Linode has agreed to sell to Akamai Technologies.

Akamai will pay $900 million in cash for the 19-year-old independent cloud computing provider.

At first glance, the deal might seem a little odd. Akamai has made its name as a content delivery network provider that now also does security and edge computing. It goes after big organizations. Linode positions itself as an alternative to the hyperscalers – Amazon Web Services, Microsoft Azure, Google Cloud Platform – for developers and smaller managed service providers. For Akamai, though, adding Linode to its services lineup transforms it into “the world’s most distributed cloud services provider.”

Those were Akamai CEO’s Tom Leighton’s words on Tuesday during the company’s fourth-quarter earnings call. He said Akamai primarily wants Linode’s managed virtual machine and managed container capabilities to combine with Akamai’s edge network and 4,000 points of presence (PoPs).

Akamai’s Tom Leighton

“The net of all this is that we believe that Akamai and Linode can solve customers’ needs in ways that are not addressed in the market today, forming a powerful winning combination that will enable customers to build, deliver and secure their apps on the platform that powers and protects life online,” Leighton said.

To that end, Akamai will use Linode to go beyond security and content delivery and add cloud computing. Leighton called it “a breadth and depth of services uncommon in the cloud space today.”

Adam Karon agreed. Karon serves as COO and general manager of the edge technology group at Akamai.

Akamai’s Adam Karon

“[U]nique capabilities can come together when we are able to combine Akamai’s edge platform with Linode’s cloud computing capabilities and then add in our global traffic manager product to route across multiple clouds and cloud locations our global large private network that … connects cloud and edge locations and messaging, bringing it all together, coordinating cloud and edge services,” Karon said on Tuesday. “You end up with the world’s most distributed compute platform from cloud to edge making it easier for developers and businesses to build, run and secure applications.”

Christopher Aker, Linode’s founder and CEO, said joining Akamai addresses some key problems. Customers, he said, “face new challenges as cloud services become all-encompassing, including compute, storage, security and delivery from core to edge. Solving those challenges requires tremendous integration and scale, which Akamai and Linode plan to bring together under one roof.”

Linode’s Christopher Aker

Akamai will split its business into three main groups: security, delivery and compute.

“Compute will include Linode, plus our edge applications and net storage businesses,” said CFO Ed McGowan. “We believe that with strong execution, we can deliver more than $500 million of annual compute revenue in 2023.”

OK, So What Can MSPs and Other Partners Expect?

Channel Futures has reached out to Akamai to ask for insight into its plans for the Linode channel program. We didn’t hear back by the time of publication. However, looking at the company’s comments in the Feb. 15 earnings call, we can make some inferences.

First, as McGowan said, Akamai expects Linode to contribute to margins “as we continue to capitalize on revenue and cost synergies, including leveraging our go-to-market channel and marketing organizations to accelerate revenue from enterprise customers.”

That sounds like a peripheral reference to the channel — until considering Leighton’s input to analysts: “Linode doesn’t really have a sales force, never mind a sales force like Akamai has going after major enterprises. And you combine that with the fact that our major enterprise customers have wanted us to have this capability for them.”

Later, Leighton also said that Akamai is “interested in the developer base for sure because our large enterprise customers, their apps are built and, in many cases, managed, by the developers. So we really care about a developer-friendly solution. But we are going to take this to our large enterprise customers.”

When that happens, Leighton is not fretting those organizations eventually tossing Linode in favor of a hyperscaler. That situation often crops up when an enterprise outgrows a smaller cloud platform. Certainly this would impact any channel partners administering Linode services.

“I think you will not see this be a situation where [customers] migrate from, say, a Linode to a hyperscaler,” Leighton told analysts. “[O]ur customers are interested in alternatives and end-to-end solutions that — maybe there are some functions on hyperscalers today that I think would migrate to Akamai’s new cloud platform. We’ll be the world’s most distributed cloud platform with now market-leading solutions in not just delivery and security but also compute.”

Related to that, Akamai sells direct and through partners including behemoth telecom service providers, as well as Rackspace Technology, Capgemini America and IBM Services. Most Channel Futures readers consider …

such companies as vendors that offer extensive consulting and professional services. Linode, on the other hand, has been targeting managed service providers. In 2020, Linode said it was attracting more SMB-focused partners; that’s more than 150 since launching its channel program earlier that year.

“There is no advantage to being a small MSP in a hyperscale world,” said Jonathan Hill, vice president of revenue operations, told Channel Futures 18 months ago. “You often don’t have the volume to drive price discounts and you aren’t big enough to justify the level of support you need. But the cloud playing field has leveled and providers like Linode have built programs that open the door for MSPs to increase their revenue streams and profit margins.”

Akamai Doesn’t Plan to Sell Down-Market

The Linode-MSP ethos may not mesh with Akamai’s plans. Leighton said Akamai doesn’t really intend to go after smaller customers, either with its existing portfolio or with Linode.

“The primary objective is to take Linode and really scale that up and sell it into the large enterprise base,” Leighton said. “I think that’s far more lucrative for us than taking our existing solutions and selling into the large number of small customers. And the focus will be moving Linode’s capabilities into our platform and having a comprehensive solution for large enterprise customers.”

That should bode well for the likes of AT&T Business, Bell Canada, British Telecom and Akamai’s other telco partners.

“[T]he carriers are major channel partners with us today, and I think that will increase through the acquisition of Linode because they’ve had an interest in being able to offer that kind of capability, and now it comes hand-in-hand with, well, the whole solution all put together,” Leighton told analysts.

From an outside view perspective, trying to blend the two companies’ channel strategies does not look like a natural fit. Akamai may need to operate two different programs. One would support the large partners, and one would continue Linode’s mission to enable MSPs. Akamai is very clear on keeping ties with Linode’s developer community; some of those partners may also act as MSPs. Or Akamai may take another approach to MSPs altogether.

More on Akamai’s Motivation for Acquiring Linode

Akamai sees Linode as a strategic way to expand its footprint; and, as a result, increase its revenue and market share. Before Akamai bought Linode, Akamai’s McGowan says the cloud computing provider was growing around 15%. The bigger customers were growing faster. (Linode serves around 150,000 clients.) And yet, Linode appeared to be keeping itself in check.

“[T]hey were sort of containing their growth a bit,” McGowan said. “It was a very closely held company. So they were holding back a bit on their investment in go-to-market and their build-out. So obviously, that’s one of the major synergies we bring. … We think we can accelerate that business pretty considerably.”

In fact, McGowan estimates Akamai will see 30-35% growth in the Linode business once the acquisition closes.

Owning Linode gives Akamai power to scale the business, Leighton told analysts. If Akamai had just partnered with Linode, as it has done with Azure and other third-party cloud providers, it would not have had the influence to do that.

“We have a lot of expertise in network deployment and doing that in a cost-effective way to get enormous scale,” Leighton said. “Also, we’ve got a large enterprise sales force and a customer base that is hungry for us to bring them this kind of capability.”

As for the types of solutions an Akamai-Linode combination will bring to end users? As one example, a hospital could use its technology to create a platform that captures and archives videos of surgeries. This would give doctors training on techniques. The technology itself would rely on Linode’s bare metal and object storage capabilities.

Akamai Is On a Roll

The Linode buy marks Akamai’s second large acquisition since September. That’s when the company snapped up Guardicore for $600 million. That transaction was all about bringing zero-trust security to bear against ransomware attacks.

Akamai expects to close the Linode deal in the first quarter. For its 2022 fiscal year, Akamai forecasts Linode will add around $100 million in revenue.

Linode’s Aker told TechCrunch that Linode is operating as usual for now and that Akamai has “no intention of changing what has made us successful.”

PJT Partners served as financial adviser and WilmerHale s legal counsel to Akamai. DH Capital acted as financial advisor and Latham & Watkins as legal counsel to Linode.

Shares of Akamai were trading about 6% lower on Wednesday mid-morning, following news of the Linode acquisition.