Roundup: Akamai Acquires Cotendo in CDN Deal

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There are a lot of news angles on Akamai’s acquisition of Cotendo. The $268 million deal prompted a pop in Akamai’s share price, as it is widely viewed as bolstering Akamai’s competitiveness. Other elements: Cotendo’s relationship with AT&T, the role of the patent litigation between the two companies, and AKAM’s history of acquiring rivals. Here’s a roundup of notable coverage and commentary from around the web:

 Heard on the Street (Wall Street Journal): You don’t see deals this successful very often. Akamai is buying smaller rival Cotendo for just $268 million, about six times next year’s revenue estimates industry expert Dan Rayburn. Yet Akamai’s market cap jumped as much as $1 billion today on the news. Wall Street is psyched because Akamai’s business has been under assault and this is a quick and simple way to fight back.

Rob Powell (Telecom Ramblings): “Cotendo has been driving innovation at the high end of the CDN marketplace with its integrated web and mobile acceleration services. … For its part, Akamai has been working doggedly to tranform its business into a cloud-based managed services company that also happens to run the largest content delivery network. Commoditization at the lower end of the CDN space had made a move up the food chain a necessity as competition had cut into the company’s growth.  But challenges from the likes of Cotendo at the high end of the market were squeezing things more than a little bit. Acquiring the source of that competition clears things up a bit, and brings in their customer and partner list – especially that big AT&T relationship.”

Dan Rayburn (The Business of Video): “Because AT&T re-sells Cotendo’s technology to run on the AT&T network, AT&T did have right of first refusal to purchase Cotendo. But from what I hear, AT&T never made a serious offer for the company and Akamai wasn’t bidding against anyone else. To me, it’s a bad sign for AT&T that they didn’t step in to acquire Cotendo as it would have shown they are serious about the overall CDN space. … It is expected that AT&T will stop re-selling Cotendo once Akamai acquires them and that AT&T will now default to EdgeCast for some of these same services since EdgeCast’s software is running directly on AT&T’s network.” Rayburn also noted that the deal may not sit well with Cotendo customers who saw it as an alternative to Akamai.

Venture Capital Dispatch:  “Akamai Technologies’ decision to buy Cotendo is another reminder that patent infringement claims in technology are less a sign that a start-up is engaged in nefarious or shady practices and more a sign that it has made it. Barely a year ago, Akamai filed a patent infringement lawsuit against Cotendo. Now it’s buying the company for $268 million in cash—obviously Akamai sees a business that has more value than just a re-interpretation of its own intellectual property.”

Boston Globe: In the past, an Akamai strategy has been to neutralize competitors by purchasing them, said Melanie Posey, an analyst at IDC Research, headquartered in Framingham. “Cotendo has only been around for a couple of years and has made a big splash in the market.’’ Akamai also had patent suit against Speedera Networks Inc. before buying that Santa Clara, Calif., company for $130 million in 2005. Akamai has bought 10 companies since it was founded in 1998. The latest deal is its second largest since it bought InterVU Inc. in 2000, which was a stock-for-stock transaction estimated at the time to be worth $2.8 billion.

About the Author

Rich Miller is the founder and editor at large of Data Center Knowledge, and has been reporting on the data center sector since 2000. He has tracked the growing impact of high-density computing on the power and cooling of data centers, and the resulting push for improved energy efficiency in these facilities.

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