Google-YouTube: Bad News for Limelight?

It's been a turbulent week for content delivery providers. On Monday, streaming video provider VitalStream announced that it had lost its largest customer, MySpace, which had decided to handle its streaming in-house. Yesterday VitalStream was acquired by Internap for $217 million. And the deal of the week is Google's purchase of YouTube for $1.65 billion, which was finalized Monday.

The Google-YouTube deal has implications for Limelight Networks, the fast-growing content distribution network which claimed YouTube as its marquee client. "Since Google bought up YouTube, Limelight appears to have lost its biggest customer," notes Bambi Francisco of MarketWatch. "Limelight delivers the videos for YouTube. Google delivers its own videos, so the search giant certainly doesn't need to pay Limelight to do it."

YouTube and Limelight weren't talking, but Bambi has talked to other industry execs, including folks at Akamai and Netli, and has some interesting numbers on streaming costs:

That would be consistent with the announcement from VitalStream, which noted that its third quarter gross margins were negatively impacted by MySpace-related business. Those big-customer discounts are no doubt a headache for Akamai, and designed to be. But as we've seen, big customers can vanish quickly. The volatility in video hosting is likely to continue, which will make life exciting in this space for some time to come.