Over two years ago Limelight Networks acquired Clickability, a SaaS provider offering a web content management platform targeting media publishers. The purchase by Limelight was an effort to try to diversify their revenue away from pure CDN services and get more revenue from cloud based services. But the web content management business is a tough one, with long sales cycles and a huge amount of customization required. When Limelight bought the business it was on a run rate of $10M for 2010, but two and half years later, Limelight disclosed in yesterday’s 8-K filing that it is only “estimated to be approximately $12.7M” in revenue for this year.
Deciding it was no longer a business they wanted to be in, Limelight announced they have sold the business to Upland Software. Limelight says approximately 30 employees will transfer to Upland Software with the transaction, although financial terms of the deal were not announced. Limelight’s value-added services, which included the web content management business, were down sequentially in two of the last three quarters, so this lost revenue from selling the business, while small, is still more revenue Limelight is going to need to make up. The company wants to re-focus their efforts on the CDN business, but so far, hasn’t laid out any kind of strategy of how they plan to do that. Focusing primarily on CDN services is a tough one as the margins on delivering content is slim, especially when it comes to video and software downloads. Limelight is currently re-investing and spending money to improve the performance and scale of their network, but others like Level 3 have already surpassed them in total CDN revenue for the year.
Limelight has always had a large base of CDN customers and revenue, but it’s never been able to grow it by much over the past two years. In Q1 and Q2 of this year, revenue from their CDN business had about a 10% quarter-over-quarter decline as they have continued to fall behind their peers in growing their CDN business. Last quarter, their CDN revenue did grow by 5% quarter over quarter, but we need to see if Limelight can grow that business steadily, over multiple quarters in a row. The company also needs to re-enter the market with some kind of message to CDN customers as to why they still matter in the market and why customers should think of them for CDN services. The more RFPs I see the market for large-scale CDN services, the more I see Limelight being excluded or simply written off by customers who know they offer CDN services, but don’t really think of them anymore as one of the top two vendors in the market to go to. If Limelight wants to change that, they need to re-enter the market with a new message and updated story and it can’t be just another re-branding of their services, like they seem to do every year.
The company really needs to stop spending so much time and effort focusing on their “digital presence” messaging and coming up with really long names for products and instead, focus on messaging directly to customers looking for large-scale delivery of video, small objects and software downloads. If they want to re-focus their business on CDN services, like they have talked to Wall Street about, they have to start bringing that message and awareness directly to customers. The company needs to deliver a simple and effective message as to why customers (especially new ones) should think of them for CDN services, how they stand out amongst the competition and what it means for customers when Limelight says they want to “refocus” their efforts on CDN services.