This morning, Alcatel-Lucent (ALU) announced it has acquired CDN technology provider Velocix. As I reported two months ago, Velocix had been in talks with various companies about being acquired and the deal with Alcatel-Lucent closed five days ago. Terms of the deal were not announced and while I have not spoken to anyone yet who can confirm my estimate, my guess would be the deal size was around $20-$25M. To date, Velocix, formerly known as CacheLogic, had raised over $50M spent about $25M, from at least four rounds of funding and was doing well under $10M a year in sales.
For Alcatel-Lucent, this acquisition was purely a technology one to get their hands on Velocix's Metro product line and they didn't acquire the company for their revenue. Velocix's Metro product will not be bundled into Alcatel-Lucent's offering and will directly target service providers like Verizon, who are some of Alcatel-Lucent's largest customers.
The Velocix Metro product will fall under the IP division at Alcatel-Lucent which reports into Steve Vogelsang, VP Of Business Strategy. I had a chance to speak to Steve yesterday about the deal and he mentioned that while it's too early for the company to comment on everything they plan on doing with Velocix's technology, they do see this as natural fit for their service provider business. Steve said that, "many of our customers and service providers have been evaluating their CDN strategy and the Metro is a really well thought out product for what the service providers need." Steve said the immediate goal is to take the Velocix product offering, productize it and start offering it to their largest customers.
When asked if Alcatel-Lucent plans to continue to operate the Velocix CDN and compete in the traditional CDN business Steve said, "we're not sure exactly how we will proceed with the CDN services but our focus is going to be providing solutions to our service provider customers." I don't see Alcatel-Lucent competing in the traditional CDN business with the likes of Akamai and Limelight since that's not what Velocix is truly setup to do and isn't a fit for who Alcatel-Lucent's customers are. That said, no current Velocix customers will be impacted and all of the licensing deals Velocix has in place with customers like Verizon simply stay as they are.
I also asked Steve how important Velocix's P2P functionality was to Alcatel-Luncent when they were evaluating the technology. Steve said that the P2P function is interesting but that most of the operators they are talking to today are looking at building out a CDN infrastructure that supports standard protocols and not P2P. He did say that when it comes to P2P, the operators are intrigued, but
are still wondering how to control, manage and exploit P2P traffic.
I'll post an update to my guess on the deal size if I get more concrete details.