The Internet is a study in operational chaos. Create a network of interconnected systems so vast and distributed, and without a command and control center, and you'd have the makings of a communications system capable of connecting the entire world. Or at least that was the theory in the mid-1970s when the Internet grew from a university-level project to something much larger.
Fast forward two decades. What had just been the Internet grew to become the World Wide Web, yet inefficiency remained. Bottlenecks emerged that prevented too many web pages from loading quickly. Akamai (NASDAQ:AKAM) set out to solve that problem upon its founding in 1998.
The case for Akamai
The years since have brought tremendous growth to Akamai and most but not all of its stakeholders. Certainly, early investors haven't recovered from the stock stock's precipitous drop from IPO highs.
Nevertheless, our ratings show the company scores well above average in serving constituents. Perhaps that's because there's a sense of history and duty at work at Akamai?
Current CEO Tom Leighton, who took over for longtime CEO Paul Sagan in January, is a co-founder. He created Akamai while still a professor at MIT with help from graduate student Danny Lewin. A 1999 IPO made both men rich (temporarily, at least) but Lewin, one of the more than 3,000 killed during the 9/11 terror attacks of 2001, wouldn't live long enough to enjoy it. In both Leighton and Sagan, and many more, there exists a desire to create an enduring company that's at least partly a tribute to Lewin.
Employees are inspired by the company's mission, close teamwork, and generous benefits. An unlimited vacation policy mirrors that of Netflix and The Motley Fool. "Akamai is in a better position than ever to tackle some very interesting and challenging problems in the next few years. There is a renewed sense of innovation in the Engineering organization and hiring has significantly increased and improved in quality recently compared to several years ago," said one employee in a December review posted at Glassdoor.
Akamai needs as much talent as it can get. Why? Web content delivery isn't an easy business. Upstarts as well as established network operators such as Level 3 Communications use the bruising power of price cuts to win the right to distribute software, apps, video, and yes, web pages on behalf of clients. Others, such as Netflix, have determined to create their own content delivery systems instead of paying an outsider.
To compensate, Akamai has focused on creating and acquiring new products that fill either unserved (or underserved) niches. The company classifies these products, such as Kona Site Defender for stiff-arming web attacks, as "cloud infrastructure." More than 58% of revenue results from sales of cloud infrastructure products and services.
Sales have grown considerably over Akamai's history. But ask any two investors if they've made money owning shares of Akamai and you're likely to get two different answers. Those who bought when the stock fell under $1 a share in 2002 are sitting on a multibagger, while those who bought at the IPO are still waiting for profits a decade later.
And yet management does try its best to give shareholders what they need. An annual investor summit provides important insights about the business and strategy. Akamai webcast the 2011 confab, which you can find here. The company postponed last year's gathering to give Leighton time to settle into the top job before facing analysts and investors.
Akamai's quest for efficiency reaches beyond better uses of Internet bandwidth. The company is also a staunch supporter of efforts to reduce the environmental impact of data centers, which becomes huge when you consider how much power they demand for pushing bits and bytes across the globe.
Since 2009, Akamai has worked to increase the efficiency of its 100,000-plus server network expressly for the purpose of consuming power more efficiently (and cutting carbon emissions in the process). "Carbon intensity," a measure that reflects the Akamai network's need for power, is down roughly 75% over that period.
Risks to consider
While Akamai is a leader in its field, there is also no shortage of competitors. Innovation hasn't always been the company's answer to new rivals. More often, it has chosen to buy out competitors at a premium and absorb the technology as fast as possible.
Both Cisco Systems and Oracle have employed a similar strategy but with mixed results: Cisco has been a net loser to the market over the past three years, Oracle has proven to be a slight winner over the same period. Akamai, too, has outperformed, but not without putting investors through a fair amount of stomach-churning volatility. This stock isn't for the faint of heart.
The Foolish bottom line
Akamai is one of a rare breed of dot-com survivors that's gone on to thrive. I'm happy to see it. Not only was I a shareholder for many years, but I'm still a close follower of the business and a fan of the management team, who I believe deserve the high ratings they get from employees.
If you believe that most software and entertainment is going to be delivered rather than installed or inserted into a drive, then yes, Akamai's technology is essential stuff when it comes to making the Web work. That isn't likely to change soon.
Fool contributor Tim Beyers owns shares of Netflix. Tim Beyers has the following options: Long Jan 2014 $50 calls on Netflix. The Motley Fool recommends Netflix. The Motley Fool owns shares of Netflix. Try any of our Foolish newsletter services free for 30 days. 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 has a disclosure policy.