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No Major Consolidation In The CDN Market Anytime Soon

I keep reading a lot of reports and quotes by people who all agree that there are lots of CDN providers in the U.S. and as a result, that must mean that industry consolidation is inevitable. The problem is, right now, very few CDNs have enough revenue to make them worth anything. And with many of the new CDNs not focusing on applications and IP, why would we see consolidation when there is nothing yet to acquire?

There are only three companies, Akamai, Limelight and CDNetworks who will do over $25 million this year in CDN revenue. Maybe someone would want to acquire a CDN doing less revenue, or roll up a few of them together, but since so many of the CDNs are really just getting started in the market, there is nothing to consolidate.

If CDNs start to tackle the workflow and ecosystem problems associated with video and build applications to solve those needs, then they become worth something a lot faster. Case in point. Akamai didn’t buy Nine  Systems for it’s $20 million in revenue and Level 3 didn’t purchase Servecast for their $5 million in revenue. They purchased the companies for the applications they had developed. If either company had large revenue and applications, even better, but the applications were enough.

In the next 12-18 months, I expect we’ll see almost no consolidation at all. Yes, I still think Limelight will be acquired by one of the many telcos who are looking to enter the market, and CDNetworks with its nearly $50 million in revenue for 2007 is also a potential target, but other than those, who else has enough revenue, applications or IP to make it worthwhile today? Eighteen months from now it’s a whole different story as unfortunately, many of the 40 CDNs just won’t have enough traction in the market. But since the CDNs have all raised so much money in the past two years, none of the new entrants are going away anytime soon. And yes, the number one player in any industry can always be taken out of the market. And while there seemed to be a lot of rumors in the past week of Cisco acquiring Akamai, I see nothing in today’s market to indicate why that would happen now.

Eighteen months from now, the CDN market is going to be a completely different industry. We’ll be a billion dollar market in the U.S., we’ll have a few companies doing some real revenue and we won’t have over 40 CDNs in the market. But for now, no consolidation is coming.