Surf's Up at Akamai

Vendor Genesis

Akamai (Nasdaq: AKAM) was founded in August of 1998 as an outgrowth of an MIT research initiative lead by Dr. Tom Leighton, Professor of Applied Mathematics and Head of the Algorithms Group at MIT's Laboratory for Computer Science. After recognizing that a solution to Web congestion could be found in applied mathematics and algorithms, with the help of graduate student Danny Lewin, Leighton developed a set of breakthrough algorithms to intelligently route and replicate content over a wide-area network. "Akamai," a catchy-name that melds well with Asian technology empire rhetoric like Hitachi, Sony, Samsung, and Matsushita, means "cool" in Hawaiian.

With the help of MBA candidate Jonathon Seelig, and Professors David Karger of MIT and Bruce Maggs of Carnegie Mellon, the content delivery mavens entered the project into MIT's $50K Entrepreneur Competition. The original team joined forces with internet veterans Paul Sagan (former President of Time Inc. New Media) as COO, and George Conrades (former President of GTE Internetworking) as CEO, and formally launched Akamai's website in April of '99.

Without relying on centralized servers, Akamai's FreeFlow service delivers content from strategic Internet locations, allowing Websites to access objects at speeds 2 to 10 times faster than they would otherwise. Wall Street drooled as the Cambridge-based internet startup ended at 145 3/16 on its first day of trading on the Nasdaq. Akamai's IPO was recorded as the fourth-largest ever percentage gain on the first day of trading.

Vendor Strategy and Trajectory

Responding to increased Internet traffic, the Content Delivery market has evolved into an all new revenue producing market. Defined as the market dedicated to improving web site speed and reliability as its core competency, the nascent Content Delivery market will experience substantial growth as the Internet surpasses 500 million users by 2002. With a growth rate exceeding 400 %, we believe this young $10 million market could reach $500 million by 2002.

Driving Akamai is Internet veteran George Conrades, who previously took a floundering BBN and turned it into GTE's entre to the Internet. Conrades, formerly President of IBM Americas, has attracted big name customers like Apple, CNN Interactive, Nasdaq, and Yahoo. Well respected in technology and venture capital circles, Conrades has forged strong business relationships and enticed $120 million in funding for Akamai.

Akamai has also entered in strategic relationships with both Cisco and Microsoft, which has brought in $49 million and $15 million in investment capital respectively. In collaboration with Cisco, Akamai is positioning itself to enhance and jointly develop more intelligent content routing and caching technologies for the Web. By integrating Microsoft Windows Media into its service offering, Akamai has been able to attract Microsoft's Streaming Media Division as a customer.

Currently Akamai's direct sales force is actively targeting Fortune 100 companies, domestic companies, and the 300 most heavily trafficked websites. A 30 day free-trial evaluation enables prospective clients to try the service with no obligation.

As the exclusive network provider for Apple's QuickTime TV (QTV), Akamai has enabled Apple to provide in excess of 23 million downloads of the "Star Wars: Episode I - The Phantom Menace'' movie trailer. By delivering QTV streams through Akamai's network, no longer does streaming media have to look like a 1960s choppy Apollo moon-landing outtake.

Vendor Strengths

Content Delivery Focus: One of the reasons that Akamai is off to a running start is the fact that it is positioning itself to do one thing well -- Content Delivery. Often young organizations try to diversify too quickly, adding product and service lines that they are not yet ready to support. Typically, ASPs and webhosting companies try to figure out how to do speedy content-delivery as an after thought, in response to complaints about web site slowness. Instead of falling into the "now that we're doing it, how do we do it well?" trap, Akamai is focusing on quality first by making speed part of its mission statement.

Distributed Capacity: In strategic relationships with webhosting vendors and ISPs, Akamai places its Linux servers in webhosting datacenters and ISP points of presence (POPs) globally to achieve greater distributive capacity on the internet. With a network optimized for fast web delivery, Akamai will have application vendors and webhosting providers both wanting to partner with them, to help them out of central artery congestion traps.

Real Time Delivery Capability: Akamai's content delivery routes in real-time, in comparison to West Coast Based Sandpiper, who updates their routing tables several times a day. This means that Akamai is better able to protect against performance strikes that occur from new ad campaigns, website launches, and current events. Akamai's content delivery principles are based on the ability to match millions of worldwide Internet users with millions of content delivery options, under dynamic Internet conditions.

Size and Scope: Wide-area distributed content delivery capacity is a factor of a number of variables: cpu power, RAM/cache, routing algorithms, and number of distribution points. Having deployed over 1,700 servers globally, Akamai has a 25% lead on distribution points over Sandpiper Networks. The more distribution points a content delivery vendor has, the more accurately it can determine the most efficient connection for a website query. When comparing performance monitoring capabilities, Akamai has monitoring agents on all of its servers and networks worldwide, while Sandpiper uses the more traditional ISP approach of using rmon probes on routers, and currently has only 150 deployed. Akamai has plans to expand its global presence from 55 to 100 networks in comparison to Sandpiper's 25 to 30 network growth plan.

Vendor Challenges

The ISP and ASP Market Challengers: With Exodus' Ready-Cache Content Distribution Service up and running, ASPs and webhosting companies are already trying to get in on the game. Akamai has the advantage that its multi-carrier network and service was designed for speed since day one. However, there are numerous ISPs and ASPs with a tremendous amount of cash to invest that Akamai is currently not partnering with. Each may prove to be an imminent threat to Akamai, who will not have the same global reach or installed base as the larger players in this market . Akamai will have to maintain its leadership position by expanding rapidly.

Limited Client Base: Currently, Akamai has a significant revenue dependency on a very limited set of clients. This represents a huge exposure for Akamai, which needs to quickly expand its number of clients and dollars generated from them. Akamai must also prove that it can retain clients for extended periods, rather than support only those organizations that need a short term bandwith expansion for a specific launch or campaign. Recent announcements show that Akamai has begun to address this issue, but it remains a concern.

Patent Exposure: From an innovation perspective, Akamai holds no U.S. patents, although it does has multiple patents pending with respect to its content delivery service. Today, Sandpiper is the company that has a service delivery model most similar to Akamai' with it's Sandpiper Networks' "Snap-On Tools marketing approach". Mirror-Image and Adero are also jockeying position in the Content Delivery market, although they have smaller network topologies and delivery capabilities.

Vendor Predictions

With its focused strategy, seasoned management team, and innovative architecture concept, Akamai will maintain the lead in the content delivery arena. Handling over 12Gbytes per second, Akamai can help Web content providers scale at a faster pace than they could otherwise.

We expect Akamai to partner with as many ASPs and ISPs as possible. This will quell the need for ISPs and ASPs to develop their own Content Delivery services the way Exodus has.

Building on the success of its Hollywood debut, expect Akamai to sign-up new broadcasting customers. Akamai's strong relationship with Apple is enough to lead one to think that Pixar and Disney will be next on the customer list.

Vendor Recommendations

  • Currently 75% of Akamai's revenues come from one customer -- Apple. To mitigate the risk of revenue loss, Akamai needs to rapidly expand its customer base; acquiring smaller content delivery shops is one way that Akamai can do this.

  • Currently Akamai is focusing its sales team on highly trafficked web sites. This is a good strategy, however, parallel attention to vertical markets like multimedia, broadcasting, and advertising will secure Akamai's niche with early adopters.

  • By licensing its caching agents to network hardware suppliers, Akamai can spread its points of distribution and customer base at a rapid pace. Potential partners could include Verio, MCIWorldcom, AT&T, or Sprint.

  • Akamai will want to decrease its accumulated deficit by applying some of its future revenues to offset its long-term debt of $10.8 million.

User Recommendations

Organizations in multi-media delivery and heavy transaction processing that have high traffic volume and streaming media requirements should examine Akamai for assisting them in gaining a competitive advantage among their challengers.

These services can be cost justified if revenue loss is higher than the price an organization would be paying for FreeFlow. If Akamaizing your content provides your organization with more revenue than the cost of the monthly FreeFlow service, signing up with Akamai is a sure competitive advantage.

Organizations that are currently not experiencing website delays, and are not dependent on website current event peaks or high-volume transaction processing, should wait to use to Akamai's services.

Note: Akamai's has 1,475 servers across 100 telecommunication networks, with a capacity of 12 gigabits per second.

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