It’s only nine years old, but already Akamai has become the crotchety old grandfather of content delivery networks, ferociously trying to bat away younger generations of companies that offer services for storing and sending media around the Internet.
And grandpapa is facing some seriously lofty expectations these days, given the expected growth of online gaming and video in the next few years.
Already, Akamai holds something between 60 and 80 percent of the content delivery market, serving up content for more than 2,500 companies. But it also has a host of younger, cheaper and more nimble CDN companies nipping at its heels, along with oldies like Amazon undercutting the space with less expensive products. Fear of a price war has sent investors into a frenzy, with the stock dropping around 30 percent in the few weeks after Akamai’s second quarter earnings statement. Investors also reacted last week when rival Limelight Networks announced that it--not Akamai--had scored a large-scale cross-licensing deal with Microsoft.
In response, Akamai is trying to distinguish itself by touting its technology's ability to deliver larger and higher quality video files, particularly high definition content. It claims it has the only content delivery network capable of meeting the technical requirements of HD.
Red Herring recently sat down with John Healy, Akamai’s director of digital media, to discuss high definition, competing with the newbies, and what’s next in digital media.
Q: How do you view the transition towards high definition video on the web?
A: HD is a very relative term. If you were to categorize it as near television technology, that’s an area media companies are focused on, and we’re going to see a lot of movement in that area in mid-September, around the launch of the fall television season, combined with back to school, the NFL picking up again, and we’re seeing a refocus on HD quality transmissions via the web from media companies. That’s a huge area of focus for us right now.
The Internet was not set up to support huge HD-size files, and high bit rate streaming content. Fundamentally, the only way the web is going to scale is by caching and delivering media from the edge. Our biggest value-add to the media and entertainment community is in providing a platform that allows rich media makes its way to end users.
Q: What do you make of all the companies jumping into the CDN market?
A: To a degree, the competition is good for everybody. It’s pressuring us to develop capabilities to stay ahead of the competition. We’ll see more jump in the next six to eight months because of the attractiveness of the market. We’ve ridden the ups and downs in the content delivery space, and we plan on staying ahead of all would-be competitors.
Q: Is there a price war going on?
A: These new entrants into the market are attempting to compete with us almost solely on price, and not in areas of advanced features and functionality. We’ve built a platform with a rich portfolio of advanced features, so that’s a pretty big head start. It’s pretty hard to catch up to, and other companies realize that so they want to come in and shave a portion off the lower end of the market, and try to compete on just price. The law of big numbers says that at some point it can’t keep dropping at the rate it has in the past.
Q: You now have competitors that use peer-to-peer technology, or that can layer P2P on top of another CDN. How will you compete with that?
A: We bought Red Swoosh, which is effectively a P2P solution. We are in the process right now of integrating that technology, though we don’t have a formal offering to talk about. We build edge networks, and the ultimate edge is the PC. There are and are always going to be some limitations with that technology, given the way Internet service providers restrict P2P communication. An edge platform combined with a P2P network is going to provide the best of both worlds.
Q: What other key trends are you noticing in digital media?
A: The notion of social media and community is now expanding back into the traditional enterprise space –sports leagues and major broadcasters and consumer brands, such as automotive companies - and that’s a phenomenon that frankly I feel being in the Valley you forget about. I spoke at the Interactive Advertising Bureau conference recently in New York, and I was approached after the session by a number of Fortune 100 brands that are really just thinking about a lot of this. I left with a distinct impression that, ‘Wow, a lot of these companies aren’t as far along as we thought they were.’ You lose sight of that when you’re meeting all the time with MySpace, Bebo, and Facebook, and you’re submerged. But I realized a lot of companies are just now mapping out how they want to use consumers to interface with customers. This year we’ve placed a huge emphasis on the social media market.