Compaq, Intel and Microsoft agreed to invest $45 million in Digital Island to build a network that promises to deliver 7.5 million simultaneous streams--the largest such network, according to the companies.
In addition, Compaq has agreed to extend $50 million in lease financing to Digital Island and up to $50 million to the company's customers. The deal also involves installing 8,000 Compaq servers in Digital Island's proprietary network over the next two years.
The network, which will exclusively stream content in Microsoft's Windows Media formats, augments Digital Island's so-called edge-delivery technology, which supports streaming formats by RealNetworks and Apple Computer on servers provided by Sun Microsystems.
"We take an ecumenical approach and support all major player types," said Digital Island president Leo Spiegel.
Shares of the San Francisco-based company gained $10.69, or 31 percent, to close at $45.19 on the Nasdaq Stock Market.
All four companies said the deal reflects growing consumer demand for content encoded in Microsoft's streaming formats. Having trailed RealNetworks in streaming market share for years, the company has begun to make some inroads.
Today's deal could also point to a potential trickle-down effect from the dueling streaming formats of companies fighting for a piece of the streaming server market. While the battle largely has been played out between competing software platforms, the booming demand for audio and video content on the Web also holds important implications for hardware manufacturers and network providers.
It's a business that few can afford to ignore. Analysts predict that the market for streaming media content will grow from $78 million this year to $2.5 billion by 2004.
Streaming server companies such as Silicon Graphics and Network Applications support all streaming formats, licensing technology from RealNetworks, Microsoft and Apple.
But Sun servers do not run Microsoft's streaming formats. Shiva Mandalam, Sun's product-line manager for streaming, said the company does not support Windows Media because it is not an open format.
In the meantime, the divide could help a company like Compaq, which is working closely with Microsoft as it looks to get a bigger piece of the streaming pie.
"They have to have a story there, and they can get some sexy wins in streaming," said Joyce Becknell, an analyst at the Aberdeen Group.
Sun's Mandalam agreed that Compaq could benefit by using the lack of streaming standards as a wedge into the market. But he downplayed the threat of long-term balkanization between rival groups of allied hardware and software providers.
"Any streaming vendor would look at streaming all formats, because that's what customers say they want," he said.
Digital Island is one in a crowded field of networking companies, including Akamai Technologies and iBeam Broadcasting, aiming to improve the efficiency of delivering content over the Web--linking the so-called last mile between consumers and content providers. The company runs a proprietary system that offers edge-network services, hosting content on servers located physically close to end-user computers.
Such services are especially important to streaming companies, which depend on getting smooth data feeds to viewers and listeners, even over relatively slow Internet connections.
RealNetworks has several partnerships with last-mile networking companies and also offers its own enhanced streaming service through its Real Broadcast Network. The company recently signed a deal to integrate its technology with Akamai, by far the leader in edge-networking services.
Other last-mile Internet content distributors that support RealNetworks' technology include satellite firms Cidera, iBeam and PanAmSat. Terrestrial broadband partners include Digital Island, Enron, Madge Networks and Microcast.
Intel also recently said it would begin selling streaming media services out of its newly created Internet Media Services group to companies that want to broadcast live or videotaped coverage of stockholder meetings, training courses or other events over the Web.
Intel's interest in streaming derives from the company's strategy to become the bit carrier for the Internet. Although it still earns most of its revenues from computer microprocessors, Intel is moving into communications, online services, networking equipment and other markets focused on the processing and delivery of data across the Internet. The company is building data centers worldwide so that it can host e-commerce sites and Webcasting events.
The streaming business started as an internal project. The company's biannual analyst conferences have historically been invite-only events. In 1998, Intel opened the event to the public through a Web broadcast. Since then, Webcasts have become standard procedure for Intel.