CDN price competition is becoming increasingly fierce, and the industry may be "rewritten"

Since the CDN technology architecture was invented by Akamai in 1998, it has gradually developed to the present day. Its huge network distribution capabilities have provided powerful acceleration services for the network. With the in-depth development of "Internet +", "CDN" has also entered the vision of more people from a tongue-twisting technical term.

According to the "Content Distribution Network (CDN) White Paper (2015)" released by the China Academy of Information and Communications Technology, in terms of CDN industry revenue, Wangsu's market share was about 43% in 2014, and ChinaCache's was about 37%, and the two together accounted for about 80% of the CDN market. In China, the "duopoly" has become the most important industry player in the past decade of gold mining, and diversified Internet applications such as cloud computing, the Internet of Things, and mobile live broadcasting have brought CDN into a new golden age.

At present, the global CDN market has a compound annual growth rate of 27.7% and will reach US$15.73 billion in 2020, and the Asia-Pacific region will be the fastest growing market. At the same time, China's cloud computing industry has an average annual growth rate of more than 30% during the "12th Five-Year Plan" period. Cloud computing is becoming a new growth point for China's economy, driving the formation of a number of new formats and models for industrial development.

The huge business opportunities have obviously attracted more people's attention - among them, Internet giants and telecom operators have become the biggest intruders in the CDN industry.

In the CDN market, in addition to the early independent CDN operators who have formed a relatively stable market control by taking advantage of their first-mover advantage, a group of IDC companies focusing on Internet application distribution have used their unique technology and network foundation to enter the CDN field from technology. And powerful equipment manufacturers are also trying to achieve vertical integration of the company by providing CDN solutions. Telecom operators can also build their own internal or regional CDN networks by relying on their own advantages. In addition to the above four major camps, some video websites, large comprehensive websites, securities companies, e-commerce and other websites are trying to build their own CDN nodes, becoming newcomers in the CDN camp.

There is a new and clear business logic behind many enterprises entering CDN. First, CDN is connected to the entrance of cloud computing on one end and big data on the other end, and its future business value is huge. Secondly, the "duopoly" situation has been maintained for a long time, and the industry must have invisible huge profits, which is the biggest pull. Thirdly, in addition to CDN services, it can also provide a series of cloud services including cloud hosting, database, storage, security, etc., which is more valuable to the overall needs of customers. In addition, the technical threshold of CDN itself is lower than that of cloud computing, so this huge market cake has attracted many companies with a keen sense of smell and certain technical capabilities.

In the melee, the practice of using price advantage to beat back the opponent was put on the agenda again. After Alibaba Cloud announced the commercial use of its own CDN in 2014, other Internet giants followed suit, bringing the industry to a new turning point. In the eyes of the "duopoly" at the time, "the CDN market is still in the early stage of rapid growth, so Alibaba is a follower to grab the cake." Today, three years later, traditional CDN manufacturers have discovered that the Internet giants made a brilliant move: first build it yourself and then commercialize it, expand the market through mergers and acquisitions and node layout, and use low-price tactics to put opponents in an "ambush" and finally achieve a harvest.

In this regard, Jiang Lintao, director of the Science and Technology Committee of the China Information Research Institute, once said that although CDN is facing new opportunities, the current market competition is still fierce. Professional CDN service providers maintain their leading position through comprehensive solutions, but telecom operators use their pipeline advantages to enter the CDN market in a big way, and the market traffic is divided, especially Internet companies use cloud computing to compete in price reduction in the CDN market. At present, China's CDN development still faces some problems: 1. The CDN utilization rate of Chinese websites is not high enough. Compared with the CDN utilization rate of American websites, there is still a lot of room for improvement, but the gap is gradually narrowing. 2. Network operators are gradually paying attention to CDN business, and the Ministry of Industry and Information Technology is gradually opening up CDN licenses. In 2017, more companies will obtain CDN licenses. 3. The strength of the CDN industry needs to be further enhanced, and the establishment of a CDN alliance is imperative.

Low price tactics

There are many examples of low-price tactics in the development of domestic CDN. In May 2015, Alibaba Cloud took the lead in launching an attack - it announced a significant price cut for its "Extreme CDN" product, and the price after the price cut was only one-third of the price of similar products from Wangsu Technology; in the same month, Tencent Cloud also announced a maximum price cut of 25% for its CDN services. In June 2015, Star Domain CDN, a subsidiary of NetMind Technology, completely subverted CDN to a transparent freezing point price with a price of 9,999 yuan/G/month, which was only 1/4 of the mainstream price in the market, exceeding the prediction of price "cut in half" and triggering CDN manufacturers to follow suit and cut prices. At the Yunqi Conference in March 2017, Alibaba Cloud announced the completion of the integration of Youku CDN and Video Cloud business and team, and announced a 35% price cut for CDN business, with the lowest unit price of traffic being only 0.17 yuan/GB, which triggered a fierce market reaction.

When they choose to lower prices, is it for the sake of "universal access to technology" or out of selfish desire to "occupy the mountain and become the king"?

Industry insiders believe that the current price war in the CDN industry is still ongoing, the industry is fully competitive, and is rapidly entering a mature market.

As the price war progresses, when the outsourcing price is infinitely close to or even lower than the self-built price, it will force a large amount of outsourcing demand to flow out. The self-built solution with high operation and maintenance costs is no longer feasible. In the CDN field, the ratio of outsourcing and self-built is undergoing historic changes.

At the just concluded 2017 Asia Pacific CDN Summit, the topic of price wars also became the focus of discussion among CDN vendors.

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Alibaba Cloud, which stands at the forefront of price cuts, has always believed that price cuts are one of the conditions for expanding the industry's pie. After price cuts, the entire industry will have a second or even third dividend. If the industry clings to its own profits, it may lose the entire spring. Zhu Zhaoyuan, general manager of Alibaba Video Cloud, said at the meeting that Alibaba Cloud has gained technology dividends and economies of scale through its combination with Youku, and this profit can be reasonably passed on to customers. The reason why 4K and VR have not been implemented for many years is that CDN costs are a major obstacle. Only when the industry cuts prices together can the market expand.

Wangsu Technology responded to the matter indirectly at the Asia-Pacific CDN Summit half a month after Alibaba Cloud announced the price cut. Sun Jingze, general manager of Wangsu Technology Marketing Center, said: From the perspective of the long-term development of the industry, the positioning, technology, and carrying range of CDN are constantly upgrading. A certain degree of price war is conducive to the healthy development of the industry and can make the entire CDN outsourcing cake bigger. In the future, in the red ocean, the main development direction of CDN is to scale, feature, and technology. In the future, not only the price of CDN needs to be reduced, but more importantly, the service capabilities need to be improved, and the carrying capacity of CDN needs to be improved when facing emerging technologies (such as the Internet of Things, artificial intelligence, VR, AR, etc.). Wangsu Technology has already made efforts in integrating deep learning and intelligent technologies. Obviously, Wangsu Technology has a "no opinion" attitude.

For Tencent Cloud, winning the bid for the Xiamen Municipal Government Extranet Cloud Service Project with 0.01 yuan has become a typical event of the industry's price war, causing a stir in the cloud computing industry. In the eyes of the outside world, Tencent Cloud has become a "spoiler" in the government cloud market, and would rather get the bid almost for free. However, some comments believe that Tencent Cloud has made a big advertisement by spending a small amount of money to buy public livelihood big data, which is worth it. The "bloody" price war can be seen. "Cloud + CDN" was proposed by Tencent Cloud at the Asia-Pacific CDN Summit in 2016, and it has also been effectively thought about and tried. Da Zhiqian, general manager of Tencent Cloud Internet Industry, believes that when the wind of cloud computing blows, it will have a great impact on the operating model of old IDCs, and traditional IDCs may encounter a ceiling in the CDN field.

How should other CDN vendors respond to this new industry situation? Should they follow the increasingly fierce price war? If they do not engage in price war, how can they gain a foothold in the industry?

Kingsoft Cloud is not to be outdone. Qian Yifeng, deputy general manager and chief architect of Kingsoft Cloud's video cloud business unit, expressed confidence in Kingsoft Cloud's price advantage in giving benefits to customers: "We can achieve price advantages by expanding our scale and cultivating refined technology to reduce costs."

It is still unknown whether UCloud, which has just successfully raised funds, will join the price war, but its "500+CDN nodes" have become an important resource. In the future, it will take advantage of cross-manufacturer and cross-regional global network coverage and its self-developed software-defined CDN core technology to quickly open up new ideas for CDN development.

Zeng Zhuo, General Manager of Sales at NetMind Technology, said at the CDN Summit, how can one continue to occupy a place in the market when there are more and more players and prices are getting lower and lower? Only manufacturers with truly innovative technologies and the ability to provide first-class services at the lowest prices can continue to lead. In the past two years or so, the new CDN based on the shared economy model has provided a truly effective new technology and low-cost breakthrough.

Tong Yongyue, founder and CEO of Yunfan Accelerator, expressed his opinion with the words "Deconstructing CDN and Returning to the Original Intention": "I am not against price competition, because normal price changes in any industry and field will promote the normal development of the entire industry. I do not appreciate price wars in the form of malicious losses. Two different prices will have different consequences. Price wars will not last long, and only the war of value has a future."

Is "price reduction" the "last straw" to seize the market and win customers? In fact, there is no "product" at all. The only thing customers pay for is the experience!

According to online information, Wangsu Technology Chairman Liu Chengyan once admitted in a performance conference call that the reuse rate is actually the main source of CDN business profits. This means that the CDN industry is an industry that emphasizes scale effect and needs to rely on scale to achieve reuse. Only by fully reusing can you make money. Generally speaking, the distribution of CDN nodes determines the degree of refinement of the entire transmission network coverage. Among them, the number and quality of nodes are important factors affecting the service capabilities and profitability of CDN companies.

The CDN industry is an industry that relies on scale to win, because the more servers and bandwidth you have, the higher the peak that can be handled, and the more capable you are of serving larger customers. In recent years, with the continuous expansion of market demand and the rapid growth of leading companies, more and more companies have entered the CDN field. Just three years ago, there were only 3 or 4 CDN companies in the country, and only one of them was profitable. Now it is very difficult for these newcomers to make profits in the short term. Some people predict that the CDN industry will see consolidation by the end of the year.

Price reduction is only one way to occupy the market. This method is the most effective in the short term and can best capture the user's desire to save costs. However, in the long run, users need the best experience and overall service. Marketing guru Philip Kotler once said: "Strictly speaking, there is no 'product' at all. The only thing customers pay for is experience. To optimize customer experience, it is necessary to integrate various business processes with customers as the center, and service is undoubtedly the one closest to customers among many business processes."

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The CDN market has changed from a market that relied on sales to a market that relies on technology services. Today's CDN involves security and storage. In the future, CDN will inevitably be cloud-based and deeply integrated with technologies such as artificial intelligence and VR. As the digital transformation process led by smart cities, smart homes, and IoT gradually enters a white-hot stage, the new era of information intelligence led by artificial intelligence is entering. For content distribution networks, the CDN industry itself is always maintaining a progressive attitude. At the Asia-Pacific CDN Summit, Zhu Zhaoyuan, general manager of Alibaba Video Cloud, made a prediction: "Starting in 2017, industry competition will become more intense. In two to three years, several companies that only do CDN may die. This is the trend of industry development, just like horse-drawn carriages will be replaced by trains and cars. There is definitely no future for CDN alone, because customers need more than just CDN. Customers need a complete solution, from computing, storage, big data, databases, security, etc."

Competition and cooperation in CDN industry will have a new look after reshuffle

As an infrastructure industry of the Internet, CDN has remained calm and steady while other industries have been undergoing rapid changes. However, with the dual stimulation of more companies entering the industry and the dramatic changes in new Internet demands, the lukewarm situation has gradually receded, and the second half of the CDN industry is coming.

On April 13, 2017, the "Asia-Pacific CDN Industry Alliance" was officially established, and the CDN industry ushered in the industry's first industry alliance. Wangsu Technology, Alibaba Cloud, Tencent Cloud, Dilian Technology, China Mobile, UCLoud, JD Cloud, Huawei, OneMind Technology, and Yunfan Accelerator all stood together as members of the alliance. CDN presents new opportunities and challenges in the constant interweaving of blue oceans and red oceans. How to establish a reasonable CDN industry ecosystem, achieve differentiated development between basic resources and cloud services, and complete important strategic transformation may be a problem that all companies in the industry need to solve urgently.

Being the fastest growing company may be the dream of many companies, but most companies need to survive the fierce price war through refined operations and steady pace. In the global market, there are very few companies that make a profit in CDN business. When Amazon launched its CDN service, it also adopted a price reduction strategy to gain market share, but it did not impact the market share of professional CDN companies such as Akamai.

William Hewlett, founder of HP, said: "Looking back on my life's hard work, what I am most proud of is that I created a company whose values, methods of doing things and achievements have had a profound impact on the management of enterprises around the world; I am particularly proud that I have left behind an organization that can operate sustainably and continue to serve as a model for a hundred years after I am gone." Although this technology giant used the drastic means of splitting into two a few years later to solve the bottleneck brought about by industrial changes, this did not affect HP's deep memory as the oldest and largest technology company in Silicon Valley and the popular "HP Model"!

In short, the long-term use of price wars and other methods to get close to users is not the fundamental driving force for the mature and healthy development of an industry. Innovation, self-revolution and personalized services are the sustainable way - this will be a lasting inspiration for companies in any industry today.