail to obtain the "license" as promised on time will not be allowed to operate CDN business.

After Wangsu and Alibaba Cloud successfully obtained the first batch of CDN licenses at the end of 2016, a large number of cloud computing companies and innovative companies have flocked in, and the capital market is optimistic. However, among the companies that have obtained licenses, only Wangsu, ChinaCache, Alibaba Cloud and Tencent Cloud are currently allowed to operate nationwide. In addition, from the perspective of domestic CDN node distribution, bandwidth reserves, customer scale, service reputation and other aspects of the company, the development of the company can be said to be uneven.

On December 19, the Information and Communications Administration under the Ministry of Industry and Information Technology issued a notice to adjust the original "annual inspection system for telecommunications business licenses" to the "annual reporting and publicity system for telecommunications business information", requiring telecommunications management agencies to organize and implement annual reporting work in accordance with the principle of "whoever issues the license is responsible". All basic telecommunications companies and related Internet network access service companies must effectively perform their access management responsibilities. For companies included in the blacklist, credit records should be an important consideration when providing communication resources, access services or other business cooperation.

It can be seen from this that obtaining a license does not mean that the company can sit back and relax. Obtaining a license only means that the company is allowed to operate CDN services. Only by operating in a standardized and reasonable manner can the company survive in the long run, and it must not touch the legal "red line".

"Price war" will not last long and will eventually return to rationality

First of all, it is certain that there is still a lot of room for development in my country's CDN market. According to the statistical data of the well-known foreign research organization MarketsandMarkets, the global CDN market size will reach 12.1 billion US dollars in 2019. The penetration rate of the US CDN industry in websites has reached about 70%, while in China, it is less than 20%. According to the forecast of Fangzheng Securities, the growth rate of the domestic CDN industry will remain at 30%-40% in the next 2-3 years, and the future market is promising.

In order to compete for a larger market share, cloud companies represented by Alibaba Cloud have been "going back and forth", challenging the price limit several times, and even "doing business" at a loss. In the short year, Alibaba Cloud has reduced prices many times, causing a sensation in the industry. In order to survive, most companies have to "follow suit" and reduce prices. On December 12, after Lei Jun's Kingsoft Cloud announced a $300 million Series D financing, the price of CDN products once again bottomed out. However, comparing the CDN product prices of the three cloud computing giants, after multiple price cuts to bottom out, the CDN prices are almost the same, all close to the "floor price", and the possibility of further price cuts in the short term seems unlikely.

In such an environment, traditional third-party CDN service providers and innovative enterprises are struggling to survive. On the one hand, industry giants are pouring in, and operators such as China Mobile and China Telecom have inherent advantages with their own network advantages and cost advantages; on the other hand, cloud giants are engaged in a series of "price wars", and winners are even rarer. How to gain a foothold in the fierce market is related to the future development and fate of enterprises.

In this regard, NetEase Technology, the leader in the CDN industry, said that when the CDN market size was only one or two billion, homogeneous competition was inevitable and price wars became the norm. However, as the market size gradually expands, players will find that homogeneous competition is meaningless, because no company can occupy the majority of the B-end market share. This requires CDN manufacturers to work hard, give full play to their strengths, and serve the market they are best at. The focus of competition will shift from homogeneous price competition to differentiated and diversified competition, and companies will eventually return to the competition of service and quality.