Volume pricing for Amazon’s CloudFront
New volume pricing for Amazon’s CloudFront CDN takes effect today, February 1st. For US and Europe “edge” delivery, the price goes as low as $0.05/GB at the 1000+ TB level. For Hong Kong, it’s $0.09/GB at that level. For Japan, $0.095/GB. The pricing isn’t quite comparable to a traditional CDN because of the origin bandwidth fees and the per-request fee, but it’s still a useful benchmark.
For those who are mentally comparing this to the cost of bandwidth, those per-GB costs translate into $16/Mbps for US/Europe, and $29/Mbps for Asia. In a day and age when Cogent is splashing “Home of the $4 Megabit” across its home page, it might look like there’s still quite a bit of delta between bandwidth pricing and CDN pricing, but especially once you get out of the US, bandwidth costs escalate pretty dramatically beyond Cogent’s low-water-mark.
Nonetheless, Amazon’s volume pricing play ought to put to an end anyone’s hope that the elimination of some of the financially weaker CDN players is going to do anything significant to alleviate pricing pressure where it’s most severe — the entirely commoditized portion of the market. In fact, this explicit, transparent pricing is probably going to provide a nice bargaining chip. Even if a major media conglomerate isn’t going to use Amazon to deliver their video, it won’t stop its purchasing people from using these published prices to hammer CDNs during negotiations.
Posted on February 2, 2009, in Infrastructure and tagged Amazon, CDN. Bookmark the permalink. 8 Comments.
Hi Lydia, I would have to disagree with the notion that customers can use Amazon’s pricing as leverage when in contract talks with other CDNs, who offer completely different services than Amazon does. You say that even if a major media company isn’t going to use Amazon, they can use Amazon’s pricing to try and get a lower rate in the market. But if a major media company is not going to use Amazon, it’s not due to their price, it’s due to the fact that Amazon’s service does not target major media companies. They have no SLA, no streaming, no reporting, no support for origin storage, no tech support number etc…..
You can’t compare Amazon’s CloudFront service with any of the major CDNs, which is who the major media companies use.
You’re thinking like the actual buyer (either the business buyer or the IT guy), and not the purchasing guy.
Of course the services aren’t comparable. (I’ve said that before, and repeatedly.) But it doesn’t matter, because what posting a price has done is given a purchasing guy a giant button to bang on.
Essentially, what Amazon has done is establish a price for delivery of bits from point A to point B without regard for quality. Once he’s got that, a purchasing guy can go to the CDNs he actually wants to use and debate how much quality is worth, how much analytics are worth, yadda yadda. And he can sit down and try to decide how much the delivery is actually costing the CDN and press them to the bone, because the more evidence he can accumulate of either hard costs or hard pricing data, the bigger a hammer he has to bash the vendor with. It has nothing to do with rationality, actually viable alternatives, or fitness for purpose. It is a negotiating tactic, pure and simple. It’s why people go out and get quotes from vendors they have no intention of buying services from, too.
Of course, arguably, the purchasing folks at the major media companies are already pretty much bending over CDNs and screwing them ruthlessly, anyway. But this is one more implement to do it with.
I still disagree. Just because someone posts a price, for a service that is not comparable to the one you are looking for, does not mean they now can use that data to get lower pricing in the market. It’s like saying that you can walk into a BMW dealership and tell the sales guy you have pricing from Honda, so he better give you a good price on a BMW.
I also disagree that Amazon has established a price for delivery “without regard for quality”. Amazon has no SLA for their CloudFront offering. They have no support number you can call and there are delivery providers in the market who offer pricing below Amazon. Someone is always out there cheaper than the next guy, so we’ve always had very low pricing in the market. To date, that low pricing leader has not affected the larger pricing picture overall. As an example, I see BitGravity in the market with the absolute lowest price on every deal. But I don’t see customers going with them simply because their price is so low and I don’t see customers using BitGravity’s pricing in the RFP as ammunition when talking to the other CDNs.
I know you agree with this and that your point is that this is just a negotiating tactic, but it’s only a tactic if it works when talking to the vendor, which is this case, it doesn’t. The BMW sales rep could care less what pricing you got from Honda and won’t even acknowledge it, so it might be a tactic, but it’s not one that gives the buyer any leverage. It’s the same with the CDNs. If they don’t feel the pricing you have from another CDN is a threat, then it holds no leverage over them.
I still disagree. I routinely talk to purchasing folks who engage in exactly this sort of behavior and manage to get results from it. The reason it’s successful is because they’re not using the pricing as a threat, and therefore the “fitness for purpose” of the other vendor isn’t relevant in that context.
Really aggressive purchasing people do things like try to figure out what it costs a vendor to deliver service, decide what kind of margin they’re willing to allow the vendor to have, and then press them for that price. The more data they have about the costs of their chosen set of vendors, and anything else, whether it’s the prices of competitors, the cost of bandwidth, or the cost of servers, the more ammunition they have for this kind of approach. This type of buyer may try to break down a contract into the minutiae, finely slicing every last thing they’re being delivered and using that as part of the “logic” of why they should get a particular price.
If you agree that you can’t compare the CDN services of an Amazon to Akamai, then how can the argument be that a purchasing person can use the pricing by Amazon to try and figure out what someone like Akamai’s cost is to deliver a completely different service from what Amazon offers? The argument still holds true that since you can’t compare one service to another, you can’t use pricing from one vendor to try and figure out the costs of another vendor in the market, when that other vendor offers a different service, at a different scale and of course, at a different price.
No one except the CDN vendors know what it costs them to deliver content, so no customer can simply sit there and say here is what margin they are going to let someone like Akamai or Limelight have since they have no idea what those vendors costs even are. And having pricing from Amazon does not help anyone figure out Akamai or Limelight’s costs to deliver content.
You say the more data they have about “their chosen set of vendors”, “prices of competitors” or “cost of bandwidth” helps them out. But we both agree, Amazon is not a competitor to Akamai. And customers looking for services Akamai offers, would not also be looking to Amazon, so those two vendors would not be on the same list. And knowing Amazon’s or Akamai’s pricing does not give any customer any insight into the cost of bandwidth.
For services outside of CDN, like storage, managed services… it’s possible. But not for CDN.
Remember that when you’re dealing with big-company purchasing people, you’re not dealing with experts. Generally, when they buy CDN services, they’ve been given a list of acceptable vendors, and told, “Go get the best price.” They have barely any knowledge of what a CDN is, but they can go look things up online for financial info. They are not making arguments that are necessarily sensible from the standpoint of someone who knows the space.
This kind of purchasing person tends to exhaust the salespeople that they deal with, but often, if they are patient, willing to play a bunch of vendors off each other, and can keep coming back to the table with new reasons to ask for lower bids, they’ll manage to get ridiculously good pricing for CDN services (and other stuff that they negotiate). This is frustrating to CDNs, whose models have traditionally been predicated upon relationship selling, and this kind of negotiating is really the antithesis of that.
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