Yahoo!'s (NASDAQ:YHOO) latest acquisition is content delivery network -- CDN -- start-up PeerCDN, which promises a completely new kind of CDN service, by relying on peer-to-peer traffic between users to lower bandwidth costs. The move is surprising for the media-focused company, which earlier this year spent more than $1 billion to buy microblogging platform Tumblr.
The CDN industry is famous for its scale advantages. Akamai Technologies (NASDAQ:AKAM) dominates the market thanks to its more than 95,000 servers inside 1,900 networks. At the same time, several smaller companies such as InterNAP Network Services (NASDAQ:INAP) are struggling to remain competitive. Given the nature of the CDN business, why did Yahoo! acquire a small CDN company? More important, how does Yahoo! plan to use this company to improve its top line?
Unlike CDN leader Akamai Technologies, which in order to serve as much as 30% of all web traffic needs to operate thousands of servers over 70 countries, PeerCDN does not rely on infrastructure to provide its services.
Yahoo! may not be interested in using PeerCDN to enter the business of speeding up third party websites. This industry is very challenging, due to Akamai's predominance and to the fact PeerCDN isn't a complete substitute to traditional CDN services.
Yahoo! is strengthening its media business
Yahoo!'s emphasis on video
Final Foolish takeaway
The latest Yahoo! acquisition is a CDN start-up. However, a deep look into the acquisition context, and Yahoo!'s media strategy, shows the company may not be interested in entering the CDN industry. Instead, Yahoo! may be acquiring all the tools it needs to create an innovative video platform.
Adrian Campos has no position in any stocks mentioned. The Motley Fool recommends Yahoo!. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.