Blog Post

Akamai in talks to acquire Nine Systems

Akamai Technologies, the Cambridge, Mass.-based content delivery network that powers services such as Apple’s iTunes music store, is in talks to acquire San Diego-based competitor Nine Systems, according to those familiar with the two companies.

The transaction price is being pegged at around $150 million, or roughly nine times revenue. Our sources say that the deal could be announced sometime later this month, perhaps as soon as Tuesday. But as they say, nothing is final till it is final. Nine Systems’ spokeswoman declined to comment, pointing out that it was company policy not to comment on rumors and speculation. We are still waiting to hear back from Akamai.

Some view Akamai’s CDN business as ripe for commoditization. Andrew Schmitt is one of them, and he has some good reasons. Additionally he sees emergence of networks such as Brightcove a challenge to parts of Akamai’s business.

Nine Systems specializes in streaming rich media over the Internet, and will become a value-added service for Akamai, which needs to add more such services in order to fight off commoditization of its CDN business, when that happens. Its customers include the NHL, the NBA, CBS SportsLine, CinemaNow, Universal Music Group, EMI Music, Amazon, and Fox.
Andrew is right when he says all expectations are priced into the stock. In 2006 alone, Akamai stock is up 150% and is currently hovering around $50 a share. By buying companies like Nine, Akamai is putting that currency to good use.

Akamai has been rumored to be one of the bidders for Savvis’ CDN business, though that deal is yet to come to a conclusion. The CDN market has been on fire lately, and has seen some hectic M&A activity. Internap had acquired Vitalstream for $127 million earlier this year, while Limelight Networks raised a whopping $130 million earlier this year from private equity investors.

16 Responses to “Akamai in talks to acquire Nine Systems”

  1. Interesting read.

    But, speaking only to the comment immediately above this one in regard to the placement of servers, I would think whether this is for technical requirements or due to the wish to affect test results, the difference in the end is moot. After all, keynote also places their testing points for the be representation of the internet audience. So, by following keynote, it would only be putting the servers where real people needed them.

  2. Jim Duggan

    Just an FYI to the person noting about Keynote/Gomez reports on the CDN. I know for a fact Akamai finds out where these companies place their nodes and puts one of their systems in the same DC. They have the smoke and mirrors down as well :)

  3. Nine Insider

    Well I can only comment on whether I still have a job or not. I see Ak eating up the clients and liquidating Nine.
    The talk is going around that current staff should start saving now. It is too bad; Nine was a great idea and product. Ease of use was unreal. Level of support top notch 24/7/365. Content delivery near perfect. Engineers fixing things on the fly giving 100% attention to detail.
    Sad to see us go bye bye but the Execs started this for one purpose; money. Who can blame them for selling the biz.

  4. Well, its done. “Nine Insider” – it’d be interesting if you kept us in the loop of how Akamai plans to integrate. My bet is nothing happens for a few months with staff and changes.

  5. All the poor Nine Systems employee’s that spent all those years fighting to compete with akamai only to be sold out by there management making I am sure a fortune. It will be interesting to see if Akamai can keep all of Nine Systems clients, because there seems to be running out of the akamai alternative CDN networks.

  6. Baseline measurements from Gomez and Keynote when choosing a CDN. Akamai times are the best, Panther and Mirror Image are a close 2/3, and Limelight is a (very) distant 4th. LLN folks or supporters can argue, but this was unbiased data from 3rd party monitoring systems.

  7. I’m curious as to how you’re comparing Limelight’s performance against other CDNs. You remark that Limelight’s performance is “not that good” but my experience has been that they are comparable to Akamai and the others for basic object delivery and streaming. And, NO…I don’t work for Limelight or for one of their partners.

  8. Akamai can fight and acquire all they want, but the commoditization of the CDN market is inevitable. CDN’s offer a huge value-add, so don’t get me wrong, but “old-school incumbents” like Akamai are charging a premium price for what is ostensibly service-enhanced IP transit. They’re paying x type prices to their upstreams and billing x*4/5/6 (and more) to their customers. Yeah, yeah, talk to me about Akamai’s secret sauce, but its just a hacked up version of Squid. They’ve been at it a few years now, so its pretty good, but their performance gains come from their vast distrubtion – which is reflected back in the cost of their service. The new CDN’s on the market like Panther Express, Cachefly, and Limelight (to an extent although their performance is not that good) have the right idea with reasonable distribution (not the superfluous 18000+ servers) and MUCH lower costs. There’s a reason Akamai is moving away from the static content/progressive download market and suing the likes of Limelight.

  9. I think the folks at Nine Systems are getting a better multiple than what Speedera received from the Akamai acquisition. Does it say anywhere that Nine Systems is even profitable, especially if they have to also follow SFAS 123(R) rules?

  10. Jesse Kopelman

    DOJ is not going to spend a lot of time reviewing a $150M acquisition. These potatos are way too small to be worrying about antitrust. The government is not proactive. They worry about current conditions, not what the market could be like in 5 – 10 years.

  11. Interesting that Akamai would want to buy Nine..when they spent roughly a $1Bil for InterVu back in the day. Many sales folks and clients migrated over to Nine ..With the DEMs in control and a lame duck President one would think the DOJ will take a while to think this sale through.. But in the end if execs want to cash out then this is their only play but to sell to Akamai.

  12. Anonymous

    The Justice Department should take a hard look at this. The reason Akamai stock has done so well is that they have taken out their competitors. As soon as a new one emerges they either 1) sue them to try to stop their growth (Speedera, Limelight, Mirror Image, Cable & Wireless) or 2) buy them to constrain the market.