Akamai: The Top Content Mailman on the Internet

by Chris Connor

Early Market Leader

Akamai {AKAM} is the world's leading Content Delivery Service Provider (CDSP) with a network of 9,700 servers spread across 56 countries that delivers video, audio, and streaming events to end-users utilizing the fastest path possible.  The company's proprietary technology (algorithms) also the high-speed delivery by finding the server that is closest to the user requesting the information.  Akamai's proprietary algorithms monitor Internet traffic patterns to discover the most efficient path possible.  Investor's should note that Akamai's technology is well protected because the company already holds 5 patents on its technology.  Simply put, Akamai's vast network of servers and  proprietary technology significantly improve the speed and reliability of web sites by eliminating bottlenecks and site crashes.  In late 1999 to early 2000, WallStreet sensed the enormous potential of such a network and bid AKAM up to mammoth proportions.  Believe it or not, but this company was once valued at $37.3 billion, and that is not a typo.

Recurring Contacts

The most attractive aspect of Akamai's business is that a large percentage of the company's customers have signed recurring contracts.  Unlike selling hardware, Akamai's FreeFlow service allows the company to get paid by the amount of megabytes that it delivers instead of shipping a product just once.  Thus, the company gets paid for how much content it delivers in a month.  Customers must pay a minimum usage fee over the term of the contract and they are charged extra for usage above the minimum usage level.  

Looking Forward

Along with Exodus {EXDS}, the leading web-hosting provider, Akamai is one of the premier Internet infrastructure service providers in the world; however, Akamai has substantially less debt than Exodus, which has a huge debt load, and has established more barriers to entry than Exodus has. Obviously, there are less barriers to entry for web-hosting since several major companies such as Intel {INTC} and IBM {IBM}, both of which are partners of Akamai, are now offering web hosting services.  In contrast, it would be much harder for a company to replicate Akamai's extensive network of 9,700 servers and proprietary technology.  With that army of servers, look for Akamai to continue its reign as the top transport vehicle for the explosive streaming media industry.  

Akamai's current leadership comes in part from its delivery of such high-profile streaming media events as the 2000 MTV Video Music Awards, the British Open Golf Tournament, the Emmy Awards, and the presidential election coverage for CNN.  Though Cisco {CSCO} and Inktomi {INKT} announced in August that they will offer competing networks, AKAM should continue to dominate the industry because of its proprietary technology, the fact that its network is already in place, and its numerous partners and customers that include CNN, Mercury Interactive {MERQ}, CacheFlow {CFLO}, CMGI {CMGI}, Novell {NOVL}, Digex {DIGX}, Real Networks {RNWK}, Microsoft {MSFT}, America Online {AOL}, Intel, and IBM.