There is a handful of metrics that define success or failure in the Content Delivery Network (CDN) business. They include the following:
- Total transaction capacity (TTC): Measures how many transactions the CDN can service concurrently. Bigger is better.
- Average cost per transaction (ACP): Essentially the total amortized cost of the CDN (hardware, software, people, energy, real estate, etc.) divided by the total transaction capacity. Smaller is better.
- Average revenue per transaction(RPT) : The total revenue of the CDN, divided by the total transaction capacity. This metric is generally driven by the overall economics of the market, though better response times can command greater revenue per transaction.
- Server response time performance (RTP): Measures how quickly a CDN server can delivery data to end-users. This metric is also sometimes called “transaction time”. Smaller is better.
The profitability of a CDN can then be determined by subtracting the cost per transaction from the revenue per transaction which is impacted by response time, and then multiplying this by the total transaction capacity.
Profit = ((RPT*RTP) – CPT)*TTC – Notice the largest impact is Response Time
There are a variety of ways that technologies can affect these metrics. For instance, a technology that doubles the capacity of each server but only increases the cost per server by 20% would double the total transaction capacity and reduce the cost per transaction by 40% (we will assume for simplicity’s sake that the cost of a “server” includes all costs such as power, real estate, etc.); this would also improve the profitability per transaction. Installing lower cost but faster storage in the servers would a lower the cost per server (and the cost per transaction) but would positively impact server response time performance by improving it.
In general, most new technologies introduced into CDNs are expected to increase total transaction capacity with similar or only slightly higher costs, thus reducing the cost per transaction and increasing profitability. This potential increase in profits is then balanced by the investment required to implement the change, which is also known as the Return on Investment (ROI). Achieving the best ROI is what every CDN (or other enterprise) wants to achieve.