Microsoft-Limelight Deal Rumors Persist

Henry Blodget at Silicon Alley Insider has another post today about rumors that Microsoft (MSFT) will acquire Limelight Networks (LLNW), citing a second source. Henry first wrote about this last Friday, about the time we noted that Microsoft is building its own content delivery network (CDN) infrastructure using technology it licensed from Limelight.

Blodget's latest update suggests a possible synthesis of the buy vs. build scenarios: "Our source believes Microsoft also wants to own and operate its own CDN architecture and sees Limelight as a quick solution to the CDN piece of the puzzle," he writes.

We know Microsoft is working on its own CDN infrastructure. They've said that. What's unclear is whether the persistent rumors about an MSFT-LLNW deal is just market chatter generated by a misunderstanding of the two companies' existing relationship, or represents a genuine interest by Microsoft in purchasing its partner.

What about Limelight's CDN clients? Here's the latest from Blodget:

This last theory raises some issues. Microsoft is partnering with all the major CDNs to ensure broad support for its Silverlight video platform. Members of the Silverlight Partner Initiative include Akamai (AKAM), Level 3 (LVLT), Internap (INAP), Mirror Image, CacheLogic, Edgecast, VeriSign (VRSN) and CDNetworks. Is support of Silverlight fully insulated from a potential decision by Microsoft to buy Limelight and compete in the CDN space?

Issues of pricing and economics could make it an academic discussion, as noted at Silicon Alley Insider: "Limelight just went public at $15 a share, so it is presumably insisting on a takeout price that is higher than that. Given that Limelight is currently trading at $6.50, however, this would represent one heck of a premium to today's stock price."