March 23, 2005 -- (WEB HOST INDUSTRY REVIEW) The content delivery market changed dramatically last week with Akamai Technologies (akamai.com) announcing that it had concluded an agreement to buy rival Speedera Networks (speedera.com), creating one of the industry's largest providers of content delivery network services.
Paul Sagan, president and CEO-elect of Akamai, told theWHIR that in addition to extending its global network, the primary benefit of the purchase would be the expansion of Akamai's overall business. "We think that it's consistent with our growth strategy to acquire customers and increase profitable revenue."
Buying Speedera would also widen the company's overall portfolio of services, Sagan says, helping customers on both sides. Speedera's customer list, which includes HP, Microsoft, Doubleclick, Comcast and Verizon, offers a potentially strong customer base for Akamai's content delivery, application hosting, performance and managed services, while there are pieces of Speedera technology and service offerings that Sagan says Akamai will consider offering its own customers.
A broadened service portfolio and stronger network will also enable the company to better compete against the likes of AT&T (att.com) and SAVVIS (savvis.com), managed service giants with extremely wide product and service offerings they can bundle to help close deals.
The departure of Speedera, long the low-cost player in the market, creates an interesting dynamic, as it could hamper the ability of hosts and other enterprises to deploy multi-vendor strategies, says Richard Buck, vice president of engineering for Mirror Image Internet (mirror-image.com), a competing content delivery network operator.
In the past, customers have gone to Speedera over Akamai for either pricing, flexibility or performance reasons. But others, including Akamai customers, have used Speedera as a key component of a multiple-vendor approach to content delivery, where they leave a certain percentage of their traffic with an alternate provider to protect against unforeseen complications. Following the merger, many customers will have to find other secondary providers.
"How do you do a multiple vendor strategy if there really aren't multiple vendors anymore?" asks Buck. Mirror Image is one of the companies that may profit from this. Buck says the multiple vendor approach many companies employ will likely see them considering Mirror Image and other CDNs such as Limelight Networks (limelightnetworks.com).
Buck says Akamai's acquisition has also created fears that the disappearance of a low-cost provider will create upward pressure on prices. He suggests that Akamai will benefit more from the bigger margins than from the opportunities to upsell to the extra Speedera customers it has acquired.
"I suspect there are financial models that show that the real profit in this deal is not picking up the extra Speedera customers," he says. "But if it lets them stiffen up their prices just a little bit, they could make much more money on the increased margins, than they make by picking up the extra customers."
Akamai's acquisition puts an end to the legal battles the two companies have waged over the last few years. With the signing of the definitive agreement, all cases have been stayed and will be dismissed when the deal officially closes, expected to take place some time during the second quarter. The deal is an all-stock transaction worth approximately $130 million.
The reordered CDN market would appear to pit a diverse group of players that includes Akamai and other CDN specialists against managed services providers like AT&T and SAVVIS and niche players in the streaming media space such as VitalStream (vitalstream.com) and Worldnow (worldnow.com).
And not to be discounted are the in-house solution providers who piece together their own solutions, says Akamai's Sagan. "We have to compete to convince them to outsource to a model such as ours."
