Akamai's (NASDAQ:AKAM) core business is hosting customers' web content on its global network of servers to increase delivery speeds to consumers and reduce network traffic. Recently, this business has been performing brilliantly for Akamai, with 23% year-over-year revenue growth in the most recent quarter. But, Akamai has additional ambitions and plans for growth.
Unlike its consumer-facing business, Akamai has, so far, failed to make much progress inside the enterprise world and within corporate networks. But, a partnership with enterprise stalwart Cisco (NASDAQ:CSCO) that was announced last year has resulted in a product, called Akamai Connect, that became available in April. Will this new product and partnership with Cisco give Akamai a shot at the huge enterprise opportunity?
What have Cisco and Akamai built?
Basically, Akamai Connect puts Akamai's software onto Cisco's ISR-AX branch routers, which provide Internet access for branch offices, retail stores, or locations such as hospitals and libraries. This product brings Akamai's content delivery optimization into the branch office and allows resources from the Internet and the company WAN to be delivered at LAN-like speeds.
The basic technology underlying Akamai Connect is caching, which allows popular content to be stored locally, rather than retrieved repeatedly from across the Internet. Similarly, Akamai Connect allows IT managers to preload certain content, such as training videos or large sales catalogs, during times that the network is not used heavily.
Will this catch on with enterprise?
Akamai Connect will initially be sold with an add-on software license, and it will take time to see which enterprises find the proposition compelling. But, the problem of congested last-mile networks that Akamai Connect is addressing is real, as are the benefits that it should offer.
A Cisco white paper describing Akamai Connect shows that the new technology can cut the delivery time for a large document, such as a catalog, from around a minute to under a second. Depending on where Akamai Connect is used, such faster connections could lead to increased revenue, happier customers, or more productive workers. In addition, because the content is being served locally, this would mean reduced network costs over time.
Certain enterprises have privacy and security concerns about storing their content on cloud services such as Akamai's content delivery network. But, this issue does not apply with Akamai Connect, which sits on Cisco's routers and inside the customer's branch office, as the schematic on the left shows.
How big of an opportunity is this for Akamai?
Since Akamai Connect is essentially the first product in a new market, it's hard to know how valuable it might be for Akamai. But, the overall enterprise router market can serve as an upper bound. According to IDC, this market was growing in 2013 and was worth approximately $4 billion. Even a small fraction of this could make a meaningful addition to Akamai's yearly revenue, which was $1.56 billion in 2013.
The current version of the product sells with a stand-alone license, and doesn't require any kind of subscription to Akamai's content delivery network. However, it's easy to see that success with Connect might open new doors for Akamai, and might eventually drive additional growth of its healthy core business.
The bottom line
Akamai has seen a lot of growth in its core content-delivery-network business. Now, in a partnership with Cisco, Akamai has introduced a product called Akamai Connect, which might represent a large opportunity in enterprise networks. While Akamai Connect is a new and unprecedented product, the benefits it promises to customers suggest it will help Akamai drive growth even further.
Srdjan Bejakovic has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems. 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.
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