Despite Limelight Networks Earnings, CDN Growth Still Strong

It’s good to see I’m not the only one who doesn’t think anyone needs to panic over Limelight Networks Q2 earnings that were reported yesterday. Light Reading’s article entitled "Limelight Outlook Won’t Doom CDNs" also talks to the tremendous growth in all aspects of the CDN market that I also see on a daily basis.

As much as Limelight Networks feel short of their projections by about $3 million, they did sign up 149 customers and grew revenue from Q1. The bottom line, all of the CDNs revenue from content delivery services are growing each quarter. Are they growing as much as investors want, maybe not. But since I don’t own any stock in any CDNs, I don’t care about stock prices. Stock prices do not reflect the true market opportunity. Stock prices go up and down based on many factors, most of which are all short term. And none of the CDN providers are thinking short term, they are all focusing on winning this game for the long run.

That being said, the number of analysts and writers out there who keep talking and writing about the vendors incorrectly seems to be increasing every day. No wonder there is so much confusion in the market. It’s a sign of just how hot the CDN industry is right now. But these folks need to take a deep breath, learn the market and then talk about the vendors with some clarity.

As an example, I was reading an article on Reuters about Limelight’s numbers and it says "CDNetworks is sniping at Limelight’s heels and said in July that it is well positioned take the second spot in the race to supply so-called content delivery networks used to speed up Web services." CDNetworks has less than 30 customers in the U.S. for content delivery and half a dozen employees. Limelight has over 800 customers and 58 employees just for sales alone, not to mention $100 million in sales by year’s end. CDNetworks has a third of Limelight’s revenue in Korea and will only do a few million this year for U.S. based sales. Mirror Image and Internap will do more revenue in the U.S. this year for content delivery than CDNetworks will do, so why wouldn’t they be nipping at the heels instead? The reason is that the quote the writer used is from CDNetworks and they take it as they are given it, without doing any analysis of what they are being told.

There are also a lot of articles being published talking about "startups" that aren’t startups and have been in the space for years. For instance from an article this week, "There are also an increasing number of startups in the CDN space, including players like CacheLogic, NaviSite, and Panther Express." Panther Express launched almost 2 years ago, and CacheLogic and NaviSite have been in the CDN space for a long time. The startups in the U.S. are folks like EdgeCast and CDNetworks who have launched in the past few months. That’s a startup.

In another article posted on Seeking Alpha, which talks about Akamai and the content delivery market, the author says "Upstart competitors Limelight Networks, Internap, and EdgeCast have recently received glowing press and funding from big names." Really? EdgeCast got reviewed by one press outlet. Limelight has been around for over five years and Internap is not new to content delivery. And Limelight is the only one that has gotten large funding lately.

The bottom line, there is huge growth coming from all customers. I hear from them directly and they are all putting more content online, at higher bitrates and getting longer playback times. Yesterday alone, two large content owners called me to ask advice on the going rate for CDN pricing and both said they expected to do two or three times the volume of delivery next year than they did this year. Both of whom are currently spending over $300k this year alone.

Content delivery has been around since 1994 when Sandpiper, InterVU and RBN started providing delivery services for video and it’s taken the past 14 years to get where we are today. As much as it’s been 14 years, the market is just now taking off and we’ve only scratched the surface of where this is going to go and the explosion we are going to see over the years for video delivery.

As much as people always says "content is king" the real winners in this space are not the ones who own the content but rather the ones that control the flow of delivery. The real game has just started and the winners, of which there will be many, will be the ones that are in this for the long-haul.