Who is the most important CDN in the ecosystem? It’s not Akamai, and it’s not CloudFlare. Akamai is too big and too dominant. They operate in their own private ecosystem. Akamai’s only competition is itself. When Akamai’s makes a profound move, it doesn’t have any bearing on the valuation of other CDNs, such as when they acquired Cotendo or Prolexic. CloudFlare, with its 1.5M customer base, competes against Amazon CloudFront, not Fastly, Yottaa, Highwinds, EdgeCast, or MaxCDN. They don’t represent the valuation of the pure-play CDN.
The most important Content Delivery Network in the ecosystem is none other than Limelight Networks (LLNW). It’s both good and bad. It’s good for them because they are in a position of power, and it’s bad because they are holding down the valuations of all pure-play CDNs, with their stock price at $2.22/share, and valuation of $210M.
If LLNW stock price were $22/share, and their valuation at $2.1B, you can bet the valuations for Yottaa, Fastly, and others, would be much higher than it is today. The logic behind the valuation math is simple: If LLNW is worth $210M and they generate $45M per quarter, how can another CDN be valued higher than $210M, when their revenues are much less than LLNW. That’s why I personally have a problem valuing CloudFlare at $1B.
Bold Move by CloudFlare
However, CloudFlare made a genius move by acquiring the malware scanning company last week. That in itself doubled the valuation of CloudFlare from $250M to $500M, in my book. They did something that no other CDN has done, they crossed industries, expanding outside the CDN silo. CloudFlare get’s it. They understand they have to grow horizontally into the security space to earn their $1B valuation. If you haven’t heard, security is the place to be.
Security is where the growth is at and high valuations. Look at Imperva, Bit9 and Zscale, these companies rock, are extremely innovative, and do things that no one else is doing. And it doesn’t hurt that the security market has an army of innovative hackers countering their every move. My recommendation for CloudFlare is that they continue expanding their security feature set.
Limelight Networks is in the Limelight
LLNW is in the Limelight. They have to step up thier game and innovate. It’s in the best interest for the entire CDN industry, including myself. LLNW should be the strong #2 CDN, with a valuation in the $2B – $3B range. Fastly, Yottaa, and the others will benefit from LLNW doing well, to the tune of hundreds of millions of dollars in additional valuation. LLNW, we’re all rooting for you to succeed. Rob, Pete & Nathan, check out Plixer.com. They are a diamond in the rough, and the perfect match to take you to the next level. I’ll do a write-up on them soon.