Service Adoption and Pricing of Content Delivery Network (CDN) Services

Management Science, Vol. 54, No. 09, pp. 1579-1593

33 Pages Posted: 15 Sep 2004 Last revised: 9 Jun 2014

See all articles by Kartik Hosanagar

Kartik Hosanagar

University of Pennsylvania - Operations & Information Management Department

John Chuang

University of California, Berkeley - School of Information

Ramayya Krishnan

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management

Michael D. Smith

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management

Date Written: December 1, 2006

Abstract

Content Delivery Networks (CDNs) are a vital component of the Internet's content delivery value chain, servicing nearly a third of the Internet's most popular content sites. However, in spite of their strategic importance little is known about the optimal pricing policies or adoption drivers of CDNs. We address these questions using analytic models of CDN pricing and adoption under Markovian traffic and extend the results to bursty traffic using numerical simulations.

When traffic is Markovian, we find that CDNs should provide volume discounts to content providers. In addition, the optimal pricing policy entails lower emphasis on value-based pricing and greater emphasis on cost-based pricing as the relative density of content providers with high outsourcing costs increases. However, when traffic is bursty and content providers have varying levels of traffic burstiness, as ex-pected in reality, volume discounts may be suboptimal and may even be replaced by volume taxes. Fi-nally, a pricing policy that accounts for both the mean and variance in traffic such as percentile-based pricing is more profitable than pure volume-based pricing when there is heterogeneity in burstiness across content providers. This finding is in contrast to the current practices of many CDN firms that use pure volume-based pricing.

Keywords: Content delivery networks, internet, pricing, bursty traffic, web hosting, media delivery

JEL Classification: L1, L8, L86, M31, O30

Suggested Citation

Hosanagar, Kartik and Chuang, John and Krishnan, Ramayya and Smith, Michael D., Service Adoption and Pricing of Content Delivery Network (CDN) Services (December 1, 2006). Management Science, Vol. 54, No. 09, pp. 1579-1593. Available at SSRN: https://ssrn.com/abstract=590350 or http://dx.doi.org/10.2139/ssrn.590350

Kartik Hosanagar

University of Pennsylvania - Operations & Information Management Department ( email )

Philadelphia, PA 19104
United States

John Chuang

University of California, Berkeley - School of Information ( email )

102 South Hall
Berkeley, CA 94720-4600
United States

Ramayya Krishnan

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management ( email )

Pittsburgh, PA 15213-3890
United States

Michael D. Smith (Contact Author)

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management ( email )

Pittsburgh, PA 15213-3890
United States

HOME PAGE: http://www.heinz.cmu.edu/~mds

Register to save articles to
your library

Register

Paper statistics

Downloads
781
Abstract Views
7,428
rank
31,027
PlumX Metrics