This morning, Limelight Networks announced they have acquired privately held Delve Networks, a SaaS based online video platform (OVP) provider, in a mostly cash and small equity transaction. Terms of the deal were not disclosed but I have learned that Limelight valued Delve at about $10M. While the acquisition won’t add much in the way of top-line revenue to Limelight, it does give the company a crucial piece of software to help enterprise customers manage their video assets and also gives Limelight a video analytics component.

Delve Networks was founded in 2006 and since that time, had raised just under $10M in venture capital. The Limelight deal includes an earn out component for Delve based on meeting certain revenue targets so there is a chance that Delve’s investors may break even on the deal. With so many online video platforms (OVPs) in the space and the market not being large enough to support them all, more deals like this are inevitable. While OVPs play a crucial role in the market, there simply isn’t enough business to support the dozens of vendors all trying to help companies solve the problem of video ingestion, transcoding, management, monetization and tracking.

Delve’s CEO & Co-founder Alex Castro will stay on with Limelight as VP and GM of video platform solutions and Delve’s 22 employees will stay in Seattle and now become Limelight’s official office in that region. In addition to the technology, Limelight also now controls some unique patents granted to Delve pertaining to video search and speech recognition and Limelight greatly expands their engineering team since most of Delve’s 22 employees were on the engineering side.

For Limelight, this is a smart deal and one that I expect we’ll see them do more of. They have made two acquisitions in the past eight months and I expect
we’ll see one or two more deals of this size, probably having to do with site acceleration and analytics, before the year is up. While Delve was not doing a lot of revenue, they did have 100 120 customers and once they get integrated into Limelight’s infrastructure, Delve’s largest CAPEX cost gets reduce and their margins soar. Similar to Limelight’s recent purchase of EyeWonder, Limelight should be able to see Delve’s offerings have margins of more than 70%.

This is a really crucial time in the market for Limelight Networks and I consider 2010 to be a make or break year for the company. If they can continue to sell more value add services with higher margins and penetrate the enterprise vertical with more wins, the company has a chance at being profitable by the end of the year, thanks in large part to EyeWonder’s high-margin revenue. The company has not been able to show a lot in the way of revenue growth over the past 5-6 quarters, so deals like this make be just what the company needs to get their business going again.

As a result of Limelight focusing on more non-CDN services, it’s also interesting to note that I am hearing about companies who would not have though about potentially acquiring Limelight a year ago now keeping a closer eye on the company. While it has always been speculated that Limelight would some day be acquired by a telco, if they continue to move to being more of a SaaS provider, it probably wouldn’t be a telco that ends up taking them out of the market. (I’ll give out more details on this shortly and name some of the companies I think may be a fit in a longer post I am working on about Limelight’s business.)

Today at 2pm ET I'll be moderating another StreamingMedia.com round table webinar entitled "Making Sense of The HTML5 Buzz". We've been hearing a lot of noise on HTML5, and it's certainly been getting a front row seat by the press, but what exactly does it mean to online video?

Join our panel of presenters from Adobe, Kaltura, Limelight Networks and Tremor Media as we explore the topic, and provide an open Q&A forum to answer your specific questions relating to HTML5 and web video.

You can still register and attend for free at this link.

For a company that is so far behind their competitors, I can only laugh when Blockbuster continues to talk about all of these supposed “advantages” they have in the market. Last week Blockbuster started running television commercials in two states highlighting the fact that they don’t have to wait 28 days to rent new releases. (Their commercial has since been pulled from YouTube due to copyright issues.) While that may seem like a big deal, we all know that consumers are starting to consume more movies digitally, yet Blockbuster’s supposed “28-Day Advantage” does nothing to help them with their failing digital strategy.

Last year, Blockbuster made a big deal about how consumers could now “rent hot new release movies” via their TiVo. In reality, nine months later, Blockbuster has a total of 13 movies available for streaming in HD. And the 25 movies they list under “new releases”, two-thirds of them you’ve never heard of or they average ratings of under two stars.(Some of the new releases include movies such as “Shinjuku Incident”, “Our Family Wedding”, “Percy Jackson & the Olympians”, “Greenberg”, “Ninja’s Creed”, “Stacy’s Mom”, “8: The Mormon Proposition” and others duds.)

Even one of the newer Blockbuster releases, Avatar, isn’t available for streaming in HD from Blockbuster. (If you want to get it in HD, you can via the Zune Video marketplace on the Xbox 360.) When Avatar came out, Netflix and Redbox had to wait four weeks before they could rent it, unlike Blockbuster who paid to get access to the movie right away. Yet even with Blockbuster having access to the biggest movie of the past year and Netflix having to wait, Netflix’s business has done nothing but grow. Blockbuster’s so called “advantage” over Netflix has not translated into slower growth for Netflix or Redbox or increased market share for Blockbuster.

While some have suggested that Blockbuster’s deal with Sonic Solutions will get Blockbuster installed on more devices, keep in mind that Sonic’s own numbers say that the number of CE devices carrying their stores, under both their brand and those of their partners will be, “over 3M CE devices by June of 2010″ and “nearly 30M by June of 2011“. Netflix will be on 100M devices by the end of this year.

Blockbuster digital strategy clearly isn’t getting any traction, their inventory of movies available via digital is weak and yet the company still wants to waste time and money trying to convince consumers on how they think they have an “advantage” over their competitors. Blockbuster should know by now that something is only an advantage if the customer thinks so and is willing to pay for it.

Update: Someone sent me an email asking how Blockbuster’s HD inventory compares to Amazon. Via TiVo, Amazon Video On Demand has 51 HD titles available for streaming.

Related Posts:

– Redbox’s Digital Strategy Won’t Challenge Netflix’s Streaming Service, Here’s Why

– Ten Years Later, Blockbuster Still Lacks A Digital Media Strategy

– Blockbuster Won’t Survive: CEO Says “Conservative Approach” Required For Digital

– Blockbuster Streaming Comes To TiVo, But Service Won’t Reach Many Consumers

– Platform Overload: How Many Content Platforms Can Survive On TVs And Devices?

Update: All business books are gone. Only two Windows Media books left. I have seven copies of my book "The Business of Streaming & Digital Media", which is part of the NAB Executive Technology Briefing series and two copies of "Hands-On Guide To Windows Media" to give away. This is the last batch of books I have left. If you would like a copy of either, leave your name in the comments section with a working email address and I'll reach out to you for shipping details. The books are free and will be given away to the first few readers who ask for them.

Earlier in the month, CDN provider Highwinds announced it had acquired privately held Bandcon in a cash and stock deal. While terms of the deal were not announced, the buyout includes an earn out component for Bandcon based on meeting revenue targets. In conjunction with the acquisition, the company also announced that they have hired Steve Liddell as the new President of their CDN business. I got a chance to spend some time recently with Steve Liddell and Highwinds CEO Steve Miller and got more details on the acquisition and company’s revenue growth.

For those that track the CDN market, Steve Liddell’s name will look familiar. Steve was formerly the CEO of Panther Express, (and before that worked at Level 3) where he was brought on by Panther’s investors in 2008 to sell the company, a task he accomplished with the sale of Panther Express to CDNetworks in February of last year. This time around though it’s much different for Steve as he’s not being asked to sell a company, but rather build up Highwinds’ CDN services and help grow their market share.

When Highwinds announced they had acquired Bandcon, most folks I spoke to didn’t know who Bandcon was or what they offered. While Bandcon called themselves a Content Delivery Network, they actually re-sold Limelight, Level 3 and Highwinds delivery services and the company’s primary source of revenue came from services like transit, co-location and managed hosting. Many didn’t know the Bandcon name and the company didn’t do a lot of marketing, but they has just celebrated their 10th year in the industry and were quite respected by many as smart tech guys with a nice small business. While Bandcon’s revenue numbers for 2009 were not disclosed, the company did $20.4M in revenue in 2008 and late last year, ranked 20th on the Inc. 500 Magazine, 2009 List of Fastest-Growing Private Companies in the Telecommunications category.

Highwinds themselves have been very quiet in 2010, which company CEO Steve Miller says has been primarily due to the fact that they have been focusing on the Bandcon acquisition, building out in Brazil and just completed a $35M debt refinancing. For Highwinds, acquiring Bandcon is a great fit as it doubles the size of their network to almost 4TBps, provides them with additional buying power and provides Highwinds with a new sales presence on the West Coast. In addition, with Bandcon having more than 300 customers and generating a lot of their revenue from services outside of CDN, it also enables Highwinds to help diversify their revenue, something every CDN is currently working hard to accomplish.

Speaking of revenue, with the Bandcon acquisition, Highwinds expects to do $100M in revenue for this year, with $33M in EBITDA and unlike most companies in the space, is profitable. To put that in perspective, Limelight Networks had $134M in revenue last year with $12M of that being EBITDA positive. The company is taking on 32 of Bandcon’s employees and with some additional hiring, they expect to have a head count of about 175 employees by the end of the year.

If Highwinds reaches their target goals, there will now be six companies in the industry who have a CDN offering, doing more than $100M in revenue this year. That’s not to say that all of these companies are actually doing $100M in CDN specific revenue, but you now have Akamai, AT&T, CDNetworks, Highwinds, Limelight Networks and Level 3 who are all $100M+ companies.

For Highwinds, I see the acquisition of Bandcon as an opportunity to re-launch their CDN services, create a name for themselves in the market and develop their CDN messaging of who they are and what they offer. The company now has all of the pieces they need to be successful in the market, is highly profitable and now just needs to attack the market, exposing content owners to their brand and their services.

When Bloomberg reported earlier today that Redbox was "developing an online strategy" to challenge Netflix, many seemed to think this was some kind of breaking news story. But in reality, those inside Redbox have been working on trying to develop a digital media strategy for over a year now and still face some major hurdles that will keep it from competing with Netflix anytime soon. Redbox's biggest problem is that the company has zero device penetration and can't get to a large install base anytime soon.

While many bloggers and analysts were quick to point out that Redbox could simply work with Roxio to license their platform, none of them seemed to actually do the math which shows that Roxio can't solve the device problem for Redbox. I see analysts saying things like, "Sonic technology is already in DVD players and TVs", yet they don't mention what the device penetration for Sonic is when compared to Netflix.

In a recent earnings call where Roxio spoke of device growth, the company said that the number of CE devices carrying their stores, under both their brand and those of their partners would be, "over 3M CE devices by June of 2010" and "nearly 30M by June of 2011". Yet for Netflix, simply between the Xbox 360, PS3 and Wii, Netflix already has more than 50M CE devices in the market today that are capable of streaming Netflix content. Not to mention, Roxio's platform still does not support Mac users, so even if Redbox licensed RoxioNow, it would do nothing in helping Redbox reach users who don't have a PC.

Redbox may come to the market with a digital strategy, but it will take them years to get on the 100 devices that Netflix will be on by the end of this year. While many are quick to talk about different companies challenging Netflix for their streaming service, I think they are forgetting that it took Netflix 3 years to get their streaming service to where it is today. It does not happen overnight, there is a lot of development work involved and it costs a lot of money. That's not to say that Redbox can't spend the money and time to offering something similar to Netflix in the way of streaming movies, but they won't be able to challenge Netflix with any scale for a very long time. And that's without even talking about how much inventory Redbox can amass and how long it will take them to do so.

I think many are forgetting or just don't know how difficult the online movie delivery business is. If it was so easy to replicate what Netflix is doing with streaming, then there would be many others offering the same service in the market, but there aren't.

Disclaimer: I am a customer of Netflix and Redbox and use both services.

Related:

– Detailing Netflix's Streaming Costs: Average Movie Costs Five Cents To Deliver

– Stifel Nicolas Analyst Has It Wrong, Hulu Is Not A Threat To Netflix

– Akamai To Become The Primary CDN For Netflix, But At A Very Low Price

– Breakdown On The Number Of Broadband Enabled Devices Sold In The U.S.

Today, Akamai released details on the number of streams they served for 24 global broadcasters into 65 countries during the World Cup. While traffic to World Cup websites saw a lot of growth from previous years, the number of actual video viewers for the live games peaked at only 1.6M simultaneous streams. Although many in the industry want to proclaim that online video is going to replace TV or become the new medium for viewing video in large numbers, as we saw with the World Cup, that clearly did not happen.

Compared to the Obama inauguration, where Akamai peaked at 3.6M simultaneous viewers, the World Cup was small in size. Akamai wasn't the only CDN to deliver live streams of the World Cup, but they were the largest. So even if you add in the number of simultaneous streams the other CDNs served, the total number of overall viewers watching World Cup games at any give time shows online video isn't displacing TV anytime soon.