Good news, Akamai
Anders Bylund's got all the numbers for you. I'm writing today because I think it's time we paused, took a deep breath, and looked at Akamai's long-term strategy for winning.
What Fools say
Most of you are bullish, especially our Rule Breakers subscribers and those of you following Akamai in our 120,000-strong Motley Fool CAPS community:
Metric |
|
---|---|
CAPS stars (out of 5) |
**** |
Total ratings |
2,351 |
Bullish ratings |
2,248 |
Percent bulls |
95.6% |
Bearish ratings |
103 |
Percent bears |
4.4% |
Bullish pitches |
356 |
Bearish pitches |
16 |
Data current as of Oct. 31, 2008.
"Helps Internet companies optimize massive bandwidth usage," writes CAPS investor rfaramir. "Apple's
That "many" includes Microsoft
Akamai detractor Internettech still isn't impressed:
Both Level 3
(NASDAQ:LVLT) and AT&T(NYSE:T) have recently deployed new working content management networks that are in place and will be getting customer wins happily with prices that are half of what Akamai charges. The difference is that they are both running global networks alongside the CDNs which Akamai does not. Moreover, they have deeper pockets to invest in the new faster, emerging hardware.
There's logic in that argument. When you own the backbone, you can drive costs out of the infrastructure and offer very cheap service. That certainly would kill Akamai -- if the company offered nothing more than content delivery.
What management says
Fortunately, that's not the case. Akamai also provides tools for clients hoping to earn more from their Web businesses. One such service, Application Acceleration, as Akamai calls it, speeds the delivery of corporate content -- say, a virtual private network -- via the cloud.
That seems like an appealing prospect for potential customers. Of the 83 net new customers that Akamai signed during the quarter, roughly half signed up for other services, such as Application Acceleration.
Longtime clients are also spending more. Average revenue per customer, or ARPU, rose 14% year over year to $23,500. Gross margin, meanwhile, remains well above what peers manage:
Company |
Gross Margin |
---|---|
Akamai |
71.3% |
Level 3 Communications |
57.8% |
Limelight Networks |
55.1% |
Sources: Akamai earnings release, Capital IQ.
That substantial gulf suggests that Akamai's competitive advantage remains intact. But Akamai isn't satisfied with that gap. CEO Paul Sagan believes there's more his company can do to differentiate itself.
One more thing, specifically
That's why Akamai last week announced a plan to get into the advertising business. Not to compete with Google
Akamai, you see, delivers a substantial portion of the Web's traffic. Much of that content gets ads. To date, publishers have manually inserted transparent pixels on ad pages to track usage. Akamai, as a CDN, already tracks clicks and Web usage -- albeit anonymously -- thus eliminating the need for pixels. Instead, using the intelligence in Akamai's network, publishers will be able to make better decisions about which pitches to display, chief technology officer Mike Afergan told me in a recent interview.
Akamai has yet to roll out any products from its new Advertising Decision Solutions group. But, when it does, Sagan told analysts that the company would follow a client-friendly pricing model.
"We have been working very closely with a selective number of publishers and advertising networks to form partnerships. I can tell you there is a high degree of interest both on the publisher side and the advertiser side. We expect to get paid as our customers make more money from more efficient advertising," Sagan said. (Emphasis mine.)
So while Amazon.com
"Our position stands in sharp contrast to unprofitable and underfunded competitors, large and small," Sagan told analysts. "In past downturns, such firms have failed. We expect we will see a similar trend in this bear market."
Me, too. Add it up, Akamai.
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