Akamai Technologies, Inc. is an American company that provides a distributed computing platform for global Internet content and application delivery. Together with competitor Limelight Networks, Akamai controls 65% if the global content delivery network market and serves such clients as Apple Computer, Microsoft, and the U.S. Department of Defense. Akamai (which translates into "intelligent" in Hawaiian) was founded in 1998 and is headquartered in Cambridge, Massachusetts by a group of former MIT students and their professor. It is now a $400 million company with over 1000 employees.

Business

Akamai is n the business of providing solutions that accelerate and improve delivery of content as well as applications over the internet. They do this by providing live and on-demand video streaming, applications that help people transact to conventional web content.

The company offers three primary services which include Digital Asset Solutions, Dynamic Site Solutions, and Application Performance Solutions.

Under its Digital Asset solutions, Akamai include Akamai Media Delivery solution, which provides a solution to various challenges of media delivery over the Internet; Akamai Electronic Software Delivery solution; and Akamai EdgeSuite Delivery solution, which provides worldwide delivery, load balancing, and storage of content and applications.

The Dynamic Site solutions accelerate business-to-consumer Web site relations by integrating collaborative content and applications into their online architecture.

Its Application Performance solutions combine services and features that are designed to improve the performance of dynamic content common on corporate extranets and wide area networks.

Other products include on demand managed services, including EdgeComputing, which enable enterprises to reduce the need for an internal infrastructure to handle unpredictable levels of Internet traffic; Site Intelligence Offerings, which include network data feeds and Web analytics offering; and custom solutions.

The company markets its services and solutions through direct sales and services organization to businesses, government agencies, and other enterprises.

Part of the strategic plans of Akamai include acquisitions of companies that complement their existing line of products as well as help them expand into new markets. In 2007 they acquired Netli inc. in order to enhance application performance solutions. In April they acquired Red Swoosh, a company that specializes in innovative client side technologies for distribution of media files.

They also released an announcement that they expect the CDN market to encounter challenges this year. This means that Akamai has a good position and will be able to freely acquire small but innovative CDN providers who fall behind the leaders Akamai and Limelight. (Anonymous, 2008)

Financials

Revenue has grown year over year with $636 million in FY2007, $428 million FY2006, %283 million in FY2005 and %210million in FY2004. This represents a year over year growth of 48% in 2007, and 51% in 2006.

Total cost and operating expenses have grown year over year with $491 million in FY2007, 345 million in FY2006, $209 million in FY2005 and $161 million in FY2004. The total costs are maintained around 80% of total revenues with total cost of revenues and operating expenses at 77% in FY2007 and 81% in FY2006.

Bulk of the spending goes to Sales and Marketing at 23% of total costs in FY2007 and 28% of total costs in FY2006. Cost of revenues comes in at a close second with 26% of total costs in FY2007 and 22% of total costs in FY2006. Increase in Cost of revenues continues to increase due to the higher bandwidth needed and costs associated to this. General and Administrative expense are 19% of total costs in FY2007 and 21% of total costs in FY2006. Research and development is only at 7% of total costs in FY2007 and 8% of total costs in FY2006.

Net Income after expenses have increased in FY2007 to $100.9 million compared to $57.4 million in FY2006. Income in 2006 was a decrease from income in 2005 of $327.9 million.  This translates to per share income of $0.56 in FY2007, $0.37 in FY2006, and 2.41 in FY2005. (Akamai Technologies Inc., 2007)

Competition

Akamai is a major player in the CDN or content delivery network market and faces has two main competitors, Limelight and Level 3.

In February of 2009 Akamai was awarded $45.5 million in infringed content delivery damages. They are also seeking an injunction to stop Limelight from selling the infringed services. Limelight is said to appeal the decision in Washington’s Court of Appeals. (Higginbotham, 2008)  If this legal battle continues any further it could mean trouble for Limelight and good news for Akamai. The continued legal battle would mean that the smaller company, Limelight would more likely lose business to the larger more expensive company, Akamai. (Frommer, 2008)

Level 3 competes against Akamai on Price. If level 3 continues to offer its services at a lower price it could make it hard for Akamai to charge the premium on its prices.

Bibliography

Akamai Technologies Inc. (2007). Annual Report: Form 10-K for FY2007. Cambridge: Akamai Technologies Inc.

Anonymous. (2008, August 16). The CDN market may implode but expect Akamai to benefit. Retrieved August 17, 2008, from TMFMileHigh's CAPS Blog : http://caps.fool.com/Blogs/ViewPost.aspx?bpid=78955&t=01008731030482031213

Frommer, D. (2008, March 3). Akamai Legal Victory Could Also Be Big Business Win (AKAM, LLNW). Retrieved August 16, 2008, from www.alleyinsider.com: http://www.alleyinsider.com/2008/3/akamais_courtroom_victory_should_boost_sales_at_limelights_expense

Higginbotham, S. (2008, February 29). Surprise! Limelight Will Appeal Akamai’s $45.5M Patent Win - Gigaom. Retrieved August 16, 2008, from gigaom.com: http://gigaom.com/2008/02/29/surprise-limelight-will-appeal-akamais-455m-patent-win/

Akamai Technologies is a decent bargain as of January 2008, with a PEG ratio of just 0.85. The company has good prospects for the future, and should face strong demand as more and more people start using the internet. Akamai's innovative software -not just its large server network- give it an edge in the industry. Add to that the huge numbers of agreements Akamai has already made with internet service providers all over the world, and you have a scale that is impossible to replicate. Akamai is also flush with $500 million in cash, which should help further its expansion. Its new deal with Apple to handle content delivery for Apple's new online video rental service will only serve to increase those revenues.

Limelights market share is steadily increasing with its more stable design. Smaller players like Level 3 are also more competitively priced than Akamai which could lead to other loyal customers jumping ship.  The increasing price of maintaining bandwidth can cut into revenues as well. The CDN market is also set for a challenging year with the current credit crisis and lag in spending.