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Akamai Technologies (AKAM)Stock (Internet Industry, Internet Information Providers Industry)
 The key to Akamai’s success is its de-centralized computer nework, which improves the speed of its clients websites. BestBuy's offices are in Southern California, but their users are around the world. Akamai's network means BestBuy's users can always connect to a BestBuy server that's close by, and therefore faster. From a technical standpoint, AKAM’s internet traffic footprint is large. The company operates the world’s largest distributed computing network with more than 20,000 servers in 1,000 networks across 71 countries. According to its own estimates, Akamai delivers 20% of the world’s non-email web traffic.[1] The company sells its services to many of the internet’s top players, including over half of the top 50 web retailers such as Best Buy (BBY) and Sony (SNE). In media, the company counts 29 of the top 30 websites as clients including media-heavy sites such as MTV and Comedy Central. [2] Akamai's customer base is in e-commerce and online video, so Akamai benefits from the expansion of these services. However, AKAM is exposed to risk as its service becomes commoditized - servers and bandwidth are cheaper than they once were, and other companies such as Limelight (who recently updated a cross-licensing deal with Microsoft) and Internap Network Services (INAP) have now compete in the market which Akami used to dominate. As the fixed costs to setting up infrastructure drop, so do the barriers to enter this industry, leading to more competition. Akamai's market share dropped from 67% to 64% in 2007 as a result of this competition.[3][4].
[edit] Financial OverviewAkamai earns revenues from the hosting and delivery of internet content and media from its clients websites to end-users. The company is able to charge a premium for its services for two reasons. First, the company provides data delivery to end users, handling actual internet traffic. Secondly, the company helps to manage the technical demands and consult its customers as to how to effectively deliver their content. Moreover, the process of website caching means that Akamai backs-up many of its customers websites.  Akamai's revenues have grown 48.46% and 51.41% in 2007 and 2006, respectively, and its operating income has grown 74.39% and 13.26% over these two years. The strong operating income has been attributed to the scalability of Akamai’s revenues. This makes sense, as a significant portion of Akamai’s costs come from servers, which are fixed in time regardless of revenue - as Akamai grows its customer base, the cost of operating and installing servers becomes more economical. As CFO J. Donald Sherman says, “basically scale benefits us tremendously and as we grow very rapidly in a quarter, we tend to see pretty strong gross margin results.” [6] Earnings contracted in 2006 by 82.50%, largely due to a tax benefit received in 2005, but grew again in 2007 by 75.90%. As the #Market Share Information|market share graph in the competition section, Akamai's revenue growth has been consistent with the wider markets'.
Geographically, Akamai's revenues come primarily from domestic sources, with only a slight decrease from 79% of total revenues in 2005 to 77% of revenues in 2007.[7]  [edit] Trends/Forces[edit] Proliferation of Broadband Internet Will Grow Akamai's Customer BaseThe availability of broadband in people's homes is increasing in double digit percentage points in many developed countries, and has doubled in developing countries as recently as 2005.[9]. With it, media consumption habits have dramatically shifted, as can be seen in the growth of companies such as YouTube , and many traditional TV networks offering their programming online, such as ABC and NBC. More bandwidth presents both an opportunity as well as a challenge to Akamai. The increased expectations of consumers puts a strain on content providers, who then turn to AKAM to bear the content delivery burden. However, it also puts pressure on AKAM's own bandwidth, which is often purchased from internet backbone providers, which operate the massive routers and server farms that send and receive internet traffic across major fiber-optic networks between continents and countries.
[edit] Increased distribution of Software as a Service Creates further Opportunities for Revenue ExpansionSaaS is a new e-commerce business model. SaaS changes the mode of distribution of software from a one time purchase of CD-roms and discs, to a service sold on a per-period basis, typically over the Internet. This model places larger server demands on the provider, although it also gives them more stable revenue streams and increased control over the application. AKAM's server network and monitoring tools lets its clients forgo the "in-house" model to build out SaaS capability, helping them deliver their software over the cheaper and more controllable internet, rather than discs. The strength of this model is demonstrated by Akamai's own performance, as their data-monitoring and caching services employ this same "Software as a Service" model. [edit] Decreasing costs of storage media and bandwidth means more competition for AkamaiAkamai houses information in its servers, and ships out the content over the internet. Respectively the costs to each of these components of its business are broadly determined by storage prices (or hard drive prices) and bandwidth prices. The price per gigabyte for magnetic hard drives has fallen to less than $1 in 2006, from over $10 at the start of the decade.[13] The wholesale prices of bandwidth are difficult to chart, but are decreasing similarly over time. As these prices fall, it is easier for new players to step into the space, and for operations to return to in-house groups. This is a risk to Akamai's business as its success has rested on the fact that smaller companies cannot afford the infrastructure investments that content delivery networks demand, and Akamai charges higher prices than its competition due to its wide reach and technological supremacy. MOre competition may threaten Akamai's ability to charge this premium for its services, eroding both its profits and its market share. [edit] Competition
[edit] Direct Competitors
[edit] Telecoms
[edit] OtherInternet monoliths like Google (GOOG) and Yahoo! (YHOO) have invested time and effort into managing content delivery already. While not typically serving outside clients, their reach is extensive, much like Akamai's. [edit] Market Share InformationObservable metrics are amount of data delivered (GB) and revenues generated ($). In terms of revenue, analysts estimate that in 2007 the Content Delivery Network industry revenue reached $990.27m, which represents 48% growth over the 2006 total of $671.31m.[18] With this in mind, approximate estimates for market share based on revenue can be generated from Akamai's revenues[19], and Limelight's revenues[20].  [edit] References
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