[Redherring] Akamai is king of content delivery

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From: Adam Rifkin (Adam@KnowNow.Com)
Date: Thu Sep 14 2000 - 11:16:45 PDT

"Akamai Technologies (Nasdaq: AKAM) is currently managing the delivery of
90 percent of content over the Internet." Is this really
too? Wow. Notice Inktomi and AOL trying to push Content Bridge as a
viable Akamai competitor... too little too late? Stay tuned.


Akamai is king of content delivery
By Lisa Meyer, Redherring.com, September 13, 2000

If content is king on the Internet, what better business to be in than the
efficient delivery of it?

Akamai Technologies (Nasdaq: AKAM) is currently managing the delivery of 90
percent of content over the Internet. By locating content and applications
geographically closer together, Akamai is improving the delivery speed and
quality of information to end users.

On the surface, the workings of the Internet appear simple. But the number
of network and content providers and end users complicates the delivery of
information. Information traveling long distances has a greater likelihood
of hitting traffic jams at the interconnections between networks, along the
pipelines between the content providers and networks, and at the point
where network providers connect to the Internet.

Akamai's software puts "caches" of content, such as Web pages or components
of Web pages, inside ISP networks so surfers can download much of the
material from computers physically close to their own, speeding transaction

"As the Internet audience grows globally and more geographic diversity
exists in cyberspace -- as well as more ISPs and high speed access at the
edge of networks -- the ability to manage content on the edge of the
network becomes more important," says Jonathan Seelig, vice president of
strategy and corporate development at Akamai.

By far the leader in the content delivery business, Akamai has over 4,200
servers deployed in 225 of 7,000 networks within 50 countries. Over 2,000
Web sites use Akamai's software. Some of the company's clients include such
marquee Net names as Yahoo, CNN, Monster.com, and StarMedia.com.

"Akamai is leveraging its large footprint into a critical mass of
customers," explains Scott Sutherland, analyst at Wedbush Morgan
Securities. "Network providers are much more willing to go with Akamai, who
has access to content providers. And content providers are more willing to
use Akamai because of its partnerships with network providers. So the
relationships build on each other." Akamai depends on slow sites losing
revenue opportunities. According to Mr. Seelig, $362 million in revenue is
lost every month because visitors leave Web sites with slow transaction
rates. Akamai not only touts the ability to make Web sites two to ten times
faster; it also offers value-added services such as traffic analysis, which
determines where Internet connections terminate and the speed of those

"With this data, which doesn't get into anyone's privacy, sites can deliver
bandwidth-relative content," Mr. Seelig said during a recent presentation
at a conference hosted by Webnoize, a digital entertainment news and
research company. "Companies can customize content based on [their]
customers' bandwidth."


But Akamai's aggressive growth strategy has kept the company in the red.
According to estimates from First Call, Akamai is expected to lose more
money per share next year than in 2000. But in 2002, Akamai's loss per
share will decrease from $2.87 to 74 cents. The revenue growth, however,
has been explosive. In its most recent quarter, Akamai reported $18.1
million in sales, a 151 percent gain from the previous quarter.

"Right now, Akamai's revenues are growing at a fast pace, but its network
and facilities investments are growing even faster," says Nitsan Hargil,
analyst at Kaufman Bros.

Plus, Akamai's stock is currently trading at $61.69, 82 percent off its
52-week high of $345.50. And there is some concern the stock could head
even lower in the short term, as a lockup period on 58 million of its
shares is set to expire Wednesday. According to Mr. Seelig, company
management will sell 5 to 10 percent of its shares over the course of the
year. "Most are staying in the boat," he adds.

The large number of shares that could go on the market may scare away
investors in the short term, says Mr. Hargil, who predicts Akamai's stock
will drop even more after Wednesday. "But beyond the next couple of weeks
we see a healthy company, growing at an amazing pace and offering excellent


It's true that Akamai might look expensive compared to some competitors.
Digital Island (Nasdaq: ISLD), for one, has a market capitalization of $1.9
billion, compared to Akamai's $7.18 billion. Providing an end-to-end
solution, Digital Island offers Web hosting and network services, as well
as the three services Akamai provides: content delivery, streaming video,
and application services. But Digital Island's revenue growth, while still
impressive, pales in comparison to Akamai's. In its most recent quarter,
Digital Island recorded revenue of $16.1 million, a 42 percent increase
from the previous quarter.

"While Digital Island's business strategy should give it a competitive
advantage, we have not yet seen any signs that the marketplace is accepting
this unique solution," says Mr. Hargil. "Akamai's momentum is capturing
hundreds of customers every quarter, while Digital Island has a much slower
customer growth."

But the market potential for content delivery is so promising that big-name
players can't stay away. Cisco Systems (Nasdaq: CSCO), an Akamai
shareholder, recently announced an alliance with a number of Internet
hosting companies and content delivery companies -- such as Digital Island
-- to create a standard platform for content delivery based on the Internet
network provider's newest software package. Inktomi (Nasdaq: INKT),
developer of Internet infrastructure software, is captaining another
alliance, called Content Bridge, of which Digital Island is also a part.
Other companies in the alliance include America Online, Genuity, Adero, and
Mirror Image.

But it's too little and it might be too late, Mr. Seelig suggests. "We are
excited that there are people who want to put standards around content
delivery," he says. "We are happy to play a part in that discussion,
because such standards will help us put together a better product."

Content Bridge, however, is proposing a solution that Akamai is already
providing, Mr. Seelig adds. "The idea of a whole bunch of networks
connected is a great idea. We do that today. But the Content Bridge
initiative is just a press release and a Powerpoint presentation at this
time, while we are working with customers."

Many analysts believe that the competitors in alliances such as Content
Bridge will never be able to coordinate on issues of billing and customer
ownership. "It remains to be seen whether Content Bridge can offer services
that are attractive enough to pull in customers and benefits, rather than
just going with one company that takes care of all your needs," Mr. Hargil
explains. "When push comes to shove, Content Bridge will be difficult to
hold together because many competing companies will be fighting for
customers within."

With its stock down but its future bright, Akamai is a promising long-term
investment, although we'd recommend waiting to see what happens to the
stock, as the lockup expiration will create some uncertainty. If there is a
sell-off, that will create a tremendous buying opportunity. Akamai is in
command of a sector with growing demand and will be hard to beat as it
continues to increase its customer base while many of its competitors are
just joining the race.


1:48pm EST -- REDMOND, Wash. (AP) -- Paul Maritz, the brains behind many of Microsoft's operating systems and strategies, has become the latest Microsoft Corp. executive to retire, the company announced Thursday. Maritz, a 14-year veteran of the company, was group vice president of the Platforms Strategy and Development group at Microsoft. The 45-year-old will continue to serve as a consultant, the company said. ``During Paul's 14 years with Microsoft, he has played a key role in virtually ever major initiative, from the evolution of Windows and Office to the .NET strategy,'' company Chairman Bill Gates said. ``Paul's vision and technological insight has had a major impact not only on Microsoft but on the entire computer industry.'' During his tenure, Maritz, led the company's operating system strategy, urging Microsoft to part with IBM in 1990 and concentrate on developing Windows instead of IBM's OS/2. He also found himself on the witness stand last year in Microsoft's federal antitrust trial, forced to deny that he said he would ``cut off the air supply'' of Netscape Communications Corp. Maritz is only the latest executive to leave Microsoft over the past year. Other notable departures include former chief financial officer Greg Maffei, former research chief Nathan Myhrvold and longtime Windows chief Brad Silverberg. Vice president Sanjay Parthasarathy, who used to report to Maritz, will take on a new role to help bring third-party software developers on board with Microsoft initiatives. Parthasarathy will now report directly to chief executive officer Steve Ballmer.

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