Rumor: Microsoft to Buy Limelight Networks (LLNW/MSFT)

Henry Blodget | January 11, 2008 10:51 AM

limelight_new.gif
Lots of "Microsoft to buy..." rumors banging around these days, and here's another one: Microsoft is interested in buying content-delivery-network Limelight Networks. A CDN industry insider (not at Limelight) tells us he has heard this twice in recent days from independent sources.

Why would Microsoft want to buy Limelight, the unprofitable No. 2 player in the CDN business behind Akamai (AKAM)? It's indeed a puzzlement. Here's one explanation:

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 is spending heavily to try to stop losing ground to Google in this arena, but, so far, its efforts have been largely unsuccessful. In recent months, therefore, Microsoft has unveiled an intelligent and aggressive new strategy--one in which it buys instead of builds (see the $6 billion aQuantive acquisition, for example).

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.

After a cataclysmic public market debut, in which it blew its first quarter out of the box, Limelight is trading at a paltry $6 ($550 million valuation). Needless to say, this is couch change for Microsoft, which is losing $1 billion a year in its Internet division. So a Limelight deal would basically be a tuck-in.

See Also:
Surprise, Surprise: Limelight Getting Pants Sued Off

Goldman Reams Clients With Limelight; Feels Pain, But Sits Pretty
Limelight Shares Shattered as it Blows First Quarter Out of the Box

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Dan Rayburn said:
Limelight's current CDN supports video delivery only. It does not support application delivery, software as a service, static caching etc.... so how would Microsoft acquiring Limelight speed up its "cloud computing"? Makes no sense. Too many people don't understand the products companies in this space offer.
Andy said:
Henry you said that "We're talking less than a billion dollars and a real jump-start in competencies."

Limelight is known for having a strong sales operation, not for being innovative or having great technology.
C said:
http://www.datacenterknowledge.com/archives/2008/Jan/11/microsoft_building_own_cdn_network.html

"Right now we're actually building our own edge network," Debra Chrapaty, Corporate Vice President of Global Foundation Services for Microsoft, said in a presentation at a recent conference for web architects. "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."
Abe said:
In the abstract, what are the necessary qualities of any plausible acquiror of an akam or a llnw?

And what sort of companies does such an acquisition make no sense for?

What would then be a list of potential acquirors of either llnw or akam?
Abe said:
Okay, since we're dealing in speculation:

Why not msft buying akam? Costs more but significantly higher revs and is profitable. Also, not being sued, much higher quality management and much wider array of products.

Talk about jump-starting your compentencies...
Henry Blodget said:
I don't think you have to believe they'd become a a big CDN player to find the concept plausible. I think it's possible as a pure infrastructure play.

We're talking less than a billion dollars and a real jump-start in competencies. If Akamai, et al, objected, Microsoft could even send them some of the CDN customers.
Dan Rayburn said:
Microsoft would never get into the CDN business as it would then be competing with other vendors who use their technology. They have always been good about supporting their partners in the industry and would not go the route RealNetworks did by offering delivery services via RBN. I wouldn't even classify this as a "rumor".
Henry Blodget said:
Yahoo? Doubtful. But Microsoft's thousands of big corporate customers would.
Abe said:
msft getting into the CDN business is possible although it would face some of the same problems with this as goog would: trying to make customers out of competitors. This is because msft has a big online presence. Would for example yhoo consider letting msft provide it CDN services?
Henry Blodget said:
Certainly possible. Limelight is cheaper now, though, thanks to the CDN price wars. And Microsoft is 6 months further into its understanding that Google is absolutely burying it.
pauldonyc said:
It seems to me that Microsoft would have done this before Limelight went public, not after.

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