The content delivery network (CDN) services market will continue to grow rapidly through 2008 despite worries from investors that CDN services are being commoditized, according to report by Tier1 Research, a division of The 451 Group. Based on current trends in consumer behavior, the analysts expect the market for CDN services to grow 34 percent in 2008.

T1R analysts estimate that the total for 2007 CDN industry revenue will reach $990.27m, which represents 48% growth over the 2006 total of $671.31m.

Although concern over a price war has tempered enthusiasm for CDNs on Wall Street, top vendors are still successfully differentiating themselves based on service quality, capacity and global availability. These vendors will be able to moderate pricing pressure from startups and maintain rapid growth. T1R is forecasting that Akamai, Limelight Networks and CDNetworks will account for 79% of total market revenue during the next four quarters. Other competitors and startups like BitGravity and EdgeCast will only take a small amount of market share from the top players as the overall market continues its rapid expansion.

"There is some evidence of aggressive pricing in the CDN market, but this is expected behavior at this point in time. Inevitably, new entrants to a market are pricing services aggressively in order to gain marquee clients," said Jim Davis, senior analyst at T1R and author of the report. "These clients are expected to become profitable clients down the road as more traffic is moved to the company's network; these clients are also needed as an indicator of future success when going back to venture investors to fund operations and expansion. By 2010, consolidation will have mitigated some of the price competition of 2007 and 2008 that was initiated by the influx of new players in the market."

T1R believes consolidation will be the biggest factor in any major changes in market position, with companies like Mirror Image and BitGravity being potential acquisition targets, while Akamai, Level3 Communications and Limelight are likely acquirers.

About this study

The Tier 1 Research report, "CDN Market Overview -- Winter 2008," provides analysis of changes in market share among CDN service providers and offers detailed discussion and analysis of important trends and developments that drove the CDN services sector in 2007, as well as insight into where this market is going. This report also addresses the issue of how CDNs price services, and the correlation between service differentiation and pricing power. The report is the second in a series of quarterly reports designed to provide timely analysis and perspective on key technology trends and marketplace developments in the CDN services marketplace.

The report covers more than 20 key public and private companies in the CDN services sector, including Akamai, BitGravity, CacheFly, CacheLogic, CDNetworks, ChinaCache, EdgeCast Networks, Internap, Level3 Communications, Limelight Networks, NaviSite and Panther Express.

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