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The story of Limelight Networks (NASDAQ:LLNW) has always been one of a tediously prolonged fall from grace. After a 2007 IPO at $15, it closed its first trading day at $22.18, then lost more than half of its value in the subsequent three months. By May 2008, it was trading at the same level at which we find it today of around $2.80, with several hopeful breakouts, promptly followed by downward adjustments of disappointment.

Once seen as a crown contender in the Content Delivery Network market, Limelight Networks was the solution provider of choice for YouTube, a website which, by the time of the IPO, was already a household name. It lost this head start after Google (NASDAQ:GOOG) decided to transition YouTube to a self-developed and operated CDN. From there on, Limelight Networks struggled and failed to compete against both the 1000-pound gorilla in the shape of Akamai (NASDAQ:AKAM), as well as the swarm of new added-value CDNs such as Brightcove (NASDAQ:BCOV) attacking various emerging niches.

A CDN sells capacity to content providers; this can be, for example, companies operating popular websites that many users on the Internet frequent. The CDN establishes geographically distributed points of presence, at which copies of the content offered by its content provider customers are kept. This in turn assures that end users receive the content at a much higher speed than would have been possible if it was still stored on the content provider's own servers, and often provides a better, less congested path for the content to follow.

Other ISPs, in such a scenario, are a CDNs best friends. The more ISPs a CDN is interconnected with, the more end users have direct and fast access to the content. Thus, traditionally, a CDN establishes as many settlement-free interconnection agreements (or "peering sessions") as possible with other Internet service providers.

In the past few days, a number of ISPs worldwide with which Limelight Networks has settlement-free interconnection agreements (known in the industry as "peering") were surprised to receive a notice that this interconnection agreement will be terminated.

Instead, Limelight Networks is offering these peering partners to purchase inter-connectivity capacity. Many operators and technical personnel of ISPs found this move so distasteful, that a lively debate under the topic "CDNs should pay eyeball networks, too." ensued on the North American Network Operators Group mailing list (an open forum for technical discussion on matters relating to the operation of the Internet). What would have otherwise been an unremarkable communication between ISPs has spilled into the public domain. With every passing day, the number of ISPs subject to this treatment by Limelight Networks appears to be growing.

Limelight Networks, however, with their recently introduced policy change, is betting that it can collect a toll on both sides of the same tunnel: once from the content provider, for the speedy distribution of their content, and once again from ISPs, which connect the end users to the Internet.

On the surface, this seems like a sensible bet which would increase revenue by introducing a new revenue stream, potentially revitalizing the stagnant company. Indeed, companies like France Telecom (FTE) and Comcast (NASDAQ:CMCSA) have been pursuing similar strategies. However - so far, the step has been met with considerable skepticism by ISPs. Some are rumored to have gone as far as preemptively terminating the settlement-free agreement in order to express their displeasure with this move. As Limelight Networks loses more and more peering with ISPs which choose not to replace it with a paid interconnect instead, it will in some instances find itself in a position where it must pay a transit provider per each bit sent to entities with which the settlement-free interconnection has been terminated.

Furthermore, since all content now has to pass several networks, the reliability and quality of service experienced by end users could drop, and may result in a suboptimal user experience for end users, which will complain to the content providers - forcing content providers to re-evaluate their relationship with Limelight Networks.

Barring an acquisition by a competitor in order to absorb the remaining customers (the CDN market is technologically highly specialized, and any existing technology footprint will likely have to be scrapped rather than integrated after such a move), Limelight Networks may be well on its way into the long list of 'has been' companies in the rapidly changing landscape of Internet services.

Source: The Light At Limelight Networks Darkens - Soon To Go Pitch Black?