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You’ll Never Guess Which Company Is Cashing In On Facebook’s Growth

By Tim Beyers – Oct 21, 2014 at 7:00PM

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The social network turns to old technology to handle the media demands of billions of users.

Facebook (META 2.53%) processes more than 600 terabytes of data daily. That's up from 500 TB daily in 2012, a 20% increase in two years. Growing reliance on social media and the popularity of Facebook for advertising suggests the strain is going to get worse before it gets better.

"In the last year, the warehouse has seen a 3x growth in the amount of data stored. Given this growth trajectory, storage efficiency is and will continue to be a focus for our warehouse infrastructure," wrote Facebook engineers Pamela Vagata and Kevin Wilfong in a blog post about six months ago.

How big a risk is this rushing flood of data? Not very, it turns out. Facebook is managing at least some its growth via outsourcing, and you can count Akamai Technologies (AKAM -1.48%) among its partners.

Making a living off easy pickings
You'll find the evidence on brand pages. Here's a recent example taken from the brand page for The CW television show Arrow, a personal favorite of mine. Click through to the specific URL for photos and you'll often see Akamai mentioned:

Over at the Facebook page for The CW's Arrow, you'll find Akamai hosting the latest HD images.

Plenty more pages have links like this. Here's a promo shot for In-N-Out Burger. Or how about this movie poster for Kingsman: The Secret Service? Akamai is serving both images for Facebook, leaving the social network's data warehouse with extra capacity for handling dynamic content.

A proud (and profitable!) legacy
Longtime Akamai investors will recognize this as the company's legacy business. Today, it falls under the category of "media delivery solutions." The division accounted for 45.4% of second-quarter revenue, according to transcripts and data supplied by S&P Capital IQ.

"Our media delivery solutions revenue was $216 million in the quarter, up 1% sequentially and up 20% year-over-year. As [CEO and co-founder] Tom [Leighton] mentioned, we are very pleased with the growth in media coming off a very strong first quarter. Traffic and revenue growth accelerated across most of our customer base, with particularly strong growth coming from our gaming, video and social media customers," Chief Financial Officer Jim Benson said in the latest earnings call.

Facebook isn't mentioned by name, but there are only so many big-name networks with serious traffic management needs. An email to Akamai seeking comment on the relationship wasn't answered as of this writing. In a way, that's understandable. Akamai has taken great pains to remind us that its business has moved beyond the days of hosting static images and video.

A new Akamai, not so different from the old
Newer services include Kona Site Defender for enhancing network security directly in the cloud. Akamai also has a partnership with Riverbed Technology (RVBD.DL) for accelerated use of Office 365 and applications. Longer term, CEO and co-founder Tom Leighton sees the company embedding software directly in devices for accelerating network content from its point of origin. The Facebook deal looks like a holdover by comparison.

But is that really so bad? More than two decades after helping pioneer the idea of caching static content to improve network performance, the biggest and most innovative names in tech haven't come up with a better way. Till they do, investors can be assured that Akamai's network will be delivering much of the Internet content we've come to know and love.

Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Riverbed Technology and at the time of publication. Check out Tim's web home and portfolio holdings or connect with him on Google+Tumblr, or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool recommends Facebook and The Motley Fool owns shares of Facebook and Riverbed Technology. 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.

Stocks Mentioned

Akamai Technologies Stock Quote
Akamai Technologies
$93.79 (-1.48%) $-1.41
Riverbed Technology, Inc. Stock Quote
Riverbed Technology, Inc.
Meta Platforms Stock Quote
Meta Platforms
$123.49 (2.53%) $3.05

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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