Content Delivery Network (CDN) Limelight has completed its acquisition of Eyewonder for $110m, first announced in December 2009. Eyewonder provides campaign management services to agencies and publishers for rich media ad formats including in-stream, in-player and in-page. The company will continue to operate as an independent unit and maintain partnerships with CDNs other than Limelight, including rival Akamai. The move follows Limelight's purchase of online and mobile ad insertion firm Kiptronic in May 2009.
Fierce downward pressure on prices for asset delivery, driven by the likes of Akamai and Level3, has sped up the commodisation of the CDN market. In the face of this, the top-tier CDNs are increasingly trying to compete on service or by diversifying into other areas.
For Limelight, the acquisition is an opportunity to strengthen its ad business (after its buy-out of Kiptronic) and broaden its service portfolio.
The acquisition gives the CDN a profitable business, with the ad firm's 2009 revenue at around $35m-$40m. Importantly, without any integration, Eyewonder will significantly boost Limelight's bottom line, by roughly a third annually.
Given the ad company's reported gross margins at over 70%, the deal also allows the CDN to move towards higher margin value added services which might enable it to differentiate itself from the competition.
From Eyewonder's perspective, which already uses Limelight for the majority of its ad serving, the deal will presumably eliminate CDN bills - the most significant running cost the ad company incurs.
More generally, Limelight's move heralds further consolidation in the disjointed content exploitation value chain, driven by CDNs in a similar position that are suffering from price competition in the market. Limelight lists an extensive number of partners whose services it resells as a way of bolstering revenue - managed hosting, web development, encoding, interactive advertising, content management, DRM and e-commerce, player development, ad insertion, ad networks, performance monitoring. Given its comparatively recent push into the interactive advertising and ad insertion segments, Limelight could well look to acquire other players in this chain in the short-medium term.