Dan Rayburn - StreamingMediaBlog.com

CDN Yottaa Raises $9M In Series B Round, Wants To Become The Next Cotendo

In February, Boston based Yottaa (pronounced "Yo-ta") announced a new dynamic site acceleration service aimed at the small and medium sized business (SMB) markets with the goal of trying to fill the void left in the market for DSA services, due to Akamai's recent purchase of Cotendo. This week, the company raised $9M in a Series B round and has now raised $13M to date.

For those not familiar with dynamic site acceleration, it is a suite of technologies and products that deals with optimizing dynamically served content across the network. Traditional DSA services often include TCP optimization, route optimization, connection management, on-the-fly compression, SSL offload and pre-fetching technologies.

In addition to offering DSA services, Yottaa also offers mobile content acceleration and content delivery for small objects, not video. The company also announced that they have been granted two patents in the areas of web performance optimization (WPO), Front-end Optimization (FEO), web security and cloud routing. While Yottaa has a long way to go to become the next Cotendo, the company in on track to do under $10M this year, (Cotendo did $24M in 2011) Yottaa did say that in the last month, 5% of the Internet population has visited sites accelerated by the their network.

Yottaa was one of the presenters at last week's Content Delivery Summit and you can see their presentation here that they did with Mocospace, which is one of the largest entertainment destinations on the mobile web with 25 million registered users, spending over 1 million hours per day playing games and making friends.

The company now employees 40 people and current investors General Catalyst Partners, Stata Venture Partners and Cambridge West Ventures combined for the second round of funding, along with additional undisclosed investors.

Akamai Acquires Blaze, Adds Frontend Optimization Services: Here's What That Means

This morning Akamai announced they have acquired Blaze Software, a cloud based provider of front-end optimization (FEO) services. Terms of the deal weren't disclosed, but the numbers will come out, maybe even by Akamai during their earnings call today. Either way, I'll update the post once I hear what value was placed on the deal. FEO is going to be a big push from all the CDNs this year and Akamai needed to acquire someone to add a FEO product to their portfolio. This acquisition is probably also to combat Level 3 which has been working closely with FEO provider Streangeloop and has been having success in taking some big deals away from Akamai as of late.

FEO might sound similar to another subject I have written about lately, dynamic site acceleration (DSA), but it's very different. DSA's focus is to bring network resources closer to the user by pre-fetching or caching files. FEO makes the content itself faster. DSA makes page resources download faster. FEO reduces the number of page resources required to download a given page and makes the browser process the page faster. For example, analysis shows that popular sites like CNN, who already use a CDN, can double current performance by implementing FEO.

There are a lot of small FEO vendors in the space and many of them have now been acquired or teamed up with larger CDNs. While some might think that Akamai's recent purchase of Cotendo gave them a FEO product, that's not something Cotendo was doing. Blaze is now owned by Akamai, Limelight acquired AcceloWeb, Strangeloop is working with Level 3 and Riverbed acquired you also have stand-alone FEO services from Aptimize. Here's a slide that helps to break out where all the vendors fit in, but these lines are quickly blurring as many of the larger companies are taking out the smaller ones and adding this kind of functionality to their product suite.

For content owners, it used to be that the answer to most website performance problems was either to add more hardware, use a CDN, or re-engineer their backend application code. But for a number of reasons, investing in backend optimization is now providing diminishing returns. Google's research shows that for many popular sites it's the front-end that accounts for over 90% of a users wait time. Content delivery networks help to address part of this problem by reducing network latency, but even larger performance gains can be achieved through front-end optimization techniques that streamline the Web page HTML code and resources.

If you want to learn more about how front-end optimization works and what role it plays within a CDN, see my blog post from last year entitled: "Why Web Applications And Mobile Browsing Are Making The Frontend A Major Performance Bottleneck".

We will be talking a lot about FEO and seeing demos of these services at the Content Delivery Summit, May 14th in NYC.

As Brightcove Prepares To Go Public, Here's What To Keep An Eye On

Yesterday, Brightcove filed an amended S-1 as the company prepares to have their IPO in the coming months. The company is looking to raise between $50-$60M from their offering and estimates shares will be priced between $10-$12. After IPO expenses and spending approximately $7M to repay an outstanding loan, the company looks to net about $40M in working capital. Depending on the share price, Brightcove would have a market cap of between $275-$300M, which is about 5x 2011 revenue.

While I saw lots of folks repeating the highlights from the filing in their blog posts and simply cutting and pasting the numbers, I didn't see anyone asking the questions that have yet to be answered regarding Brigthcove's revenue or the size of the market they are in. It's also clear that many folks only read the first few pages to the filing and not the whole document as their are lots of data points that gives one a lot to think about, and question. It's just another example of many showing that too many blogs only care about publishing as many 500 word posts as possible in one day, rather than actually telling a story, engaging a reader, or trying to explain the impact a company could have on the broader market.

Brightcove had revenue of just over $63M in 2011 which makes them the largest provider for online video platforms, sold direct to content owners. Other video platform vendors selling direct to MSOs like Cisco, thePlatform and Kit digital have more revenue than Brightcove, but aren't selling into the same vertical with the same solution. Many people want to compare a Brightcove to thePlatform or Kit digital, but they are selling very different solutions and should not be compared to one another.

There are three kinds of online video platform (OVP) providers in the market. Those that sell direct to content owners, those that offer carrier grade solutions to MSOs and vendors that offer video management platforms for enterprise customers who deploy video inside their firewall. Brightcove has been going after the enterprise market as of late, but most of their customers are still content owners and publishers in the media space and I have yet to see Brightcove enter the carrier and MSO vertical as of yet.

But the real question is what's the breakdown of Brightcove's revenue and how much of it comes directly from their SaaS business? Through Brightcove's CDN partners like Limelight Networks and Akamai, almost 9 billion streams went through Brightcove's platform last year. That's a lot of bits and since the delivery of those videos are handled by a third party, Brightcove pays the CDNs for those delivery services and marks up the bandwidth to their customers. So one has to wonder what percentage of Brightcove's total revenue comes from the re-sale of bandwidth? Brightcove doesn't break that number out in their filing and the company told me their could not comment on those details when asked.

While there is nothing wrong with some of Brigthcove's revenue coming from bandwidth, considering that the average cost per GB delivered drops at least 20-25% each year, there is only so much of a markup Brightcove can add on top of what they pay the CDNs. Some have told me that it really does not matter as the percentage of Brightcove's revenue that comes from the re-sale of bandwidth continues to decline each year, but that's a bad answer. Just because it is declining doesn't mean the number isn't material. I don't know what percentage of their revenue is from bandwidth and I won't put a number out there as it would be a complete guess on my part. But if the number was low, think single digits, then my guess is that Brightcove would be all too happy to say what it is.

While Brightcove admits they will lose money in 2012 and even possibly beyond, that's not what worries me. Brightcove is trying to follow the Amazon mentality of "get big fast' and that's why the company has raised and spent so much money over the past few years. My biggest concern is how quickly the market Brightcove is in will grow and what the total market opportunity really is. While Brightcove gave out some of those numbers in their original filing, they are so big that they are hard to believe. Brightcove says that by their estimate their "total potential market opportunity was approximately $2.3 billion in 2011, growing to approximately $5.8 billion in 2015".

Those numbers are far too big. If Brightcove's entire market opportunity was $2.3B in 2011 and the company did $63M in revenue, that means Brightcove only captured 2.7% of the market. That's not a lot. Brightcove has some really interesting methodology on how they came up with the total market size though, which you can read in detail on page 69 of the S-1 filing. My other concern with any business like Brigthcove's is that R&D costs are high. In 2011, 25% of Brightcove's revenue went towards R&D, which is a lot. Also, while all of Brightcove's revenue comes from one product and the company is working towards diversifying their revenue, app cloud is an example, they have yet to do that to any large degree.

All of this aside, Brightcove does have a some positive things going for them which gives them a legitimate shot at building a long-term profitable business. For starters, Brightcove invented the market they are in and to date, even with increased competition, has yet to fall behind any of their competitors. They have lead the market for more than five years and while being a first mover is not always a guarantee of long-term success, so far, Brightcove has shown that they can continue to be the leader.

Brightcove had a total of 3,872 customers at the end of last year of which 2,571 of those customers were using the Brightcove Express product which costs between $99 and $499 a month. If those customers are all paying $250 a month on average, that means that about one third of Brightcove's customers make up about 91% of their revenue, which is very good. At the same time, no one customer makes up more than 4% of Brigthcove's total revenue which is a nice balance. Another thing I like is that in each of the last eight fiscal quarters, Brigthcove's recurring dollar retention rate was at least 86%, and for all of 2011, was higher at 93%, which is quite impressive.

And finally, in order for any company to do well they have to have a good management team that has experience in building and cultivating their business, especially when it is still in the early stages of real growth. Brightcove isn't even a $100M company yet so for them to really get to the next level with their business, management needs to be laser focused and take the necessary steps to make sure the growth happens. If there is one thing I think Brightcove is very strong with, it's the management team they have in place.

Brightcove's CEO Jeremy Allaire is smart, he's easy to speak to and reachable (even if you are not a member of the media) and he doesn't have the arrogance a lot of CEOs tend to have, which can sometimes hurt the growth of their company. You don't see Brightcove getting into public spats with their competitors and the management team that Jeremy has built at the company has a lot of experience in building and scaling software companies in the past. That alone does not guarantee that Brightcove will be successful, but it sure helps gives them the opportunity to make it possible and they are going to be closely watched by a lot of other companies in the space who want to follow in their footsteps.

More Thoughts On The Akamai/Cotendo Deal and Its Impact On AT&T

Since Akamai announced their plans to acquire Cotendo, I've gotten a lot of questions about what this means for AT&T, how I came up with my 6x revenue estimate, and I've also seen many sites incorrectly reporting what products and services Cotendo is focused on. I'll try and answer all of those questions here, add some clarity to what Cotendo does, and if you have a question I didn't cover, put it in the comments section and I'll answer it if I can.

In my blog post talking about the deal, I said that Akamai paid about 6x revenue for Cotendo which is based on Cotendo's projected 2012 revenue, not their trailing 2011 revenue. Cotendo will do about $30M in revenue in 2011 and based on that, the deal would be valued at about 9x revenue. But these deals are typically done on future projected revenue, from which I am hearing a revenue estimate for Cotendo was in the $45M range for 2012. Based on those numbers, Cotendo is valued at 6x revenue. Of course these numbers could be off a little bit as no one knows exactly how much revenue Cotendo would of done in 2012, but they were growing revenue quickly over the past three years, so their run rate looked good.

Some on Wall Street have said that the deal was smaller than they expected, that Akamai didn't have to spend as much as they thought they would have and that Cotendo and their investors should have waited for a bigger payout. Everyone has a different definition on what they consider a "small" or "large" deal to be, but personally, I think the deal size was right. For any company to raise $37M, have $30M in revenue and get bought out for $268M in cash, that's not a small deal and while Cotendo and their investors could have waited it out, there is no guarantee they would have gotten more.

I think it's also important to remember that Akamai didn't buy Cotendo for their revenue, they bought them for some technology, but mostly for insurance. Much of what Cotendo does Akamai already offers, so the real value to Akamai is keeping Cotendo out of the market, allowing Akamai to retain more share and over time, increase Akamai's margins since there will be less pricing pressure in the market. Akamai can't pay too much for this insurance, but that's what the Cotendo deal is. I think they paid a fair price and if Akamai can get their value add services year over year growth back to 35% like it was many quarters ago, down from 17% last quarter, the Cotendo deal will pay for itself.

Moving on to how this impacts AT&T, I've since learned that AT&T did not license Cotendo's software, as I originally reported. AT&T's partnership with Cotendo allows AT&T to re-sell Cotendo's offering and some of Cotendo's servers sit inside of AT&T's network. But AT&T is not paying Cotendo any revenue for the licensing of software. It now makes more sense as to why AT&T didn't buy Cotendo, since Cotendo's software is not what powers AT&T's services. That said, I still would have liked to have seen AT&T buy Cotendo to show their commitment to the industry, but clearly AT&T feels they have other options in the market.

That other option for AT&T is clearly EdgeCast, whom AT&T already has a relationship with for standard CDN services. Earlier this year I reported that AT&T licensed EdgeCast's software, which is running on the AT&T network as a licensed CDN offering (LCDN). While EdgeCast's platform was only supporting traditional CDN services at the time, EdgeCast has since rolled out application delivery functionality (more details on that here) and I suspect AT&T will now use that and stop re-selling Cotendo once the Akamai deal is finalized.

While I have seen some blogs implying that AT&T is Cotendo's main customer, that's not the case. Today, Cotendo gets a very small percentage of their revenue from AT&T. It's also not accurate for some to suggest that by Akamai purchasing Cotendo, it now gives Akamai a leg up in the licensed CDN (LCDN) market. Akamai is looking to develop and sell a LCDN product to telcos, carriers, MSOs that primarily focuses on video and large object delivery, not DSA and app acceleration. Cotendo's products do not solve problems the carriers are facing and Cotendo has no software licensing deals in place. EdgeCast has many carriers that have licensed their CDN software, but that's for a different service.

There have been many sites saying that Cotendo has mobile solutions for "video content" or that the company offers "video distribution to mobile devices", but that's not true. No where in Akamai's press release does the company even use the word video and Cotendo's mobile acceleration service is not primarily setup for video. Here is a post on how Cotendo's mobile content acceleration technology works: An Inside Look At Cotendo's Newly Announced Mobile Acceleration Service.

Cotendo's mobile acceleration service is, amongst other things, a combination of improved TCP algorithms and route optimization along with more advanced DNS mapping to speed up transport of packets at the network layer. It is not optimizing video content inside the carrier network for mobile video content owners. That is a solution that Akamai is currently working with Ericsson on, which Akamai expects to launch in the first half of next year. Some have also said or implied that, "Cotendo has a focus on mobile", but that's not entirely true. Cotendo gets the vast majority of their revenue from their non-mobile platform and Cotendo's mobile service was only released in the market five months ago. So while Cotendo does have a mobile platform, I would not say that it is their core focus, at least from a revenue standpoint.

As for my statement that the Akamai and Cotendo deal is bad for customers, I have yet to find a single customer for these services that disagrees. What I keep hearing from customers, and have from day one, is that they want more choices in the market, for all kinds of services. With Akamai taking out Cotendo, Akamai now owns the market. It's great for Akamai and their business, but bad for customers who want multiple choices and options and need to get competitive quotes in the market. So customers who want to compare offerings from multiple venors, in many cases, won't be able to since Akamai took out their biggest service based competitor for these services.

On the pricing front, I can't remember a single instance where a segment of the market consolidated and it lead to lower pricing. Years ago, Speedera and C&W were really starting to pressure Akamai for CDN delivery and pricing was starting to get lower in the market. Once Akamai bought Speedera and C&W went out of business in the U.S., CDN pricing went up, not down, because Akamai was the only game in town for CDN at any real scale. Years later, when more large-scale CDN providers came into the market and customers had choices again, pricing for those services went down and the market grew faster.

Competition is a good thing for the market, that's the point I was trying to make. Of course every vendor wants to have as little competition as possible, have high margins and protect those high margins and that's what Akamai has done with the Cotendo deal. It's a very smart business move for Akamai, but not great for customers who want choices as now, they don't have many other choices, unless they try and do it themselves, which is still competition to Akamai, but it's a different kind of competition as its competing against your customer as opposed to a service based vendor.

All of this aside, the real question is who plans to step up and try and fill Cotendo's void? Akamai will have quite a lock on the market for these services for awhile, but not forever, and there are a few vendors who will try and challenge Akamai and become the next Cotendo in the market. Some will suggest no one can fill that void, but that's also what some said when Cotendo launched in the market  and they managed to put enough pressure on Akamai to get themselves sued and then acquired, all in less than three years.

EdgeCast is probably the next to try and challenge Akamai for these kinds of services and I expect Amazon will also offer DSA at some point soon. Level 3 is not yet offering the same services that Cotendo does, that I know of; Limelight has a DSA offering but I don't know what functionality it has and they don't really promote it well; CDNetworks has some of these services but most of their revenue is outside the U.S. and we don't know what kind of success AT&T will have selling this in the market. So a clear challenger to Akamai has not yet been established. I'll outline in more detail which vendors I think have the best shot at challenging Akamai for these services, in a later post.

It's Official: Akamai To Acquire Cotendo, Good For Akamai, Bad For Customers

[Updated: Part two of this post is now online: More Thoughts On The Akamai/Cotendo Deal and Its Impact On AT&T"]

As expected, this morning, Akamai announced that they have agreed to acquire privately held Cotendo for $268M, in a deal that is expected to close in the first half of 2012. While Akamai always portrayed to the market that Cotendo was never really any threat to their business, Cotendo was starting to put pressure on some of Akamai's higher margin revenue and winning some big deals in the market. The fact Akamai paid about 6x revenue for Cotendo (updated: just to clarify, the deal is valued on expected 2012 revenue, not 2011 trailing revenue. Cotendo did about $30M in revenue this year) is a testament to the value of what Cotendo built and the impact they were starting to have on Akamai's business. This is a good acquisition for Akamai and will help to shore-up their value add services and clearly the street likes it as Akamai is up over $4 a share as I write this post.

Cotendo launched on March 11th, 2009, and in less than three years, built out a very robust platform for application acceleration, dynamic site acceleration and mobile content acceleration with Facebook, HTC, Conde Nast, Answers.com, Vistaprint, Digg, Mashable and Bayer as customers. While I have seen others say that Cotendo's core focus is mobile, most of their revenue is not from the mobile sector. Cotendo released their mobile acceleration product only six months ago, (here's details on how it works), so most of their revenue it not from mobile delivery today. That said, Akamai knows where mobile is headed so Cotendo's mobile product is a great fit into Akamai's product portfolio not to mention, Cotendo's DSA product was out-performing Akamai's DSA product by up to 20% based on feedback from many of Cotendo's customers.

Because AT&T licensed re-sells Cotendo's technology to run on the AT&T network, AT&T did have right of first refusal to purchase Cotendo. But from what I hear, AT&T never made a serious offer for the company and Akamai wasn't bidding against anyone else. To me, it's a bad sign for AT&T that they didn't step in to acquire Cotendo as it would have shown they are serious about the overall CDN space. What happens to AT&T's products and services that rely on Cotendo's technology is not known, but clearly there won't be any more software updates from Cotendo and AT&T will have to build out any additional functionality to the platform on their own. it is expected that AT&T will stop re-selling Cotendo once Akamai acquires them and that AT&T will now default to EdgeCast for some of these same services since EdgeCast's software is running diectly on AT&T's network.

While this acquisition is great for Akamai and their business, it's bad for the industry and for customers as a whole. Competition is a good thing because it makes companies innovate faster, helps foster quicker adoption of technology, drives pricing down in the industry and with more companies selling the same service, it creates better awareness in the market. With Akamai taking out Cotendo, they have locked up the market for app acceleration and mobile acceleration and are the clear leader, in terms of revenue, for DSA offerings. That's not to say that others won't compete over time (Amazon will, EdgeCast also), but Cotendo was really the only company that was getting some good traction in the market for these services, had some real revenue and customers to show for it and was putting pressure on Akamai.

With one vendor now controlling the vast majority share of the market, Akamai has no pressure to reduce pricing. Pricing for these services will go up, not down, the same way CDN pricing did when Akamai acquired Speedera. I'm sure Akamai will say otherwise, but with Cotendo customers saying that Cotendo was on average 30% cheaper than Akamai, that pricing difference will disappear once the acquisition is done and contracts have to be renewed. While some vendors like Limelight Networks, CDNetworks, AT&T, Level 3 and EdgeCast are trying to focus their products and services on more of what Cotendo was doing, none of them have gotten the kind of traction Cotendo has and it will still be awhile before any of them compete with Akamai at scale.

While this is a good acquisition for Akamai, there is one danger to it. Akamai needs to understand that many of Cotendo's customers don't want to work with Akamai or have left Akamai for Cotendo. Akamai has a history of acquiring competing companies, shutting their services down and essentially migrating all of those customers over to Akamai's already exisiting products. In this case, that won't work. Akamai has to keep Cotendo's products alive and integrate them with the Akamai network in order for this to work.

After hearing the news, I reached out to some of Cotendo's customers who naturally, weren't happy to hear that Akamai would acquire Cotendo. One of them said, "the whole reason we are with Cotendo is that we didn't want to be on the Akamai network anymore". That's the argument that many of Cotendo's customers are going to have, so Akamai has their work cut out for them to make sure Cotendo's customers feel like they can still use Cotendo's platform, on the Akamai network.

One thing I hope for from this deal is that Cotendo's culture may be able to rub off on Akamai. Cotendo is quick and nimble, they follow up with customers quickly, develop and roll out new products fast and are thought of as easy to work with. Akamai may be the leader in the market, but they are still very slow with new product introductions, are anything but nimble and customers still tell me all the time that it takes Akamai weeks to do things that their competitors do in days. Akamai's management knows that the culture of the company needs to change, that their marketing message needs to be overhauled and that the value proposition of products and services, like their HD Network, aren't being highlighted correctly. Hopefully Cotendo's culture can help assist Akamai with that.

Note: I have a lot of emails from people asking me to call them to get my comments on the deal and I will get to all of them as I can. I am doing a lot of media calls as well, so if you have a question, you can reach me on my cell at 917-523-4562. I will return all calls.

Related Posts:

- Akamai Files Patent Infringement Lawsuit Against Cotendo, Acquisition On The Way?

- Pressure On Akamai Growing, Company Needs To Make Some Acquisitions To Jumpstart Their Business

- How Mobile Acceleration Works: An Inside Look At Cotendo's Newly Announced Service

- How Dynamic Site Acceleration Works, What Akamai and Cotendo Offer

- CDN Cotendo Raises $17M, Adds Juniper and Citrix As Investors, Puts More Pressure On Akamai

- AT&T Partners With Cotendo For App Acceleration, Will Challenge Akamai

- CDN Cotendo Raises $12M, Has 120 Customers For DSA and App Delivery

- New CDN Cotendo Launches: Focusing On Application Delivery, Not Video

Cotendo In Talks To Be Acquired, Akamai The Likely Buyer

Over the weekend, details of what I have been hearing about for over a month finally made it out into the media with multiple news outlets reporting that Cotendo may be acquired. Talks between Cotendo and Akamai have taken place multiple times over the years, but only recently heated up when executives from Cotendo met with Akamai back in October. After hearing about the meeting, I reached out to Akamai for comment and on November 4th, as expected, Akamai said they "don't comment on any rumors or speculation". Executives reached at Cotendo said they were not for sale but didn't dispute or deny some of the details I had about the discussions taking place in the market.

To date, I had not heard of the valuation Cotendo and Sequoia were looking for, but news outlets over the weekend pegged the evaluation at between $300M-$350M. I don't know if those numbers are accurate as I don't have any first-hand details on the numbers, but valuing Cotendo at more than $300M seems a bit high to me in today's market. The details I heard was that a deal with Akamai had been agreed upon and that AT&T, who had the right of first refusal to purchase Cotendo, wasn't willing to offer a high enough price. Others are reporting that Juniper, an investor in Cotendo, is also in talks to acquire the company, but to date I have only heard of Akamai making a real offer.

While various news sites are reporting on the Cotendo sale rumors, some aren't getting the basics right. The Globes article says that Akamai "controls 90% of the content management and streaming market" with Cotendo and another competitor controlling the remaining 10% except that Cotendo doesn't even offer any streaming services. And Akamai does not control 90% of the content delivery market for streaming. Also, by my last count, Cotendo has more than 400 customers for their services, not the "50 paying customers" as of this past June that the Globes article reports. In May of last year, the company already had 120 customers and has been blowing through their own internal customer growth projections each quarter.

Another Globes article incorrectly says that Cotendo offers "Dynamic Spectrum Access (DSA)" as a service, which is not what DSA stands for. Dynamic Site Acceleration is the service that Cotendo is known for along with application acceleration and mobile content acceleration. (see: How Dynamic Site Acceleration Works, What Akamai and Cotendo Offer) The article also incorrectly says that "Cotendo's prices are half the prices of Akamai", but that's not the case. On average, Cotendo's DSA pricing is about 25%-30% cheaper than Akamai and many customers tell me the performance of Cotendo's DSA product is about 20% better than Akamai. Cotendo has been selling on performance and does not need to cut Akamai's pricing in half to win deals since customers care about and measure DSA performance very closely. Reuters reports that Cotendo was the "first to offer web surfing services for cellular devices", whatever that means and others are incorrectly calling Cotendo a "startup". If there is one thing that is clear, it's that the media really has no clue what services Cotendo offers.

If Akamai acquires Cotendo it would be a great win for the company on multiple levels. Akamai has really fallen behind when it comes to launching new products in the market and is getting beaten by the smaller and more nimble Cotendo. Akamai has yet to launch their joint mobile content acceleration product with Ericsson, yet Cotendo already has their mobile content acceleration product out in the market, which they launched back in June. (see: How Mobile Acceleration Works: An Inside Look At Cotendo's Newly Announced Service). Cotendo also has their joint product with Citrix out in the market, launched last month, again beating Akamai to the market with their joint Riverbed product, currently in beta. And a year ago, Contendo worked with Google to deploy and commercialize a new Page Speed Automatic service, based on an open source project developed at Google. In the two and half years since Cotendo launched in the market, they have really proven their technology and platforms expertise and recently, have really been giving Akamai some serious competition, for certain deals.

In September, I wrote that the pressure on Akamai was growing and that the company needs to make some acquisitions to jumpstart their business. Acquiring Cotendo would be one of the best acquisitions for Akamai that they could make as it would allow them to take their number one competitor for non-CDN services out of the market. As a result, Akamai would see almost no pricing pressure for their value add services going forward, margins would remain high and they would capture a larger share of the market for value add services. Of course while all of this would be good for Akamai, it would be bad for the industry and customers as a whole since no other vendor is yet able to compete with Akamai on these services at scale. The outcome would be higher pricing in the market and not a lot of alternatives other than Akamai for customers to use, although Amazon will help drive prices down in the market for services like DSA when they enter the market.

When Cotendo launched in the market, the industry was already crowded with far too many CDNs primarily focused on delivering video. While many of the other CDNs in the industry were trying to change their product portfolio to provide value add services and diversify their revenue, Cotendo was already blazing a trail, focusing on these services from day one. Less than three years later, the company has a lot of blue chip customers, a major deal with AT&T (see: AT&T Partners With Cotendo For App Acceleration, Will Challenge Akamai) and is quickly ramping revenue and getting a very good reputation in the industry. Cotendo is exactly the kind of company that Akamai should be using some of their cash to acquire as it allows Akamai to protect their margins and gives them access to some really good technology platforms to expand their product portfolio moving forward.

Of course, if someone were to step in and somehow match Akamai's price, which I don't think will happen, or Juniper makes an offer for Cotendo, which I don't think they are serious about, Akamai will no longer benefit. But from what I hear, Akamai is in the driver's seat on this deal and other potential suitors would have to get a lot more serious than that are now if they want to beat Akamai from acquiring Cotendo.

Limelight and Level 3 Expected To Make Joint Announcement Soon

Over the past 24 hours, some Wall Street money managers have been calling me saying they are hearing that Level 3 and Limelight will soon make a joint announcement regarding both company's CDN business. I have been hearing the same thing and expect the news will come out shortly, maybe even tomorrow. Back in August I reported that Limelight was in discussions to work with Level 3 to potentially merge their CDNs businesses and work with one another to sell CDN and value add services. The companies have been speaking since the summer and while various options were looked at, it appears that both companies have now settled on a deal, which I originally heard was suppose to come out today. Maybe it will be after the market closes or will come out tomorrow, but an announcement is imminent and it will not be an acquisition, but rather some kind of partnership.

Since I don't know all of the exact details on how the deal will be structured, I'm not going to release only partial info on what I have heard and will let both companies share the full details themselves. But with the news expected to hit shortly and Limelight reporting earnings on Monday, I expect we'll hear a lot more about this very soon. I've already outlined how a deal like this could help both companies, but until a deal is officially announced and we know exactly what the structure of the deal looks like, it's still too early know how this will impact the CDN market in the near-term.

Cisco's Service Provider Video Platform Nearly Complete, Acquires BNI Video For $99M

Anyone who follows Cisco knows that they are betting big on video and have been hard at work building out a video based system for service providers called Videoscape. Cisco's goal is to be the dominant platform that service providers use for the distribution and monetization of over-the-top video. Carriers, telcos and MSOs, are the future of the video delivery business and Cisco has made multiple acquisitions over the past eighteen months adding more functionality to their platform. This morning, Cisco announced it had now made its third acquisition that ties into Videoscape, this time acquiring BNI Video in a deal valued at $99M.

In February of this year Cisco acquired Inlet Technologies after having acquired Extend Media the year before. After the Inlet acquisition, I wrote that Cisco will probably acquire an analytics platform next as that's really the only missing piece of their platform and with the BNI Video acquisition, that's part of what they have now gotten. Videoscape has all the functionality it needs when it comes to enabling content owners to ingest, transcode, store, manage and deliver video, but the tracking and analytics piece of the platform still needed to be addressed. Now all Cisco needs to acquire is a transparent caching provider and their platform will be complete.

Based on the three acquisitions Cisco has made and the numbers I hear from some folks inside Cisco on what they are spending on further developing Videoscape, the company has easily invested over $400M on the platform in under two years. Cisco sees video as one of their five company priorities and it's clear they are willing to spend heavily to secure their position in what is expected to be a huge market for service providers looking to manage the expected growth of video on their networks.

Cisco, Comcast and Time Warner Cable were early investors in BNI Video which had raised north of $16M and the deal is expected to close in the second quarter of Cisco's fiscal year 2012.

Related Posts:

- 2/11 - Cisco's Acquisition Of Inlet Probably Not The Last, Expect Analytics Platform Next

- 8/10 - Cisco To Acquire Extend Media In Deal Worth $80M

Telco Operator KDDI To Acquire Content Delivery Company CDNetworks For $167M

Asian telcom provider KDDI has announced it will spend $167M to buy an 85.5% stake in content delivery company CDNetworks. The company said it will use the acquisition to strengthen its online content distribution services in Asia. CDNetworks did about $99M in revenue last year and said that revenue has grown 20% a year since 2007. CDNetworks had been looking for a buyer for over a year, so the deal really doesn't come as much of a surprise and it makes sense that a company based in Asia would be the likely buyer. Last year, CDNetworks changed the focus of their company from delivering video and CDN services to focusing mostly on web acceleration solutions.

Enterprise Webcasting Platform Provider Qumu Acquired by Rimage For $52M

This morning, enterprise webcasting provider Qumu announced it had been acquired by the Rimage Corporation (RIMG) for $52M in a cash and stock deal. (Disclaimer: I was a minority shareholder in Qumu. More on that below.) With Qumu expected to do around $15M in revenue this year, the deal values Qumu at roughly 3.5x revenue, not a bad valuation in today's market. Founded in 1997 under the name Media Publisher, Qumu focuses on selling a software platform for creating and managing live and on-demand video inside the enterprise, with more than 100 clients globally. This is a very similar acquisition in size to the one we saw in March when Polycom acquired Accordent Technologies for $50M.

This time around however, the company doing the acquisition is probably one that most people have never heard of. Until this deal, I had never heard of Rimage but after speaking to the company over the weekend, on paper, this deal makes a lot of sense. Headquartered in Minneapolis and founded in 1978, Rimage provides hardware based digital publishing solutions to archive, distribute and protect content on CDs, DVDs and Blu-Ray discs. The company also has a virtual publishing platform to allow their customers to securely deliver videos, documents, audio files and images to multiple devices.

Rimage has more than 20,000 customers and specializes in the retail, medical imaging and law enforcement vertical markets in North America, Europe and Asia. The company's digital evidence and surveillance solutions are of particular interest from agencies including the Dept. of Justice, Hamburg Police and the Minneapolis PD. With the acquisition of Qumu, Rimage estimates they will do about $87M in revenue this year and the company is currently profitable.

Qumu will be a wholly owned group of Rimage and will keep it's own branding and identity as well as the current management. To date, Qumu has primarily focused on business in the U.S. and thanks to Rimage, will now be able to go after a much larger market, including companies in Europe and Asia. At Frost & Sullivan, we just published a report on the market for live webcasting inside the enterprise, which we are expecting to grow at a compound annual growth rate (CAGR) of about 24% in the next two years, giving it a market size of more than $250M globally. That's a lot of business for Qumu to go after and with the resources Rimage has, not to mention the deep customer base that Qumu can now cross-sell into, Qumu has a good shot at capturing a larger share of the enterprise video market.

Disclaimer: In 2005 I sat on an technical advisory board for Qumu and was given a minority share of stock in the company. All of my shares were sold to the Rimage Corporation and I no longer have any ownership in either company.