Akamai Case Digest
1. Why did Akamai charge content providers and subsidize ISPs?
Akamai Technology operated the content delivery network. Its first service, FreeFlow, facilitated the delivery of bandwidth-intensive page elements. A content provider could tag the object that it wanted to serve over the Akamai network. After tagging, websites could be over 10 times faster and be protected against sudden traffic bursts. FreeFlow could reduce the content providers’ payments to ISPs for bandwidth, since serving page elements from Akamai’s servers meant that an average 50% less data was sent from the website’s origin servers. ISPs realized transit bandwidth cost savings as well as data-delivery performance benefits valued by the content providers. That’s why Akamai was able to obtain data center space and transit bandwidth free of charge from smaller ISPs, even though data center space was constrained and costly, and subsidized many larger ISPs for space and bandwidth. The fact that Akamai charged content providers and subsidized ISPs suggests that the company is performing within a two-sided market. In two-sided markets, cost and revenue come from both sides of users. Typically, a provider in two-sided market should subsidize the more sensitive side of the market and charge the side that most strongly values growth or need of the service of product. Subsidize on user group while charging the other a premium for access to the subsidized group. A “subsidy side” is a group of users who, when attracted in volume, are high valued by the “money side”, the other users group. In Akamai case, content providers are the “money side” and ISPs are the “subsidy side”. Akamai’s distributed servers are located close to end users, speeding the delivery of content. ISPs conserve bandwidth by relying on Akamai, and visitors are more likely to linger when pages load quickly. By compensation, more users can be attracted from the “subsidy side” and in return boosting users’...
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