Comment by happytiger

A good data center can sell you a sustained 10Gbps for, and I’m guessing at going rate, but like 4-7k a month? If you’re making a commitment cheaper, and that’s basically a retail pipe for someone in a colocated facility.

For larger providers, bandwidth cost drops tremendously, especially if you’re well connected as transit is much cheaper and if you are really large or a network provider you may even be routing between your own facilities or in some cases from one customer to another and every large scale isp is going to want a “direct link” to your facility (a peering relationship). Those costs are astronomically small at scale for bandwidth.

The ISP or similar then turns around and sells a sustained network throughout as GB transferred, which isn’t how wholesale bandwidth is sold at all. So the get to charge for the data the pipe moves while they only pay for the connection itself — the markup added to this process is considerable.

For someone operated a global CDN, which is basically what they do, they have racks of storage and computer collocated all over the world and optimize the living crap out of their network to reduce their costs and make it run on as many peering relationships as possible. It’s an expensive and complex business to set up, but once it’s set up you get a fairly good and consistent return out of it.

The reason for this article is related to the nature of that business: it’s the issue of liability.

When you have policies where you protect your clients from downsides and excessive use on the network, you suddenly have to assume the role of paying attention to what’s on the network and policing it’s contents. That’s not possible with a massive system like this generally, so they push the liability down to the customer and discount the mistakes that come up. That’s why things are set up like this… this kind of stuff isn’t their business at all really. They are looking for the customers that convert and pay, which is very profitable, and the free tier is often thought of as a sustainable cost if you are large enough scale, as it substitutes for the rather massive expense of marketing and sales which is one of the largest expenses in a bandwidth focused business. CAC is the free tier.

There also competitors, but the benefits of scale are tremendous in terms of cost efficiency. A large provider might be paying just a very small fraction of a penny or less (even “free”) compared to what a small provider is paying. So that’s why you end up with fewer competitors because it truly is a business that benefits from economies of scale.

There are other smarter people on here who can correct any mistakes I’ve made or provide better pricing or whatever, but that’s the more in depth answer.