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You're Wrong About Akamai -- Again

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For a few brief hours, tech was back, basking in the radiance of Hewlett-Packard's (NYSE: HPQ  ) better-than-expected report. But then dusk settled, and content-delivery king Akamai (Nasdaq: AKAM  ) told analysts that it would be cutting 7% of its workforce.


Bears will tell you that competition is killing Akamai. They'll argue that, in a weak economy, pricing trumps service. And they'll claim that there are simply too many alternatives to what Akamai offers, as if the company and peer Limelight Networks (Nasdaq: LLNW  ) can't handle an influx of new entrants -- AT&T (NYSE: T  ) and (Nasdaq: AMZN  ) , for example.

Amazon, in particular, is a cause for concern among some observers. This week, the company announced CloudFront, an Akamai-like CDN service for its cloud-computing clients. It's a very smart move. Firms that are renting processing power and storage space have a vested interest in delivering hosted code to end users quickly.

But does that make Amazon -- or, really, anyone who offers basic CDN service -- a mortal threat to Akamai, whose sturdy balance sheet features nearly $300 million in liquid assets? No. Industry watcher Dan Rayburn explains why in this recent blog post:

Today, they are going after different sized customers with very specific needs, who only need HTTP delivery. Sure, there are a lot of those kinds of customers out in the market but that is not who the major CDNs are going after. Akamai is not interested in your business unless you are doing a few grand a month. Limelight's minimum is a bit lower, but again, is not targeting a thousand-dollar-a-month customer. That's not to say that Amazon won't sign up larger customers, but that's not who the service is targeting.

Exactly. If bandwidth and hardware capacity were the only issues, if network design didn't matter, if software and services were irrelevant, then Akamai would have been dead long ago, killed by well-funded start-ups like BitGravity.

You're wrong, Mr. Market. Again. Akamai isn't going anywhere.

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Fool contributor Tim Beyers owned shares of Akamai at the time of publication. The Motley Fool's disclosure policy likes shortbread with its tea. And a spot of honey, too, if you don't mind.

Read/Post Comments (10) | Recommend This Article (14)

Comments from our Foolish Readers

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  • Report this Comment On November 21, 2008, at 3:02 PM, foolfanuno wrote:

    Nope, I don't agree. Other companies can do it cheaper and with equal or better service than Akamai in my opinion. People seem to be learning that as time goes on. Hey, what is the BitGravity comment about BTW. It looks like they are growing strategically and maybe doing exactly what you say they should have done already. Is it because they are not public? If you want to purchase stock in a pure CDN company, you only have 2 choices. I'm not putting my money there, though of the two Limelight seems to be getting newer business. Maybe I will just watch an online video and see how it goes.

  • Report this Comment On November 21, 2008, at 3:13 PM, TMFMileHigh wrote:

    Hi foolaruno. Thanks for writing and for your comments. But please be careful about presenting assertion as fact. This: "People seem to be learning that as time goes on," isn't supported by Akamai's superior margins, consistent customer adds, and growing ARPU. Skepticism is fine -- great, actually -- but breezy, unsupportable conclusions aren't Foolish. Thanks again, Tim

  • Report this Comment On November 21, 2008, at 11:32 PM, Internettech wrote:


    With all due respect it pains me to state this obvious case:

    This week Akamai stock dropped from $13 to a low of $9.48 today. Please be careful about presenting assertion as fact. In the last year it's dropped from a high of around $40 to a low of $9.48 today. We usually want the stock to rise.

    Reality check: the stock is continuing to trend lower

    Reality check: the company has just announced 110 people cut equal to 7% of global workforce

    Reality check: the headline "You're Wrong About Akamai -- Again" isn't going to change the trendline nor the overall bear market. The stock has not yet hit it's lowest point, when it does, it will start to trend higher for a week or longer. This recession is going to last at least a year if not three or four and effect Akamai's customers and have an impact on higher priced CDN purchases. I think the market is correct and people see the hype.

    Reality check; Akamai has 10 year old patent technology that is being replaced by newer faster router technology by Cisco and others vendors. One option CDN customers can consider: Why buy a low speed Akamai CDN when you can buy a monster edge router and cheap COLO bandwidth in multiple locations around the country; customers can do it themselves with built in Cisco CDN software!

    Take for example....they started out great and then activated Akamai and now the pages start to stall and get split between the text and the MISSING static graphics. This is a textbook CASE of a Akamai content server malfunction since they have the patent on splitting the text and the graphics on a webpage inside their CDN technology. This worked fine 10 years ago when the Internet was slow and you couldn't notice the malfunctions, but the method just isn't needed now which faster networks and technology. When the statics stall, the webpage fails to load completely and the viewer ends up leaving the website. It is not the Internet that causes this! It's an overloaded Akamai webserver and split static elements.

    Other CDNs from LimeLight Networks and BitGravity don't stall this way because they use newer technology and don't waste time spliting the content up like this.

    The Akamai server problem acts exactly the same way on the Washington Post's website.

    Reality check:

    Paul Sagan - the President and CEO sold 20,000 shares in 5/27/08 for $730,200

    Paul Sagan - the President and CEO sold 20,000 shares in 6/16/08 for $734,600

    Paul Sagan - the President and CEO sold 20,000 shares in 7/16/08 for $650,000

    I believe the Akamai CDN architecture model is coming under attack from all sides. I believe this is why the CEO sold so much stock earlier in the year. If he thought things were going to get better, he would've held the stock or certainly sold a lot less of it.

    Cisco introduced the ASR 9000 on November 11th which offers up to 6.4 terabits per second (Tbps) per edge router which is exactly were Akamai's servers sit at the ISP. A single Akamai server with a 1 or 10 Gbit/s ethernet card is not going to compete with a 6400 Gbit/s (=6.4 Tbit/s) edge router which can have CDN software running in memory and 400 Gbits per line card with four 100 Gbit ethernet interfaces.



    On November 11, 2008 I wrote after one other Akamai Fool article:

    Today November 11, Cisco introduces a killer edge router to replace any and all "slowdown" at the edge. The ASR 9000 is built to handle 400 Gbit/s of traffic per slot. Yes that's per slot (four 100 gigabit interfaces per slot). There is absolutely no need for Akamai content management when a standard edge router can handle that kind of speed. This likely means that the CRS-1 which was the fastest router Cisco made until today at 40Gbits/s per slot with a 92 terabit/s(=92,000Gbits/s) will likely get a speed bump per slot in the core of the ISP network early next year.

    It looks like Akamai would be smart to immediately shift away from website content management and their aging DNS architecture and aging colocated content servers and just do advertisement delivery/managment in the future (building on their recent purchase).

    If you add this announcement to Amazon's, Microsoft's, ATT's, Level 3s, and Google's announced cloud computing/hosting build outs, it doesn't bode well for Akamai's business model when the Internet has this level of cloud hardware so close to the network edge.

    As result of this Cisco product introduction as well as other new products from other vendors, I believe Akamai stock is headed lower to around 6 over the next six months where it will stay until this market recovers.

    And would Akamai please do a better job of managing their inverse addressing in their distributed DNS servers, it's really a pain to have dig out the IPs when their broken servers hang and have to look up the IP number at for Cyberdefense.

    To get the Sprint carrier build out perspective on importance of the Cisco CRS-1 see:

  • Report this Comment On November 27, 2008, at 6:46 AM, aber1911 wrote:

    Hi Internettech

    thanks a lot indeed for the post

    if Tim B. can't convice me otherwise , i will think about to drop akam

    all the best

  • Report this Comment On December 01, 2008, at 1:08 AM, gmuthalaly wrote:

    Akamai burned my hands..dumped it...

  • Report this Comment On December 01, 2008, at 10:19 AM, aber1911 wrote:

    me too

    i've seen the news on infn and internet 2.0 speed, so..

    Just sell akam today (i wish i had done this last friday :-( )

  • Report this Comment On December 01, 2008, at 2:03 PM, TMFMileHigh wrote:

    Hello Internettech. Thanks for commenting but, with due respect, the numbers simply don't support your thesis. Selling prices are rising, not falling. The customer count is rising, not falling. And Microsoft is an Akamai partner in delivering bufferless HD video (

    In short: It is simply *wrong* to imply that Akamai has 10-year-old technology that has never been improved. And it's specious to point to Sagan's stock sales as evidence of a lack of confidence. Every one of those sales was conducted under the purview of a 10b5-1 trading plan where he had zero control over timing.

    There's nothing in what you've written -- here or elsewhere -- that convinces me I should sell. To the contrary; Akamai's financial performance, partnerships, market position, and balance sheet make it a very compelling Rule Breaker.

    Thanks and Foolish best, Tim (TMFMileHigh)

  • Report this Comment On December 02, 2008, at 4:56 PM, Kudude wrote:

    how can two apparently well informed fools reach such diametrically opposed conclusions?

  • Report this Comment On December 03, 2008, at 12:08 AM, TMFMileHigh wrote:

    Hello 6200High. Fair question but ... Aren't such disagreements the very essence of the stock market? Buyers need sellers and vice versa.

    Foolish best, Tim (TMFMileHigh)

  • Report this Comment On December 06, 2008, at 7:02 PM, Internettech wrote:


    With all due respect, even Berkshire is down in this market. Maybe Rule Breakers can't always break the rules in down markets. This company is facing a much more competitive market with much bigger players who have much deeper pockets and who can compete heavily in the next two years while we are in this recession. And they will compete on price and stability.

    I'm sure Akamai has improved on the 10 year old technology. However as long as they keep splitting the graphics from the HTML code (where they host the graphics and static elements on the Akamai network and the customer's servers hosts the html code) web surfers will get split webpage stalls and missing element pages when the local ISP Akamai servers get overloaded. They have a patent on this so you can always tell when the Akamai servers aren't working correctly. If they had a load balanced server solution and no split html/graphics the backup server would push out the pages correctly and take up the slack. They regularly host many large domains on single IP numbers on a local server and if one domain has a surge all the other domains suffer split as well. In previous posts I've described how to test for this and see the ripple effect.

    The need for this specious :-)

    The normal web method of hosting invented by Tim Berners-Lee of keeping the webpage together from source to destination allows any problems in the ISP networks to be seen and fixed rapidly. The complete webpage can still be distributed on a content management network as a total entity with load balancing, which is what all the new players and larger entrants are doing or going to do. The ISP networks are much better then they were 10 years ago and the routers have more memory and CPUs that can have up to 80 64bit cores per blade and can't be compared that to a single 10 year old Pentium II speed cpu.

    I believe Akamai should focus on the advertising vertical over the next two years because if an ad gets dropped out of a page most times the page can still be viewed. And ads are much smaller.

    And finally as I've said before if Akamai correctly identified their inverse DNS entries it would be obvious where the problem were occurring and they would be easier to identify and fix. One has to look up the hung up IP number at to see that it's an Akamai problem. They need to label their DNS inverse addresses on the /24 IP blocks they get from the ISPs and then they will appear correctly as Akamai servers in's free Currports software. This is very important for CYBERDEFENSE because it can be time consuming to ISPs to identify these servers when a network is under attack.

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