Tuesday, August 28, 2007

Dan Rayburn looks at the new deal between Microsoft and Limelight Networks and wonders why analysts aren't seeing the big picture for the future of video delivery. Worth quoting at length:

For starters, this announcement has nothing to do with Akamai or any other CDN provider. Some analysts did get it right, but way too many of them are asking if Akamai lost this business, if it was taken from another provider or how this may affect Akamai. Akamai did not lose this business. Microsoft did not shop around an RFP for some delivery services. This deal was about Microsoft extending a relationship that was already in place and working with Limelight on some very specific long term goals of improving the Microsoft platform for digital media. And some analysts were saying that Akamai didn't win this business since it is not in the co-location business, therefore it didn't even bid on the business to being with. Limelight is not in the co-location business either. This deal had nothing to do with co-location.

While I must have seen at least a dozen different analysts commenting on the announcement, why is it that not a single one of them that I saw went into detail on the bigger piece of the announcement, that being the cross-licensing of technologies. Why aren't the analysts asking about that? Think bigger picture here guys. Have you ever seen Microsoft cross-license any technology from a CDN before? I haven't. That's not to say that it has not happened in the past. And while I encourage anyone to point me to a similar announcement, I could not find any release by a CDN with Microsoft talking about cross-licensing technology in any public record, over the last five years. Why is no one asking about the details of that and what it may mean for the companies and the industry? Why aren't the analysts asking what is different this time around and what it means for the CDN industry as a whole?

And don't you think this says something about the market and the growth we are about to see? Why would Microsoft cross-license technology from a CDN? Very simple. 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. So what type of technologies might be cross-licensed? What does each company get from that portion of the deal? What are the longer-term implications that we may see? Why aren't the analysts asking those questions and reporting on the answers? Aren't many of these same analysts the ones who are predicting doom and gloom for the CDN space due to lower pricing and the "perceived" slowdown in the market? Doesn't an announcement like this of cross-licensing technology from a CDN make you think otherwise, or at least question it?

I listen to a lot of the earnings calls these companies have and so many of the analysts all ask questions pertaining to numbers, but not the questions about the products and services that the numbers come from. What about looking at the long term affect that any announcement will have on the industry and companies in this space? It's not about what a company's stock price does in one day.

What he said.

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