Update on the State of Limelight

Limelight Networks (LLNW) hit a home run on its earnings call. Although 4th quarter revenue was down 9% from last year, their cost structure is improving. Looking ahead in 2014, Limelight has two forces working against it. First, Netflix is leaving by mid-year, who also happens to be LLNW biggest customer. Next, the sold-off WCM business was projected to generate $15M in revenue in 2014, now that’s gone. Add those two together, and Limelight stands to lose $15M to $30M in annual revenue in 2014, maybe more. LLWN needs to hits a grand slam in 2014 sales, just to end the year where it began, at $45M/quarter.

Quick Analysis on Limelight’s 2014

Limelight is dealing with a lot of moving parts. They have moved software development to other regions, possibly overseas, in order to reduce cost. That’s a good move and mimics what Akamai has done many years ago. Next, the additional investment in improving the product roadmap feature set, including cloud storage, DRM, instant purging, and streaming to mobile devices, is brilliant, and also required just to remain a competitive CDN. Here is the reality of the four features:

  • Some CDNs don’t charge for instant purging. This feature won’t generate any significant amount of revenue for LLNW.
  • DRM is a niche product, only a small percentage of CDN customer use DRM, and the ones that do, already have something in place. This feature won’t generate any significant amount in revenue.
  • Streaming to mobile devices is a very big market. Improving delivery of any kind to mobile is always good. This core feature can generate a significant amount of revenue for LLNW, but the field is extremely competitive.
LLNW Cloud Storage

Cloud storage is an interesting feature. Not only is the cloud storage industry, dozens of times bigger than the CDN industry, it’s also the most competitive of all cloud products. CDNs may sell PBs of cloud storage, yet the financial impact to the top line is minimal. Thanks to Amazon, Google, and Azure, the price per GB for cloud storage is ridiculously low.

When pricing out Cloud storage, CDNs can only charge so much, once it hits a certain threshold, Amazon becomes the much better alternative. The pricing per GB ceiling for CDN storage varies per account. In some cases, when TBs of storage are needed, the per GB might be $.08/GB. In other cases, where only a few hundred GBs are required, the price might be $.30/GB. It’s only a matter of time, when Amazon and Google push the price per GB down to sub $.05/GB.

Pricing Exercise

Let’s do a pricing exercise on CDN Storage. Let’s say a CDN has 10PBs of storage in use (billable). If the average price per GB is $.20/GB, then 1PB of storage generates $200,000 per month; on 10PB of storage, monthly revenues are $2M per month. For starters, I doubt any CDN, with the exception of Akamai, has 10PB of billable storage. Next, if I were a guessing man, I’d say Limelight currently has 5PB of storage at max, but I might be wrong.

If I were go guess again, I would say LLNW has 5PB of storage with an average price per GB at $.15/GB, which equates to $750,000 (5PB x $.15/GB) of monthly storage revenue. I might be off, but pricing this it out gives us a better perspective of cloud storage. Pre-AWS, cloud storage was a great money making feature. Post-AWS, I wouldn’t hold my breath unless your dropbox and storage is your main business. In my next post, I’ll discuss Limelight’s options for growth.