Service Adoption and Pricing of Content Delivery Network (CDN) Services
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, volume discounts may be suboptimal and may even be replaced by volume taxes. Finally, when there is heterogeneity in burstiness across content providers, a pricing policy that accounts for both the mean and variance in traffic such as percentile-based pricing is more profitable than traditional volume-based pricing (metering bytes delivered in a given time window). This finding is in contrast to the current practices of many CDN firms that use traditional volume-based pricing.