New companies in the content delivery network (CDN) business are continuing to gain funding from venture capitalists, according to Dan Rayburn at the Business of Online Video blog.
Over the first half of this year I expect we’ll see at least three more companies who are expected to announce funding. Looking at my list of 30+ providers, there is almost no company left on the list who hasn’t raised money. … This worries me. While it is great for the industry right now, over time, the market can’t sustain 30+ providers. I fear that 18-24 months from now we’re going to see quite a consolidation in the CDN market and only about half the providers will be left standing.
Many of these content delivery providers have used their venture capital funding to expand their infrastructure, making the CDN sector a significant customer base for data center providers. The type of consolidation Dan is describing would introduce some element of risk for tenant stability. Companies buy one another, and sometimes they both have equipment in the same data center. In other scenarios, a customer could be bought by a larger company with stronger credit (think MySpace and News Corp.)m which might be a good outcome.