EdgeCast acquisition signals outstanding growth for CDN industry

growth concept

Verizon Communications (NYSE: VZ) today announced its intention to acquire EdgeCast Networks, the Santa Monica-based content delivery network (CDN). Once completed, the deal will be the largest transaction in the CDN industry in over a decade.

The market for CDN services has been one of the fastest growing and rapidly evolving in the IT industry. From a market that didn’t exist prior to 1998, when Akamai Networks (NASDAQ: AKAM) was founded, it has grown to a $3 billion global market today. Analysts are projecting strong continued growth, with the market predicted to hit $7 billion by 2017.

What is equally remarkable about the CDN industry is how much it has evolved. Social media, mobile data and Web video were virtually non-existent 15 years ago. Today, combined they make up over 80% of Internet traffic, representing a massive shift in the type of content Internet users are consuming today. Whether we realize it or not, we rely on the services of content delivery networks in every aspect of our digital lives. Everything from the tweet that broke the news of Osama Bin Laden’s capture, to the e-commerce sites we use for holiday Christmas shopping, to a funny Jimmy Fallon video clip are brought to us by content delivery networks working invisibly in the background.

Recognizing that new forms of content were reshaping the Internet, the founders of EdgeCast set out to build a next-generation content delivery network in 2006. Built on a fully modernized cloud architecture, EdgeCast Networks became the most capital-efficient CDN in history — reaching profitability within three years and with less than $15 million in invested capital. Menlo Ventures (where I am a managing director) has been an investor since 2010 and is currently EdgeCast’s largest shareholder. Today, leading Internet companies like LinkedIn, Twitter, Hulu and Pinterest rely on EdgeCast Networks to deliver their content to consumers everywhere.

(The purchase price was not disclosed, but TechCrunch reported that Verizon will pay more than $350 million. EdgeCast has raised about $74 million in venture capital since 2007 from Menlo Ventures, Steamboat Ventures and Performance Equity Management, including a $54 million Series D round in July. –Ed.)

EdgeCast’s acquisition by Verizon Communications underscores the critical role of content delivery in today’s Internet. As the world’s third largest telecommunication provider, Verizon Communications brings world-class sales and distribution capability to EdgeCast’s industry-leading technology. For the rest of the industry, EdgeCast’s acquisition signals continued robust growth in this rapidly evolving market. The game is on for content delivery.

Pravin Vazirani is a managing director at Menlo Ventures, where he focuses on investments in the cloud, SaaS, and e-commerce sectors. His current investments and board seats include EdgeCast Networks, Carbonite (Nasdaq: CARB), Credant Technologies, Fab, Glympse, Lumosity, Nexenta, Poshmark, Sepaton and Warby Parker.

Photo courtesy of ShutterStock

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