Takeaways on Akamai’s acquisition of Octoshape


Congrats to Octoshape for getting acquired by Akamai. Many companies would consider it a privilege to get acquired by Akamai. Now let’s evaluate the acquisition, and see what it means for the industry. Thereafter, we’ll list some key takeaways. Two days ago we published the Arc of Innovation, and placed Octoshape in the same Tier as Highwinds, meaning Octoshape innovated as much as Highwinds. Octoshape has been around for a long time, having started a few years before EdgeCast. At its core, Octoshape is a CDN, focused on video streaming, delivering linear and on demand content over the Internet (IPTV). They are a smaller version of Level 3, without the Vyvx component.

Octoshape in a Nutshell

In the early days, Octoshape was a big believer and evangelist of peer-to-peer (P2P) delivery. Back then, traditional CDNs like EdgeCast viewed P2P as a vastly inferior delivery technology. Many within EdgeCast never viewed it as a viable alternative to a CDN. However, over the years, Octoshape transformed itself into what it is today. As a result of the transformation, they excelled at closing big media deals. They started working with large media companies, including broadcasters in Europe, LatAm, and elsewhere. Octoshape’s service enables traditional broadcasters to extend video delivery to mobile devices and OTT platforms.

Prior to acquisition, the biggest challenge facing Octoshape, and other similar companies is that they don’t have the scale and capital that large infrastructure CDNs have, which include Level 3, Akamai, EdgeCast and Limelight. In the video streaming business, scale is everything, and capital is what makes scale possible. Scale and capital enable CDNs to create the “economies of scale” advantage. Economies of scale is important when buying transit, servers and co-location. Its the difference between ordering  1x10Gbps Internet Port, or 25 at one time. When it comes to hardware purchases, when Level 3 buys encoders, they spend millions in one shot. The same goes for Akamai, EdgeCast and Limelight.

Next, the large infrastructure CDNs are tightly integrated into large carrier networks. EdgeCast and Level 3 are carriers, and Akamai has AT&Ts large last mile network footprint at its disposal, due to a tight partnership with AT&T. The large infrastructure CDNs have  tens of thousands of servers in deployment, and sustained bandwidth utilization rates in the Tbps range. Transit cost in the middle mile and last mile are a major cost component for all CDNs, and Akamai, Level 3, EdgeCast and Limelight pay much less on a price/Mbps basis than Octoshape. How much less? We don’t disclose carrier pricing on this blog 🙂 The bottom line is no startup CDN should ever start with video streaming as its core offering.

How Does This Impact Akamai

Akamai paid an undisclosed cash amount for Octoshape. That means the acquisition price was immaterial, which is another way of saying a few million. If I were to guess, Akamai paid $10M to $20M. One way to find out is to check the cash position in the financials when they come out at a later date. Even then, it might be difficult. For Akamai, this acquisition is a nice to have, and it adds some cool technologies to the patent portfolio, and a few brand name broadcasters to the mix. However, the acquisition won’t give Akamai an edge when competing against Level 3 or EdgeCast.

Key Takeaways

  • Octoshape’s business model was feasible in the past, but in today’s environment, it was under pressure, especially as the large infrastructure CDNs invest millions into their video streaming infrastructure.
  • Companies like Streamzilla, Ustream and Livesteram will need to get creative with their business models, in order to find new ways to grow annual sales. They to are at a cost disadvantage compared to the infrastructure CDNs. However, that doesn’t mean they can’t sell for hundreds of millions of dollars.
  • OVP platforms like Brightcove and Kaltura that depend heavily on CDN services are in a difficult position. They will need to get creative with business models, in order to find new revenue streams
Scroll to Top