Akamai: First Sue, Then Buy

Tiny Israeli start-up Cotendo -- $39 million raised from venture capitalists so far -- has been a thorn in the side of much larger Akamai (Nasdaq: AKAM  ) and its $5 billion market cap since it entered the content-delivery network market in 2008. By charging customers half of what Akamai charged, Cotendo kept whittling away at the larger company's market share, causing the industry's 900-pound gorilla to try to squash the pest.

Akamai then did what it has done successfully in the past: Once a company becomes competitive, Akamai sues it for patent infringement. In the early 2000s, Akamai went after content-delivery companies Digital Island and Speedera Networks. After wearing Speedera down, Akamai bought it.

Last year, Akamai sued Cotendo, and now -- according to reports originating over the weekend in Israel's Globes -- Akamai is competing with Juniper Networks (Nasdaq: JPNR  ) and AT&T (NYSE: T  ) to buy it. Juniper has previously contributed in a round of private financing for the company, and AT&T has signed a four-year, $30 million distribution deal with Cotendo.

But now, another Israeli news site, Calcalist, says that Cotendo and Akamai are working on a deal worth more than $300 million.

Heavy lies the head that wears the crown
In the competitive world of content-delivery services, speed is king, and what Cotendo has that so interests its suitors are products that can speed up websites and the delivery of streaming video. But there is another aspect of this possible acquisition that bears considering: turf.

Even though Akamai is the largest content-delivery provider in the world, it is sensing a consolidation that could threaten its position as industry behemoth. Limelight Networks (Nasdaq: LLNW  ) and Level 3 (Nasdaq: LVLT  ) have been rumored for months to be merging, and if AT&T uses its deal with Cotendo to get deep into the CDN business, Akamai's crown could start feeling a bit heavier.

As yet, no deal has been officially announced, but you can keep track of what's happening with Akamai and the other companies mentioned here by putting them on your personalized version of the Fool's My Watchlist service:

Fool contributor Dan Radovsky owns shares of AT&T. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On November 29, 2011, at 9:56 PM, DanRayburn wrote:

    I don't get why so many bloggers can't seem to get their info right about Cotendo and keep re-hashing innacurate data.

    Cotendo does not offer any services for the delivery of streaming media. They never have. No where on their website, even on their CDN product page, do they even mention the word "video". http://www.cotendo.com/services/CDN/. They are not in the video CDN business.

    Saying that Cotendo has "products that can speed up the delivery of streaming video" is simply wrong. They don't. They are not being compared to Akamai for video delivery, they are being compared to Akamai for products and services like DSA and application acceleration, amongst others, which have nothing to do with video.

    Cotendo does not charge customers "half of what Akamai charges." Members of the media keep saying that, but where is the data to back it up? Can someone please provide a source? On average, based on dozens of contracts I have seen, Cotendo is 25-30% less than Akamai for services like DSA. But not 50% and members of the media who keep saying that are doing so just to try and make it sound like Akamai is struggling more than they really are.

    AT&T went on record to say they could charge customers 50% less than what Akamai charges today, but not Cotendo. http://bit.ly/9zTh7w

  • Report this Comment On December 04, 2011, at 7:00 PM, XMFDRadovsky wrote:

    Hello Dan,

    Thank you for your comments and information. I got the "half of what Akamai charges" from the Globes news account:

    http://www.globes.co.il/serveen/globes/docview.asp?did=10007...

    It would have been more accurate for me to say that Cotendo offers products that can speed up the delivery of content, which could include streaming video.

    Dan

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