Is Akamai Going to Buy ALL of its Competitors? (AKAM)
OK, so that headline is a little bit facetious -- but you can't blame a guy for wondering. Akamai (AKAM) bought their biggest competitor, Speedera, a couple years ago, and since then they've been on what I think is fair to call a "strategic acquisition binge."
First was the pickup of Nine Systems, which helped Akamai build out capability in video serving (though the big name here, YouTube, has gone with Akamai's upstart competitor Limelight).
And just this week, Akamai announced that it is picking up Netli, one of the companies I specifically mentioned as a competitive threat when I wrote about AKAM last fall. Netli's strength is in application serving, so this should help Akamai increase its presence in the "software as service" markets, providing reliable and fast access to the important web-based applications that are increasingly relied upon by corporations, even though AKAM doesn't expect much impact on the bottom line from Netli right away. (At least these two smallish acquisitions shouldn't cause the kind of headaches that Speedera did, with the weakened margins and short-term cost issues that deal brought to the table.)
So what's next? Kontiki has already been acquired by Verisign. Mirror Image Internet is probably too tiny and is already owned by Xcelera (and in a patent dispute with Speedera). Radiance Technologies seems to offer a similar product, but is so teensy (less than one hundredth of Akamai's sales) that I'm not sure what the point would be. Some other tiny software companies like Resonate are in this space, but I can't say I really understand what differentiates all of them.
It's hard to see how most of the download-speeding-software companies like Akimbo would offer anything that Akamai doesn't already provide, and upload-enablers like On2 likewise could possibly be useful, but as far as I can tell they're essentially providers of compression software and don't seem to offer anything compelling that Akamai doesn't already have. Little fish accelerator providers like Propel don't seem to be swimming in the same waters as Akamai, with their offerings for dial-up modem users.
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I don't expect they'd significantly alter their strategy by acquiring one of the peer-to-peer enablers like Brilliant Digital Entertainment or BitTorrent, though BitTorrent is often mentioned as one of the biggest threats to Akamai's future. More mainstream data hosters like SAVVIS and physical server farm managers like Equinix aren't really in the same kind of high-margin optimization business as Akamai, nor is Network Appliance with its hardware offerings in this space. I guess they could always acquire a fiber network to build out their own physical capacity, such as Globix might provide, but owning underground cables doesn't really help provide Akamai with any new proprietary capabilities.
Really, I'm not aware of any other big competitors out there that Akamai might take over, aside from Limelight -- and perhaps that's the point. With a stratospheric evaluation that only looks reasonable if you foresee some serious growth ahead, Akamai really needs to keep a handle on their space and remain the dominant provider. Thanks to strong relationships with a wide swath of customers and ISPs, these strategic acquisitions that have strengthened their capabilities in the growth areas of internet video and application delivery, and a huge physical advantage with their international network of servers, I remain somewhat confident that they'll continue to deserve this valuation.
Especially if they run out of competitors.
Akamai reports earnings tomorrow, and with the surge in share price in recent months I expect we'll need to see significant outperformance and a very rosy outlook for any additional bump in the shares -- which is certainly possible, as at least one analyst thinks a surge in online shopping in the fourth quarter might help Akamai surprise signficantly on the upside. The AP quotes Duetsche Bank analyst Todd Raker as saying, "According to our checks Akamai provides content delivery services to 13 of the top 20 most visited Web sites on the Internet. Increased traffic to these sites is likely to add to top line growth." I'll look forward to hearing from the company.
disclosure: I own shares of Akamai, and don't plan to buy or sell in the near future.
First was the pickup of Nine Systems, which helped Akamai build out capability in video serving (though the big name here, YouTube, has gone with Akamai's upstart competitor Limelight).
And just this week, Akamai announced that it is picking up Netli, one of the companies I specifically mentioned as a competitive threat when I wrote about AKAM last fall. Netli's strength is in application serving, so this should help Akamai increase its presence in the "software as service" markets, providing reliable and fast access to the important web-based applications that are increasingly relied upon by corporations, even though AKAM doesn't expect much impact on the bottom line from Netli right away. (At least these two smallish acquisitions shouldn't cause the kind of headaches that Speedera did, with the weakened margins and short-term cost issues that deal brought to the table.)
So what's next? Kontiki has already been acquired by Verisign. Mirror Image Internet is probably too tiny and is already owned by Xcelera (and in a patent dispute with Speedera). Radiance Technologies seems to offer a similar product, but is so teensy (less than one hundredth of Akamai's sales) that I'm not sure what the point would be. Some other tiny software companies like Resonate are in this space, but I can't say I really understand what differentiates all of them.
It's hard to see how most of the download-speeding-software companies like Akimbo would offer anything that Akamai doesn't already provide, and upload-enablers like On2 likewise could possibly be useful, but as far as I can tell they're essentially providers of compression software and don't seem to offer anything compelling that Akamai doesn't already have. Little fish accelerator providers like Propel don't seem to be swimming in the same waters as Akamai, with their offerings for dial-up modem users.
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I don't expect they'd significantly alter their strategy by acquiring one of the peer-to-peer enablers like Brilliant Digital Entertainment or BitTorrent, though BitTorrent is often mentioned as one of the biggest threats to Akamai's future. More mainstream data hosters like SAVVIS and physical server farm managers like Equinix aren't really in the same kind of high-margin optimization business as Akamai, nor is Network Appliance with its hardware offerings in this space. I guess they could always acquire a fiber network to build out their own physical capacity, such as Globix might provide, but owning underground cables doesn't really help provide Akamai with any new proprietary capabilities.
Really, I'm not aware of any other big competitors out there that Akamai might take over, aside from Limelight -- and perhaps that's the point. With a stratospheric evaluation that only looks reasonable if you foresee some serious growth ahead, Akamai really needs to keep a handle on their space and remain the dominant provider. Thanks to strong relationships with a wide swath of customers and ISPs, these strategic acquisitions that have strengthened their capabilities in the growth areas of internet video and application delivery, and a huge physical advantage with their international network of servers, I remain somewhat confident that they'll continue to deserve this valuation.
Especially if they run out of competitors.
Akamai reports earnings tomorrow, and with the surge in share price in recent months I expect we'll need to see significant outperformance and a very rosy outlook for any additional bump in the shares -- which is certainly possible, as at least one analyst thinks a surge in online shopping in the fourth quarter might help Akamai surprise signficantly on the upside. The AP quotes Duetsche Bank analyst Todd Raker as saying, "According to our checks Akamai provides content delivery services to 13 of the top 20 most visited Web sites on the Internet. Increased traffic to these sites is likely to add to top line growth." I'll look forward to hearing from the company.
disclosure: I own shares of Akamai, and don't plan to buy or sell in the near future.
Labels: AKAM
This article posted by One Guy @ 2/06/2007 10:45:00 AM 4 comments
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