Home Will Microsoft Buy Limelight, or Build Their Own CDN?

Will Microsoft Buy Limelight, or Build Their Own CDN?

Like Wowbagger the Infinitely Prolonged, rumors about Microsoft buying so-and-so just won’t die. The latest rumor to keep floating across our desk is that Microsoft is buying second place content delivery network (CDN) Limelight Networks. In August, Microsoft entered into a technology sharing partnership with Limelight. Under the terms of that deal, the two companies would, “cross-license certain technologies, consider joint development projects in the future, and cooperate on extending and improving their respective technology infrastructures.” Now it appears that Microsoft may be looking to buy the CDN outright.

Limelight’s stock price fell precipitously over the summer, and shares have traded way down over the past year. Shares of the company were up today about 11% on news that their fourth quarter earnings would be closer to the high end of estimates. But as Stacey Higginbotham writes, Limelight spends about 60 cents on every $1 it earns, compared to 30 cents for chief rival Akamai. “I’m not sure how low Limelight can go. Or for how long,” she said this morning, lending fire to the buyout rumors.

With a $550 million market cap, Limelight is certainly in Microsoft’s price range. Why would Microsoft want Limelight? Henry Blodget suspects it has to do with beefing up Microsoft’s cloud computing technology an capacity.

“Microsoft’s entire business infrastructure is built around desktop servers and PCs. The entire business infrastructure of Microsoft’s most fearsome competitor Google, meanwhile, is built around the wave of the future– “cloud computing”–in which millions of devices interact with vast data centers and server farms out on the network.

Microsoft certainly doesn’t need to be in the CDN business, but perhaps it believes Limelight’s infrastructure and expertise will help accelerate its transition to cloud computing. Specifically, instead of buying CDN services from Akamai, et al, Microsoft could now float MSN, Office Live, Silverlight, and other Software-As-A-Service products on top of the Limelight infrastructure.” — Henry Blodget

But even as the rumor mill churns, Microsoft is reportedly building their own content delivery network, even though the August deal with Limelight also included a multi-year extension of the agreement the two companies already had in place for Limelight to provide content serving for Microsoft media properties.

“Right now we’re actually building our own edge network,” said Debra Chrapaty, Corporate Vice President of Global Foundation Services for Microsoft, at a recent conference, reports Rich Miller. “We’re going to put nodes all over the world that we can leverage a little more broadly than we could by using a partner.”

“We’re architecting one of the world’s largest networks,” said Chrapaty. “In environments like ours, we could look at network costs, if we continue to scale and support the world’s data, in the billions of dollars. The numbers are really enormous.” Weighed against the potential cost of Microsoft’s data delivery needs (according to Miller, Microsoft’s media properties serve 460 million unique users per month), purchasing Limelight seems like small potatoes.

So which is it? Is Microsoft building their own delivery network using licensed Limelight technology or are they purchasing Limelight as the basis for their new network? I think purchasing Limelight would make a lot of sense for Microsoft — it would probably be cheaper then building their own content delivery network from scratch, and who knows Limelight’s technology better than Limelight?

The why is simple. As Dan Rayburn wrote in August, “Microsoft knows very well that what we are experiencing today with content delivery is only scratching the surface of where this business is going to go. They know that a few years from now this will truly be a powerful medium for delivering all kinds of video content and Microsoft wants to prepare now by making their platform ready for when it does hit.” That’s why Microsoft would buy Limelight. It’s the “will they” that is the trickier question.

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