Microsoft and Limelight Announcement: Analysts Missing The Bigger Picture

Originally, I had no plans to write up any type of post about the Microsoft (MSFT) and Limelight Networks (LLNW) announcement last week. But after reading so many analysts all saying the same thing, it's clear that many of them are missing the bigger picture and not asking the right questions.

For starters, this announcement has nothing to do with Akamai (AKAM) or any other CDN provider. Some analysts did get it right, but way too many of them are asking if Akamai lost this business, if it was taken from another provider or how this may affect Akamai. Akamai did not lose this business. Microsoft did not shop around an RFP for some delivery services. This deal was about Microsoft extending a relationship that was already in place and working with Limelight on some very specific long term goals of improving the Microsoft platform for digital media. And some analysts were saying that Akamai didn't win this business since it is not in the co-location business, therefore it didn't even bid on the business to being with. Limelight is not in the co-location business either. This deal had nothing to do with co-location.

While I must have seen at least a dozen different analysts commenting on the announcement, why is it that not a single one of them that I saw went into detail on the bigger piece of the announcement, that being the cross-licensing of technologies. Why aren't the analysts asking about that? Think bigger picture here guys. Have you ever seen Microsoft cross-license any technology from a CDN before? I haven't. That's not to say that it has not happened in the past. And while I encourage anyone to point me to a similar announcement, I could not find any release by a CDN with Microsoft talking about cross-licensing technology in any public record, over the last five years. Why is no one asking about the details of that and what it may mean for the companies and the industry? Why aren't the analysts asking what is different this time around and what it means for the CDN industry as a whole?

And don't you think this says something about the market and the growth we are about to see? Why would Microsoft cross-license technology from a CDN? Very simple. Microsoft knows very well that what we are experiencing today with content delivery is only scratching the surface of where this business is going to go. They know that a few years from now this will truly be a powerful medium for delivering all kinds of video content and Microsoft wants to prepare now by making their platform ready for when it does hit. So what type of technologies might be cross-licensed? What does each company get from that portion of the deal? What are the longer-term implications that we may see? Why aren't the analysts asking those questions and reporting on the answers? Aren't many of these same analysts the ones who are predicting doom and gloom for the CDN space due to lower pricing and the "perceived" slowdown in the market? Doesn't an announcement like this of cross-licensing technology from a CDN make you think otherwise, or at least question it?

I listen to a lot of the earnings calls these companies have and so many of the analysts all ask questions pertaining to numbers, but not the questions about the products and services that the numbers come from. What about looking at the long term affect that any announcement will have on the industry and companies in this space? It's not about what a company's stock price does in one day.

I wish analysts would ask harder questions. I wish they would know more about the products and services of companies as opposed to just looking at market share, numbers, and all of the financial data. If many of them had a better understanding of the market and of a company's products and services, they would be able to better analyze the numbers that come from those services. Also, while there are now over 30 CDN providers in some shape or form, and there are tons of new analysts covering the CDN space, I'd like to point out that the content delivery market for video is not a new industry. It's been around since 1996. Analysts need to spend the time to look at the CDN landscape over the past many years to see how the business models and market has evolved. There is a lot that can be learned from what's happened in the past and it will give great insight into the market today.

I'd also like to add for those of you who may think I am talking about all analysts that I'm not. I like analysts, I talk to a lot of them daily and I think some of them do a really good job. But I think many analysts should act more like reporters, asking about more than just numbers and questioning any information they are given.

Comments

[Guy Wiggins]

Dan, good post as usual. I agree that most financial analysts are 1) not technologists and so don't have the necessary understanding of the pros and cons of the underlying technologies at issue and 2) are too myopic and fixated on the numbers instead of the macro view.

But that's good news for you! I have come to rely on your blog to fill in exactly those gaps. And I'm sure your blog will perform a valid service by educating others that follow this space. I saw you were quoted over at Blodget's blog already.

Can you tell us what kind of technology advantage you think Limelight has over the competition? I know they have a more centralized model and have few data centers and servers than AKAM. I remember that this was Mirror Image's model as well. I know that Limelight has lots fiber. But is their underlying software a real secret sauce that will be difficult for others to copy or reverse engineer? Do they have large moat around their business you think they can protect - besides just their scale?

[Dan Rayburn]

Hi Guy, thanks for the comments. When it comes to the technology differences between providers, all that matters is what the customer sees as a difference. Some customers just want CDN, others want additional services. One is not better than another, it's just a matter off what a customer needs. Some many need delivery just in the U.S. while others need global reach. It's like saying which format is better, Windows Media or Flash. The answer is neither. You can't make general statements about any service as what works for one customer does not work for another. Each customer has different needs and values different aspects of the CDNs business differently. I know some customers who say reporting is more important than price, or SLA is more important that reporting, or geographic reach is more important than SLA etc..... that all have different needs.

[Guy Wiggins]

Hi Dan, wondering if you could comment on this interesting discussion on Limelight vs AKAM. It does touch on the licensing issue you brought - and one of the speakers thinks Limelight's model is better adapted to licensing.

http://www.minyanville.com/articles/AKAM-LLNW-MSFT-GOOG-CSCO/index/a/13888/from/yahoo

[Dan Rayburn]

Honestly I could not say. I don't have a lot of details on the licensing model that the CDNs have and I know that many of them don't even have one. I don't have any insight into Akamai's licensing model or history with licensing technology so I can't say who's is better, worse or the same.