Akamai: First Sue, Then Buy

Tiny Israeli start-up Cotendo -- $39 million raised from venture capitalists so far -- has been a thorn in the side of much larger Akamai (NAS: AKAM) and its $5 billion market cap since it entered the content-delivery network market in 2008. By charging customers half of what Akamai charged, Cotendo kept whittling away at the larger company's market share, causing the industry's 900-pound gorilla to try to squash the pest.

Akamai then did what it has done successfully in the past: Once a company becomes competitive, Akamai sues it for patent infringement. In the early 2000s, Akamai went after content-delivery companies Digital Island and Speedera Networks. After wearing Speedera down, Akamai bought it.

Last year, Akamai sued Cotendo, and now -- according to reports originating over the weekend in Israel's Globes -- Akamai is competing with Juniper Networks (NAS: JPNR) and AT&T (NYS: T) to buy it. Juniper has previously contributed in a round of private financing for the company, and AT&T has signed a four-year, $30 million distribution deal with Cotendo.

But now, another Israeli news site, Calcalist, says that Cotendo and Akamai are working on a deal worth more than $300 million.

Heavy lies the head that wears the crown
In the competitive world of content-delivery services, speed is king, and what Cotendo has that so interests its suitors are products that can speed up websites and the delivery of streaming video. But there is another aspect of this possible acquisition that bears considering: turf.

Even though Akamai is the largest content-delivery provider in the world, it is sensing a consolidation that could threaten its position as industry behemoth. Limelight Networks (NAS: LLNW) and Level 3 (NAS: LVLT) have been rumored for months to be merging, and if AT&T uses its deal with Cotendo to get deep into the CDN business, Akamai's crown could start feeling a bit heavier.

As yet, no deal has been officially announced, but you can keep track of what's happening with Akamai and the other companies mentioned here by putting them on your personalized version of the Fool's My Watchlist service:

At the time thisarticle was published Fool contributorDan Radovskyowns shares of AT&T. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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