Summary
- Akamai is the granddaddy of CDN with a 20-year history of intelligent edge computing and more POPs than all of its competitors combined.
- Pandemic-driven internet traffic growth has driven revenue growth, up by 13% and Cloud Security Solutions by 28% in Q2 2020 YoY.
- The CDN business is lumpy and large enterprises often leave for greener pastures. Fastly investors have just discovered this phenomenon with recent events involving TikTok.
- Akamai stands to gain from its last-mile cybersecurity offering and emergence of 5G which will dramatically increase internet traffic levels.
- Akamai a long-term buy.
- Looking for a portfolio of ideas like this one? Members of Digital Transformation get exclusive access to our model portfolio. Get started today »
(Source: Shutterstock)
Akamai Technologies, Inc. (AKAM) is the granddaddy of Content Delivery Network (“CDN”), in business for more than 2 decades and transporting an estimated 25% of all web traffic. Akamai provides more locations, or points of presence (“POPs”), than all of its competitors combined with 300,000 servers in 4,000+ locations.
To be clear, the CDN market is quite mature with little apparent upside apart from increased traffic over time. The market for CDN customers is close to saturation and enterprises tend to disappear once they reach a certain size. They employ their own performance metrics and often decide that they can do better elsewhere, leading them to abandon their existing provider in favor of a competitor. As an example, Netflix (NFLX) was once an Akamai customer but subsequently abandoned Akamai due to apparent performance issues.
Fastly - A Disruptive Competitor?
Another area of concern for Akamai are so-called upstarts such as Fastly, Inc. (FSLY), that claim to be market disruptors. In Fastly’s case, it claims to be disruptive by providing fewer but more powerful POPs with solid-state storage and large cache situated in strategic locations. By employing this strategy, Fastly believes it will improve the cache hit ratio for static applications and event-driven content. The improved cache hit ratio will compensate for the additional transmission time between source and server due to the greater distance away from the source. And the strategy will also lead to reduced costs as less POPs need to be supported. The rationale for Fastly’s approach is as follows:
They’ve all built their architectures based on the conditions that were prevalent 15 to 20 years ago. To their credit, legacy vendors actually made the right design decision at the time — back then the latency (the time taken for data to travel) from your home to an internet backbone, often over dialup, was much, much higher. They went with a larger number of smaller POPs (convenience stores) since deploying larger, higher-capacity POPs (supermarkets) would have meant significantly longer response times for users.
However, these vendors are now stuck with hundreds of thousands of small, disparate servers around the world even though the incremental time for a request to get to a strategically placed, high-powered POP is now only a few additional milliseconds. These smaller POPs can’t hold as much content, forcing many more requests to go back to origin and resulting in hundreds of milliseconds of additional latency (which translates to slow load times for end users and additional hardware costs for customers).”
This argument has a lot of merit, but Akamai of course has a different perspective on this topic as it dominates the “last mile” of internet traffic which is critical for some applications. Here is what Akamai management has to say about edge computing.
