One of the great worries with Rule Breakers pick Akamai Technologies (NASDAQ:AKAM) is competition. Last week brought more potentially bad news, when rival  Limelight Networks, which Akamai is suing for patent infringement, filed for an IPO that could raise $201 million.

This isn't even remotely a surprise -- the filing was entirely expected. My worry is that Limelight is building a war chest that could help it to compete successfully with Akamai.

But "could" is the key word there. My read of the prospectus is that Limelight is competing on price and distribution, both of which demand capital. Let's start with price. Here's a side-by-side look at gross margin for both Limelight and Akamai over the past thee years:













Source: Capital IQ, SEC filings

Notice the difference. I've little doubt that Limelight is drastically cutting prices to win business from the likes of MSNBC and Viacom (NYSE:VIA). But it may have to. Even with more than 700 customers, the top 10 on Limelight's roster accounted for 58% of its 2006 revenue.

Then there's distribution, which is being fueled by Limelight's extraordinary capital spending. More than $19 million for depreciation and stock-based compensation relating to its network services helped transform a $400,000 profit in 2005 into a $3.7 million loss for 2006.

Akamai went through a similar spending spree from 1999 to 2002. Limelight, for its part, appears bent on accelerating the process by taking a more centralized approach in the design and development of its network. I'm not sure that will make much of a difference, which is why I'm not yet calling Limelight a dire threat.

Nonetheless, $200 million in fresh capital will have an impact. Among other things, Limelight will have the funds to retire all its debt, make network improvements, and hire new staff. In short, everything required to make this once-cold war very, very hot.

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Fool contributor Tim Beyers, who is ranked 1,906 out of more than 25,000 in our Motley Fool CAPS investor-intelligence database, owns shares of Akamai. All of his portfolio holdings can be found at Tim's Fool profile. His thoughts on Foolishness and investing may be found in his blog. The Motley Fool's disclosure policy weaves a web of accountability.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.