Akamai Threatened By Limelight Networks' Growth

Limelight Networks announced today that it had closed a $130mm equity financing from Goldman Sachs Capital Partners. Limelight is a five year old company that has become the leading Content Delivery Network for next-generation media companies seeking to serve primarily video content and music files.

The company serves customers in high growth industries like online video, internet pornography, and gambling, and counts the likes of YouTube, MySpace, Facebook, IFilm, FoxNews.com, and Xbox Live as customers. According to PaidContent.org, the company is on a $60mm annual run-rate having booked $14.5mm in revenue this past quarter with 40% sequential quarterly growth.

By comparison, Akamai (AKAM) generated roughly $90mm in revenue last quarter on 10% sequential growth with an estimated 20% - 30% rumored to have come from serving media.

Limelight's strong growth in the face of competition from Akamai and other CDNs is an indication that it is offering digital media customers a video-optimized network and a set of services that are more relevant and price competitive.

As a VC, I've seen this first hand as a number of online video and gaming startups have chosen Limelight over Akamai and others for these reasons. There are certainly questions regarding how rapidly pricing pressure will erode the margins in this segment of the industry, but it's clear that Limelight represent a significant threat to Akamai, if not a likely acquisition opportunity.

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