We all have witnessed phenomenal growth of online videos in the last few years. At this time, it is a forgone conclusion that TV viewing has declined primarily due to the onslaught from online videos. The latest figures say that 77% of US internet users watch an average of 87 videos per month. This is a whopping 12.7 Billion views per month. Any e-marketer out there would be drooling for these massive eyeballs.

Industry Leaders and Drivers

Who stand to benefit from this gold rush? Consumers for sure are, but apart from that, there are a handful of companies that help deliver these video bits to you over the internet. Every time you watch a video, there is money exchanging hands. These content delivery networks (CDN) get paid by the number of bit delivered from where the videos are hosted to where the user consumes them.

Frost & Sullivan reports that currently, the CDNs make a total of $400 million a year and the rate is growing at 30% compounded annually. 80% of this is captured by just 4 companies – Akamai, LimeLight, Level 3 and CDNetworks. For the rest of the 20% of the market, around 40 smaller CDNs compete ferociously.

In spite of this rosy growth picture, it is interesting to watch the dynamics within the CDN industry. The price that CDNs could charge have drastically come down putting pressure on their businesses. The price for a gigabyte of data delivery now stands anywhere between 50 cents to a few cents depending on the volume of delivery committed. This is in contrast to over $2 per gigabytes back in 2000. A couple of factors have contributed to this decline. One is the binge of fiber optics that got laid for expanding the internet during the dot com boom. Second, there have been a growing number of businesses springing up causing the competition to drive down the price. Akamai, who has been the leader in this space, has seen business eroding to competition over the years as the buyers of bandwidth can switch to other providers without much difficulty.

The CDNs are in a frantic rush to attract and retain additional customers to keep up and grow their revenues. In this mad dash, some of the CDNs have seen their profits eroding for years. It is interesting to ask the question of how CDNs can capitalize on the growth of online videos or if their price wars would lead some other businesses to take the loot.

Apart from the CDNs that deliver the bits to the end users, there are other players emerging in the business of online videos. There have been a host of video delivery platforms springing up ever since youtube became popular. These companies like Brightcove and Ooyala provide value added services like player customization, video asset management, analytics and other helpful tools under one umbrella to provide a complete solution. These companies typically buy the bandwidth from one of the CDNs. Because of the large volume of bandwidth they can commit, they usually get a very favorable price.

The video delivery platforms have in a sense commoditized the CDN services. Only the large players like Akamai can withstand the pricing pressure while most of the smaller players may leave the market in the near future. As you can see, the competition seems to be switching from the CDN bandwidth providers to video delivery platforms with many more companies joining the fray. In the next couple of years, we will witness aggressive customer acquisition battles between these companies.