Michelle Clancy | 02-09-2013
Thanks to the dominance of one major provider, the content delivery network (CDN) space is poised for a big wave of consolidation and acquisition, according to ABI Research.
The main culprit for the buying spree to come is Akamai, which has increased its market share of the media and entertainment-focused cloud video service market to nearly 30% this year, up from about 27% in 2012. The issue is that no other provider has that type of scale. The other companies competing in the market all have less than 5% market share, ABI said.
"Akamai's historical rival, Limelight Networks, has lost its way," said Sam Rosen, practice director for ABI Research. "Limelight's revenues have turned from relatively flat to arching downward in a growing market. The market for CDN is showing in excess of 15% annual growth. Limelight has started messaging about digital presence that speaks more to small and medium business rather than large enterprise buyers – although part of the strategy includes OVP type functions which may be valuable for media publishers."
Akamai had $322 million in revenues during the first half of 2013, in a market expected to be worth $2.36 billion by the end of the year. That market is more than just core CDNs: ABI said that online video platforms (OVPs), managed video platforms (MVPs) and video content management systems (VCMS or CMS) are all part of the landscape — and unlike its competitors, Akamai can provide solutions in most arenas. The reality is that to stay viable, others in the market will have to quickly gain scale and new complementary lines of business.
"The CDN and related markets are poised for a round of consolidation," Rosen said. "We expect horizontal consolidation – where rival CDNs combine to gain scale in their competition with Akamai – as well as horizontal consolidation – where CDNs bring in functions, especially from OVPs, to compete for the largest content producers."
Some signs of consolidation (and investor interest) are already starting, Rosen added. Recently, Highwinds closed $205 million in private equity funding, citing growth as well as M&A opportunities, while rival EdgeCast snagged a $54 million round.
"It's clear that big investors see space in the market for a second standalone CDN to become a clear No 2 in the market," said Rosen.