Akamai Creating Confusion: Online Video Not Hurting Due To Recession

I listen to all of the CDNs quarterly calls and have to admit that last night, Akamai delivered a very confusing message. On one hand they said traffic was still growing, but not as fast as before and that pricing for CDN remained stable. But on the other hand, blamed the economy and lack of broadband speeds for the reason content owners are not spending more money to deliver more content, which created less growth. That does not make sense.

Less than three months ago at our Streaming Media East show, we had content creators like NBC, Yahoo!, Time Warner Cable, Metacafe, CSTV, Turner, MTV, NHL, Comcast, ABC, CondeNet, CNN, AP and Reuters amongst others, who all spoke about their online video presence. Not a single one said that they were putting less content online due to the economy and none of them that I remember said anything about less traffic growth for video. If anything, they talked about how traffic is still growing, more content is going online, at higher bitrates and being syndicated to more sites or devices. For me, this is hard evidence that the economy is not affecting the online video industry, the CDNs, or content creators when it comes to online video consumption.

While I still think Akamai has one of the strongest suite of products around, especially for the video ecosystem, when it comes to the media and entertainment vertical, they now have some real competition. Limelight has been winning a lot more video specific business as of late and Level 3 has had some big wins as well, but has yet to talk about them. CDNetworks is still gearing up in the U.S. but will provide some competition to Akamai for M&E business over time. And outside of those three CDNs, smaller delivery networks have the ability to challenge Akamai on mostly small deals. Adding all of that up and it does eat into Akamai's business. Now it may not take away a lot of Akamai's current market share for video CDN business, but it may take away a larger percentage of new business going forward.

Remember, with Akamai not breaking out their revenue based on product line, we don't truly know what product saw the most decline in the quarter. And with the CDN product accounting for about 50% of Akamai's revenue, there are a lot of other dollars out there coming from Akamai services other than content delivery. To me, this is simply an indication of Akamai having a tougher time in a very specific market, M&E, for one very specific product, CDN. Akamai is not in danger of losing it's larger CDN market share anytime soon and no other CDN is going to come even remotely close to Akamai's total CDN revenue. While I would not expect Akamai to come out and say that competitors gave them more of a challenge last quarter, that's what is was. It was not the economy and it certainly was not due to the strange excuse they gave of broadband speeds not being fast enough in the U.S.

On one hand they said they need consumers to be able to get HD quality video to help really grow the business, but on the other hand, when they launched their HD product eight months a year ago, they did the right thing and set expectations correctly by telling the industry that HD won't have a real impact on the market for a few years. So the fact that HD was not big on the web last quarter, or moving forward, is not a surprise to them or anyone else.

To me, the bottom line is that Akamai had a more challenging business last quarter, in the M&E vertical, specific to CDN, then they have had in the past. That's all it was. The thing I don't like is the notion this can create in the market and industry when the number one CDN says the economy hurt their business. So far, the economy is not having an impact on the content delivery business.

Note: I have never bought, sold or traded any shares of Akamai or any public company ever. I have no vested interest in the price of any stock and both Akamai and Limelight are or have been sponsors of my blog.

Comments

[RS]

I was surprised to read the feeble excuses given by Paul for Akamai's growth prospects.

The average broadband speed in the US is 3.48Mbps; fast enough to flawlessly deliver 720 resolution videos encoded at 3Mbps by a new breed of Video Delivery Networks.

Akamai et al cannot deliver HD streams because for them to deliver a QoS they would need to make a huge investment in infrastructure so their sales reps continue to tell their customers that broadband speeds is the bottleneck.

Every studio and content aggregator is looking at HD; we are going to see a hockey stick effect in HD video explosion and the prognosis is not bright for companies like Akamai

[Dan Rayburn]

Paul, I agree with your thoughts on the broadband issue but not with the point that Akamai can't deliver HD streams. They are already delivering HD streams today, to what scale we don't know. But to say they "can't" is factually incorrect. Also, they along with every other CDN spends a lot of money already, each year, on infrastructure improvements so that's not the issue. I would also disagree with your statement that the "prognosis is not bright for companies like Akamai" when it comes to HD growth in years to come. Customers who are already with Akamai for video delivery services, or any other CDN for that matter, are going to give their current CDN a first shot at delivering HD quality.

I know you disagree what that, but you are selling a competitive service to Akamai where you are selling against them on exactly that. What will change the minds of people in the industry is seeing new CDNs win big contracts away from an Akamai. Until companies can show that and prove it, it's all speculation.

[RB]

Why dont you guys check http://www.thehdweb.com/ This shows Akamai can deliver HD Video