Jeff Lunsford, CEO of Limelight

Written by Ryan Lawler

Tuesday, May 27. 2008 at 05:30 PM EDT Post a comment

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Contentinople: On the IP [intellectual property] side, what are you doing to ensure that whatever you do in the future, you're not infringing someone else's patents?

Jeff Lunsford: Well, first of all, what we do is innovative and new. We have one patent issued and have another 13 in the pipe. So we create and file for protection of our own intellectual property. Those patents were all harvested and filed and we'll be continuing to ramp up that program.

You always stay abreast of IP in your sector. We have always been aware of pertinent IP and we have never incorporated any of it into our network. If you step back and look at how we deliver content versus how the Akamai patent describes the process, for instance... If you're an engineer, then you know we don't infringe on that IP. But we've got to go through the courts and hopefully we'll get all that figured out.

Contentinople: You've added a bunch of new customers, but they are driving down your ARPC [average revenue per customer]. Is there a reason for that?

Jeff Lunsford: Well, ARPC has gone down by design. It's gone from something like $125,000 down to $98,000, or something like that. But we're in land grab mode. So we raised capital, we built out a sales force, and we're not going to not sign new customers just because they're below our ARPC.

If you do the math on the guys we're signing up, the average new deal by definition -- to take it from where it was at $125,000 to where it is today at $98,000 -- the average deal is somewhere between $50,000 and $100,000 a year.

Those are not customers that I would dispense with or say they were non-valued customers. Those are customers around which, with hundreds of them you can build a great company. By expanding your solution set with your anchor relationship in there, you offer other products and services, you cross-sell, up-sell, expand your relationship, and over time you grow your ARPC back.

But right now we're not in ARPC growth mode, where you're harvesting existing customers and expanding relationships with them exclusively, which is where Akamai is. If we were 10 years old, we'd be there, too. We're six or seven years old and only recently raised our first capital.

So we're in land grab mode, where you build your customer base. We've said all along on all of our earnings calls, about ARPC: 'Watch it if you want, but don't expect it to constantly go up.'

Our emphasis is on growing the customer base right now, and we are by design exposing ourselves to a much more dynamic segment of the market, which is all these new emerging media providers. That will add some volatility to your business, because some of them aren't going to make it -- it's a pretty Darwinian group. But for the ones that do, you get in there and build loyalty, and when they stay as customers it's like, 'Whoa, everything's good.'

Contentinople: What's happening with regard to the Microsoft licensing agreement? Can you give an update on that?

Jeff Lunsford: We're under NDA with Microsoft, so I can't tell you what they're doing. You'll have to ask them about that. But what we've disclosed is in the public filings and because they're a 10 percent customer, you can break out what their contribution is.

We have a great, multiyear partnership with those guys that is proceeding as planned. There are multiple elements to that partnership -- there's licensing, there's CDN buildout, there's custom CDN work, and professional services. We're doing a lot of work for Microsoft across all components of that contract.

Contentinople: Would you consider the same type of agreement with another large customer?

Jeff Lunsford: Absolutely. For the right customer, a global multiyear sweeping partnership like that is something we would consider. It's not core to our strategy, but when someone like that comes along, they're going to build it anyway. So if you can be their partner and help them to build it, it's something you consider carefully.

Actually, I shouldn't say 'absolutely.' I would say we would definitely look at it and weigh all the factors and decide if it makes sense. We're not averse to it, but it's not core to our strategy. Our strategy is to sign up thousands of customers to our CDN, and cross-sell, up-sell multiple services to them.