Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Akamai And The Ghosts Of Competition


Perhaps Akamai should altogether repudiate the notion of being a CDN...

So I got my hands on some more details of yesterday's downgrade of Akamai (AKAM) by Cowen & Co. and – as has been repeatedly the case over the last few months – I am still looking for a ½ reasoned explanation as to why an increase in competition for "dumb caching services" will harm AKAM competitive position. Let's briefly revisit the difference between offering rudimentary content delivery and what AKAM does, and perhaps you'll see where I am coming from.

Based on what AT&T (T) suggested during its analyst day, it plans to add geographically distributed servers to its worldwide network in order to distribute customers' cached content from points closer to the end user. That's great, and I am sure that for someone whose only need is to get a web page in front of a customer while he/she is still awake, T's service will do just fine. However, that's what AKAM was providing to its customers several years ago.

If, on the other hand, critical aspects of one's business rely on fail safe delivery of the content, monitoring of the network, load balancing, real time feedback on delivery performance, redundancy, security, optimization, etc. etc., then, based on the little we know about T's offering, it simply will not do the trick.

In the last several months AKAM's stock has been regularly pummeled every time any Tom, Dick and Harry puts out a press release saying that it is getting into the CDN business. AKAM does have a big problem: it's doing a rather poor job of explaining to the market that its days as a "dumb content delivery network" ended years ago. For years AKAM has been growing on the strength of being a value-added software service provider. If you do not believe me, just look at how its monthly Average Revenues Per User (ARPU's) have been growing quarter over quarter. Customers sign up for AKAM's basic service – which may still be better than what T, Savvis, etc, will eventually provide – and within months they recognize that AKAM's real value consists of being able to control content distribution in a manner that creates incremental economic benefits. The physical "packet delivery" becomes almost a marginal aspect of the broader "distribution service". In fact, perhaps AKAM should altogether repudiate the notion of being a CDN.

I am not in denial that there will never be viable competition for AKAM, but for now it is the competitors who are taking a beating, not AKAM. Just ask Limelight Networks (LLNW), which I am also long, and which has been a train wreck for shareholders pretty much from day one. And it's the second best outfit out there!

So far, and for the foreseeable future, the only true facts remain that AKAM controls 60% of the broad CDN market (LLNW is second at 10%), a much higher share of the high end/high margin portion of that market, and that the technological chasm between AKAM and its competitors is steady if not growing. Until the Johnnies-Come-Lately can show that they are taking from AKAM high end users with sophisticated requirements, the fanfare announcement of its entry in the CDN space will likely continue to be the high watermark of its competitive assault on AKAM's business.
Positions in AKAM, LLNW
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos