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Cable Technology Feature Article

August 30, 2013

CDN Market Poised for Consolidation as Akamai Dominates

By Tara Seals, TMCnet Contributor

With cloud-based services and over-the-top (OTT) content continuing to make a home for itself inside the hearts and minds of consumers and businesses alike, the video service market is making some moves of its own. Content delivery network (CDN) providers are looking to add scale and broaden their functionality via consolidation and acquisition, according to ABI Research (News - Alert).

The primary driver for the market shift is CDN behemoth Akamai, which has increased its market share of the media and entertainment-focused cloud video service market to nearly 30 percent this year, up from about 27 percent in 2012. And, it has no close competitor –and that’s putting it mildly. The other companies competing in the market all have less than approximately 5 percent market share, ABI said.

To put it another way: Akamai (News - Alert) had $322 million in revenues during the first half of 2013, in a market expected to be worth $2.36 billion by the end of the year.

The “video services market” is of course made up of a number of moving parts. The ecosystem holds various business models, including CDNs, online video platforms (OVPs), managed video platforms (MVPs) and video content management systems (VCMS or CMS). Akamai can provide a range of options across these buckets; its competitors tend to be more specialized.

“Akamai’s historical rival, Limelight Networks (News - Alert), has lost its way,” said Sam Rosen, practice director for ABI Research. “Limelight’s revenues have turned from relatively flat to arching downward in a growing market. The market for CDN is showing in excess of 15 percent annual growth. Limelight has started messaging about digital presence that speaks more to small and medium business rather than large enterprise buyers – although, part of the strategy includes OVP type functions which may be valuable for media publishers.”

Other companies are looking to ditch organic growth for the buy-and-fly approach.

“The CDN and related markets are poised for a round of consolidation,” Rosen added. “We expect horizontal consolidation – where rival CDNs combine to gain scale in their competition with Akamai – as well as horizontal consolidation – where CDNs bring in functions, especially from OVPs, to compete for the largest content producers.”

The market is already starting to turn: Recently, Highwinds (News - Alert) closed $205 million in private equity funding, citing growth as well as M&A opportunities, while rival EdgeCast closed $54 million.

Their efforts could pay off: “It’s clear that big investors see space in the market for a second standalone CDN to become a clear No. 2 in the market,” said Rosen.

Edited by Alisen Downey

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