Content is king, and the Internet is the kingdom. The Internet would be a pretty desolate landscape without its content, but despite the increasing importance of content-delivery networks, or CDNs, in facilitating today's content-heavy Internet, market leader Akamai
The dynamics of Akamai's business model are under fire from all sides. To an extent, large media companies view content-delivery services as a commodity, which reduces the company's pricing power when competing with rivals such as Limelight Networks
Value-added services, such as advertising analytics, application performance, and dynamic site solutions, contribute the majority of Akamai's sales and have been the area where the company has been trying to differentiate itself from competitors. Recently, major network carriers including AT&T
Akamai needs to seriously beef up its defenses if it's going to fend off these threats. With the stock's P/E sitting at 31, the market is expecting some growth and profitability. Even though the company plays a vital role in making the Internet what it is today, I believe it needs more of a sustainable competitive advantage to maintain leadership. If the industry is doomed to compete only on price, then that's a war that everyone loses.
Fool contributor Evan Niu owns shares of AT&T. Motley Fool newsletter services have recommended buying shares of AT&T and Akamai Technologies. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.