Unless you've Rip Van Winkled the past two weeks away in a cave somewhere, you probably know shares of Akamai Technologies (Nasdaq: AKAM) are down roughly 8% so far this month.

I'm not so sure the fall is justified. But even if it is, the skeptics are shorting Akamai for the wrong reasons.

Down goes Akamai!
More on that in a minute. First, let's review what's happened. Netflix (Nasdaq: NFLX) helped cause traders to dump Akamai when it confirmed a three-year web video delivery deal with Level 3 Communications (Nasdaq: LVLT). Industry analyst Dan Rayburn was first to report the news, writing that performance issues with its content delivery network (CDN) were partially responsible for Akamai losing some business to Level 3.

Since then, spokespersons for Akamai and Netflix have denied performance issues exist. No matter. Earlier this week, an Oppenheimer analyst downgraded both Akamai and peer Limelight Networks (Nasdaq: LLNW).

Foolish investor ShutTheFrontDoor foresaw the carnage in explaining a short call on Akamai in Motley Fool CAPS late last month:

Akamai has been nothing but hype since day one of this rally. Every bullish argument for this company has started with the word 'streaming'. Streaming is great and all, but for 60 times earnings I would sure as hell like to see some of that explosive growth show up in Akamai's numbers and so far they haven't. This is a 35, maybe 40 P/E stock at best but it's trading like the next Microsoft right now.

Not every bullish call, Fool. "Streaming" is a red herring in this case, and bears have wrongly pointed to tough CDN competition from Limelight and Level 3 as reason enough to short Akamai's stock.

Some skeptics border on the ridiculous. In particular, I'm thinking of a screed from CAPS member Trefis that suggests Netflix's decision to hire Level 3 will lead to broader pricing concerns and result in "lower revenues per customer."

Please. Like Akamai hasn't experienced pricing pressure in its legacy CDN business before? Why else would gross margin have dropped from more than 80% in 2005 to 73% today? What other reason would there have been for Apple (Nasdaq: AAPL) to slice off a piece of its CDN business for Limelight last year? Average revenue per customer has bounced around for years, in part due to acquisitions.

By overemphasizing Netflix, bears are ignoring an important truth: Value-added services matter more than video to Akamai. They account for more than half of revenue and the majority of its high-margin offerings.

That's why the company had no choice but to sue Cotendo.

Knocked down, but not out
Value-added content delivery services are those built to deliver sensitive, dynamically generated data over the web securely. Think of e-commerce transactions or an advertisement matched the content being viewed.

Corporate software also fits into this category. If you use a browser to file customer information into a database, you need that data delivered fast and securely. Akamai's algorithm-driven network provides a layer of protection the web can't offer on its own.

None of this is easy to do. Delivering data that change is very different from delivering well-defined video files or web pages. Most informational and entertainment content is static enough to be stored, or "cached," in a server local to you.

Transactional content doesn't operate this way. There's always a source (e.g., your browser) and a destination (e.g., the aforementioned database). Complexity ensues whenever more than one point, or "node" in network-speak, becomes involved.

Akamai simplifies the process by identifying servers close to each end point and creating bypass lane between the two, on the fly, hosted on Akamai's servers. (Rayburn has a more detailed description of the service here.)

In its lawsuit, Akamai says Cotendo's offerings are a little too similar. Techies and lawyers will determine whether the company is right, but there's no arguing Cotendo's success. Google (Nasdaq: GOOG) has partnered with the start-up for the express purpose of accelerating the delivery of cloud computing data.

The two companies are cooperating around the mod_pagespeed open-source project that optimizes the handling of certain routines for cloud computing, such as executing JavaScript inside a browser. Combine this with a CDN like Cotendo's, and you have what could be a viable alternative to Akamai's application acceleration offering.

Still worried about Netflix, Fool?

Here's my point. For as much as the Netflix story makes for good headlines, Akamai is suing Cotendo because it represents a legitimate threat to the underlying business. Fortunately, the company has had success in prosecuting cases.

Former rival Speedera suffered the wrath of its legal eagles before being acquired by Akamai in 2005. And while its patent wrangling with Limelight hasn't resulted in a court victory, this once-formidable foe doesn't look nearly as big a threat to Akamai as it once did. With Cotendo, I'm expecting more of the same.

Now it's your turn to weigh in. Do you think Akamai is right to pursue Cotendo? Would you short the stock? Go long? Let us know what you think using the comments box below. You can also respond to Tim directly by sending him an email, or replying to him on Twitter.

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Fool contributor Tim Beyers is a member of the Rule Breakers stock-picking team. He's been covering Akamai for seven years and has owned shares for most of that time. He also had stock and options positions in Apple and a stock position in Google at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool owns shares of Apple, Google, and Microsoft and is also on Twitter as @TheMotleyFool. Its disclosure policy is as brilliant as it can be.