No Major Consolidation Amongst CDNs Anytime Soon
While some are saying there was a lot of talk at the Streaming Media West show last week about consolidation in the CDN market, no major consolidation amongst CDNs is coming anytime soon. At any conference where there are 20+ CDN vendors represented, you are always going to hear some talk about consolidation. But notice that none of those vendors talking about consolidation think they are the ones getting acquired? They all talk about how they are going to acquire someone else and usually make the case as to why they themselves don’t need to be acquired. And the idea that some CDNs will have to sell soon at a cheap price when they go under and have a "fire sale" is just not reality.
The problem with all of these theory’s is that all the CDNs have raised a ton of money, so no fire sale is going to happen for some time. Even for CDNs that are burning through startup capital, they all have at least 14-18 months before they have to worry about getting another round of funding, or re-evaluating their business strategy. Aside from Akamai and Limelight, who are always potential takeover options with the revenue and market share they both have, no other major CDN benefits from acquiring another CDN today or anytime soon. Most of the CDNs have no applications, no ecosystem tools, no IP, no patents and very little revenue. So what do you get from combining two CDNs who both sell commoditized services? There is simply no value there. If you were getting applications, work flow tools and other assets that help a CDN charge for other value add services, then potentially it makes sense. But right now, most CDNs don’t have that functionality.
And if a CDN can’t sustain itself in the market, how does acquiring it change the business model? The only thing you can hope to do is drive down the costs and scale the business and the CDN to operate more efficiently and make money. But the business model remains the same, it’s really just the infrastructure that would change. And if any large portion of the revenue from the CDN being acquired comes from the enterprise or advertising verticals, that sector has seen some slow down in growth due to the economy. Unless someone is buying a well established player, who has real revenue and a large market share, it would be a huge risk purchasing a CDN anytime soon.
While some of the more than 50 CDNs are selling on future services like HD delivery, the bottom line is that services like HD won’t have any big financial impact on the CDNs for more than two years. This means that any CDN that is building out their services for the future is going to have a hard time getting enough sales today to even last into the future. Many remember when iBEAM Broadcasting came into the CDN market and undercut everyone to get a lot of CDN business quickly, even while losing money. The idea was that they could grow fast and be around a few years later when the market really took off and then raise their prices. It was the Amazon mentality of "get big fast". It worked for Amazon, but iBEAM went under after about two years. CDNs have to build revenue today, close sales today and think about the current market, not what the market will be 2-3 years from now. What good is the market 2-3 years from now if you are not around to see it?
And inside the CDN indsutry, amongst the vendors, there is really very little talk of consolidation. The idea of consolidation comes mostly from outsiders, Wall Street and some analysts who cover some of the CDN vendors, but don’t really know the market.