I wrote about Akamai earlier this week, and thought it would be a good idea to add this short post about Level 3′s price cuts.
The Level 3 announcement that they would be offering CDN services at the same rate as normal bandwidth has thrown a lot of confusion in the market. Mostly, it is creating a negative perception in the market about Akamai.
Content Acceleration, however, is not a bandwidth ONLY game. It has a lot of technology and algorithms involved, and while the bandwidth part is commodity, the actual value addition is in the technology. Especially with Online Video, the problem is escalating.
Streaming Media blogs has a list of all the CDN players currently in the market. Most of these are smaller independent players, and I believe, the investment thesis based on which these deals get funded is the same as mine, that it is an algorithms game, not a bandwidth game. [Of course, most of the startups in CDN are hoping to get acquired by Akamai.]
I had a conversation recently with Nick Rockwell, MTV’s CTO. Nick highlighted some of the complex open issues he is dealing with. Many of the startups are working on solving these problems. Akamai, being a company with a heavy duty MIT DNA, I would imagine is also working on the open problems. Most importantly, I would think that they are in the absolute best position to know about what those problems are, because they have some of the best customers in the world. MTV is an Akamai shop.
May be, Level 3′s price-cuts would impact some smaller customers, but I believe, Akamai’s largest customers would not mess with this absolutely mission critical portion of their infrastructure, especially because, there is usually a continuous enhancement going on when customer-vendor relationships are deep.
Of course, at some distant future, if the market has become large enough that it is essential for all Telcos to be in the CDN business, I imagine that ATT or Verizon would acquire Akamai. That future, however, is not anytime soon. Meanwhile, Level 3′s announcement, I suspect would not do a whole lot more than create confusion. Investors with nerve, I maintain, can use the buying opportunity.