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This morning Verizon (NYSE:VZ) announced an agreement to acquire privately held CDN provider EdgeCast Networks in a deal that is expected to close early next year. I’ve spoken to both companies about the deal and while neither side can comment on the value placed on EdgeCast, I hear it is close to $400M. EdgeCast was on track to end this year with $100M in revenue and was projected to do $140M in revenue next year. To date, the company had raised $74M in capital and has about 300 employees.

EdgeCast was a profitable company and at a $400M evaluation, the company got 4x this year’s revenue. Not bad for a company that had only raised $20M in funding, up until five months ago when they raised $54M more. Verizon didn’t overpay on this deal but at the same time, EdgeCast got fair market value for what they have built.

EdgeCast will now be part of Verizon’s Digital Media Services group (VDMS) but will still operate out of Santa Monica and all of their employees, including 100% of EdgeCast’s management, will stay on with Verizon. This is important as a lot of companies who have acquired CDNs in the past thought they knew best how to integrate it or operate it and as a result, screwed up the integration and ruined the value of the acquisition. For this very reason, Verizon said they plan to let EdgeCast continue to run, operate and grow the CDN like they are now, and EdgeCast will be the CDN experts inside Verizon. EdgeCast’s CDN isn’t being moved into the network group or some other division inside Verizon, which is good to hear.

Verizon has been working on digital media services for many years, but before this deal, hadn’t really gotten any traction in the market. About 18 months ago, the company refocused, changed their business plan and go to market strategy and realized they would need to acquire multiple pieces of the online video ecosystem instead of trying to build it all. Acquiring EdgeCast not only gives them CDN services, video and non-video, that they can sell but also helps build out their video ecosystem platform for broadcasters, which I will discuss later. While Verizon currently has their own CDN they have built, the company confirmed that EdgeCast’s CDN will now replace that and will become the default CDN for Verizon.

While many will look at this announcement as Verizon simply getting into the CDN business, it’s is much, much more than that. Verizon not only gets a CDN product portfolio they can sell on its own, but they also get the licensed and managed CDN business from EdgeCast as well. This is huge for Verizon as it now extends their network by allowing them to connect with the other major carriers already using EdgeCast’s CDN software. It also makes the idea of CDN federation more like to finally happen in the market and it also gives Verizon the final missing piece to their broadcast video ecosystem platform.

Both companies can’t yet comment on other aspects of the integration until the deal is approved, but it’s clear to me this news is not good for Akamai. EdgeCast was already competing with Akamai (NASDAQ:AKAM) for CDN services and now, will have even more resources to do so. Plus, Verizon currently resells Akamai’s enterprise services, not M&E CDN, and there is no doubt in my mind that Verizon won’t continue to resell Akamai once they own EdgeCast. I’ll have more on what I think this means for Akamai in a separate post.

This is the largest private CDN deal in the industry in the past ten plus years and has major implications for the industry and a host of other things. I’ll be blogging all week about the impact this deal has on the market, on competitors, what it may do to pricing and what Verizon’s ecosystem strategy will be, so stay tuned for more.

Note: I am getting a lot of emails with questions about the deal and will answer them as quickly as I can. If you need an answer on something right away, call me at 917-523-4562.

Disclosure: None

Source: Details: Verizon To Acquire CDN Provider EdgeCast In Deal Valued Around $400M