When Adobe Systems (ADBE) and Omniture (OMTR) announced the details and rationale behind their $1.8bn tie-up in mid-September, some interesting items emerged. Highlighted was the obvious benefit from a combination of Adobe’s popular Flash video platform and Omniture’s analytics capabilities. As the Web analytics market has become more saturated, Omniture has recently been expanding into higher-margin niches such as online video analytics. Combining online video content management with analytics is an area in which some early startups have carved out a profitable niche over the past few years as video has finally started to move to the Web.
However, if the newly bulked-up Adobe truly moves into the space – as we suspect the company will – it will undoubtedly present an enormous challenge to an industry previously dominated by a few well-funded startups. As a consequence of other larger players wanting to get a piece of the booming sector and startups being more inclined to strengthen their position, we believe consolidation in the market is inevitable. With that as our premise, who might be buying, and who are the potential prime targets?
Among a slew of startups in the space, the two primary ones we think could be in play in this scenario are market leaders Move Networks and Brightcove. The two have each taken in roughly $90m in venture capital. It is worth noting that both Microsoft (MSFT) and Cisco (CSCO) are strategic investors in Move Networks, and we think the company would make a great fit for either one since both have a strong focus on video moving forward. Meanwhile, both IAC/InterActive (IACI) and AOL are strategic investors in competitor Brightcove. While we don’t think AOL is in a position to make an acquisition like this now, we would not put it past IAC. Google (GOOG) with its more consumer-oriented YouTube makes a logical acquirer as well, particularly as a way to add a business-friendly enterprise offering.
And finally, we might put forward rich content delivery networks (CDNs) such as Akamai (AKAM) and Limelight Networks (LLNW). These vendors have been buying their way into premium verticals recently to escape the rapid commoditization of their core business and would be wise to consider acquiring into the space. From the estimated $40m or so in revenue that we understand Brightcove brings in, a large part of that comes from reselling bandwidth through CDNs.