AT&T Aims for Akamai

AT&T (NYSE: T  ) thinks it can beat Akamai (Nasdaq: AKAM  ) at its own game. Quoting from yesterday morning's announcement:

AT&T ... today announced a suite of content delivery and digital media solutions to help companies package, deliver and distribute video and rich multimedia Web content across their networks to the three screens that are core to AT&T's multimedia strategy -- the computer, the television and mobile computing devices such as the iPhone and the BlackBerry.

Sounds sexy. TV on my iPhone? Woo hoo!

Here's the problem, Fool. AT&T's content delivery network (CDN) -- which has been around for years but only now is being built out -- is aiming at rich media, just as Limelight (Nasdaq: LLNW  ) , Level 3 (Nasdaq: LVLT  ) , EdgeCast, and BitGravity all are.

Akamai should be worried because these and other networks are "optimized for video?" Ooooooooooo, scary.

I don't mean to be sarcastic here -- well OK, yes, I do mean to be -- but does anyone else notice that Akamai is zagging as others zig, as you'd expect from a Rule Breaker? Who else is emphasizing application delivery and software-as-a-service, for example?

Industry watcher Dan Rayburn has it right, I think. Quoting from his blog post of today:

The idea that AT&T is going to put any of the other CDNs out of business or grab a lot of market share anytime soon, will not happen. That's not my opinion, it's fact, based on their current product offering and the amount of time it takes to really build out a competitive service. Could AT&T be a real competitor sometime next year? Yes. But to what degree, with what level of service, in what vertical markets and with how robust of an offering we don't know, and won't for a long time.

I'll add that investors ought to remember why AT&T is doing this. Its network pricing is eroding. Fast. Growth, therefore, must come from added services. Services like, you know, TV for your iPhone.

Content delivery isn't a competency for AT&T as it is for Limelight, Level 3, and the smaller specialists. Wake me when Ma Bell buys one of them. That's when I'll start to worry.

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Fool contributor Tim Beyers owned shares of Akamai at the time of publication. He's also a member of the Rule Breakers team. You can find the rest of Tim's portfolio and his latest blog entry. The Motley Fool has a market-beating disclosure policy.

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  • Report this Comment On June 25, 2008, at 9:17 PM, newtonke wrote:

    CDN's are very competitive, though not necessarily with each other than with the challenges their customers and the market drive them to. AT&T is a more traditional player than Akamai, so how they expect to compete from a cost perspective is beyond me. I wouldn't call BitGravity a 'smaller' player. I would say that they are much more competitive because of how new their technology and approach is. That, along with their lack of corporate baggage is why they will be driving the market, not the 'biggies'

  • Report this Comment On May 20, 2009, at 2:26 PM, ccie5000 wrote:

    Akamai Technologies (AKAM) is the dominant player in small object CDN, which is mostly web acceleration. Small object currently represents 80% of the CDN market.

    However, large object CDN - mostly video - is growing very quickly, and generating most of the excitement in the CDN market. If you believe the future is people watching whatever they want, whenever they want, you probably also recognize that content will be stored somewhere on the Internet.

    According to Jim Crowe, CEO of Level 3 Communications (LVLT), 60+% of the cost of delivering large object CDN is network cost, 25% is servers and storage, and the rest is in smart software that decides where and when to store the video based on who has viewed them, and when.

    Without a network of it's own, Akamai is essentially a value-added reseller of network bandwidth. Will they be able to compete in the large object CDN market with facilities-based companies such as Level 3 and AT&T (T), or will they get squeezed out of the market? How many non-facilities-based DSL companies are still in that business?

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