Internap Is Not The Next Akamai

In an article on Barron's website this week, which Seeking Alpha has an annotated article summary of by Judy Weil, Mark Vererka says that Internap may be the next Akamai. No offense to Internap, but that's an absurd statement for anyone to make. As you'll see below when it comes purely to revenue, numbers don't lie.

It's amazing the amount of analysts who make blanket statements about vendors in our industry, yet then provide no data to back up their predictions and even contradict themselves with the numbers they use in their articles. For starters, Judy Weil's summary of Mark's article says that "Patent and price battles have seen content-delivery-network giant Akamai and upstart competitor Limelight lose ground." Lose ground to who? How can you make a statement that the number one and number two companies in the space, based on revenue, are losing ground but then don't say who they are losing it to?

The article also says "Internap only recently entered the CDN business with its VitalStream acquisition, and CDN accounts for just 10% of Internap's $192.3 million in revenues." That amounts to roughly $20 million last year for Internap in CDN revenue compared to Akamai's roughly $200 million last year on CDN services and Limelight Networks $60 plus million from CDN services. How do those numbers show Internap becoming the next Akamai? Akamai is doing 10x the CDN revenue Internap is. The fact that the article does not mention that last year, Internap was the number one reseller of CDN services for Akamai also goes to prove that even with the revenue Internap was getting from CDN, it was paying Akamai at the same time. These analysts need to do their homework.

The article does seem to be implying that Internap can become the next Akamai because it says "it (Internap) foresees explosive CDN growth as net users increasingly seek smooth delivery of rich online content." And the other CDNs aren't seeing the same growth as well? That's the best reason you have for saying how Internap can grow it's revenue to be that of Akamai? Akamai as a company did over $400 million in revenue last year, Internap did under $200 million. Big difference.

It also goes on to say that "Internap's edge is its proprietary software that has guaranteed 100% reliable internet-routing services and data center hosting (90% of Internap's business), and now guarantees 100% uninterrupted content delivery. The reliability guaranty premium keeps Internap out of CDN price wars while gaining it market share." For starters, that SLA it is referring to is specific to network and data center services, it does not apply today to the CDN services of Internap. Internap has confirmed that it intends to offer a 100% SLA specific to CDN services but not until it integrates the VitalStream platform and customers into the Internap network, something Internap is still working on. And even with a 100% SLA, how would that keep Internap or any other CDN provider out of price wars? If it is implying that customers will pay more for a 100% SLA, then the article should give details on what the premium is over the going rate that they are willing to pay. But my guess is that the authors have no idea what CDN pricing even costs in the market.

The article then goes on to compare Akamai's revenue and product line with that of Internap. "Akamai shares fell about 25% last week over forecasts of market-share loss and shrinking orders; Limelight is down about the same this month. Barron's says Internap's Tuesday earnings report will forecast higher growth, lifting its $13.42 shares back towards January's $20 price." Last time I checked, Akamai and Limelight Networks were not in the co-lo and network business and not getting 90% of their revenue from those products, like Internap is. So how can you possibly compare Akamai, Limelight Networks and Internap's overall revenue and stock price fairly? You can't. Their core business and revenue generators are from completely different industries and different product lines.

Everyone is entitled to their opinion and who am I to try and tell someone they are wrong. But when you make blanket statements like this article does, back it up with no data, and then don't even look at the data that is out there that proves you wrong, you shouldn't be writing about that segment of the market.

I recently got to sit down with management at Internap and
VitalStream to ask about and get an update on their CDN offering and I
hope to get to finish my write up of that for my blog this week.

Note: Since I wrote this post on Sunday night, I see that Yahoo! has
updated the page I was linking to and now better defines who wrote
what. I have edited the text below on Monday morning to reflect the
correct authors names. I'd also like to point out that after reading
the Baron's article by Mark Vererka, it is my opinion that Judy's
summary of Mark's article takes a lot out of context.

  • Rayburn: CDN Market Remains Strong

    Dan Rayburn says the drop in Akamai’s stock does not reflect broader weakness in the CDN market.

  • maddydogg

    why did you comment on basically everything but Internaps CEO?
    DeBlasio and his team act as if they intend to become a multibillion-dollar sales company. “My plan is to go after [Akamai],” he says. “We offer what they can’t deliver: reliability.”

  • That quote is from the Barron’s article which I can’t link to since it requires a subscription to read. If I can’t link to it for readers to see, I typically don’t use the quote in my posting.

  • Anthony

    Sponsored by LIMELIGHT…EOM..LOL Internap is going buy AkaPOOP

  • grinsandfun

    I have to agree – your statements that Internap is not an Akamai could not be more in line with the facts than they are.
    But – I have been in the industry of hosting / telecoms and data services for over a decade. There is value to what Akamai brings, as well as other CDN’s. The part you are missing from your vision is some of the value and also the value that Internap has brought it’s customers for over a decade. They are seen as a trusted adviser – which is also why AKAM aligned with them to sell CDN. If you ever listened to the value prop that AKAM has – “optimizing your website, blah” sure does sound very similar to what the value prop is for Internap.
    Here is what I take and also what you should look deeper at:
    1) AKAM has the majority of the customers leveraging a CDN (more to loose)
    2) INAP is new to OWNING a CDN – not selling it, around the competition, or even AKAM – I would not be surprised if they pull a very quick and calculated focus on the ad-insertion portion of the solution sell (and yes – I did say solution sell)
    3) I would not be surprised to see that Internap goes into the market with the “packaged approach”, because in IT sales – guess what, customers don’t want to have to re-create everything, they love to get stuff handed to them on an easy platter with a competitive price & Great service (which Internap provides – look at their CHURN rate).
    As you state in the article you posted on CDN pricing – it is about the value one brings, less is based on the price… and having a complete package offering is not a value for a site owner?
    “The reason for this is primarily that CDN providers are no longer selling on price alone. They are selling on customer service, SLA, geographic reach, customized reporting and additional value ad services like content management and the like. And on the flip side, customers are now buying services based on these factors as opposed to just who gives the lowest pricing, which is the way they should all be buying.”
    HUM – one stop shop does not bring value? Let’s not get a knee jerk reaction based on stock values – which are over inflated from many in the investment sector – this is what is happening – a re-assessment, not a technical discussion !

  • It’s interesting to see how people think they are in the industry when they aren’t at all. It’s the experience of being in the industry that matters. Not anything else. Though money can buy people with experience of course…
    Great write up!

  • James

    I guess I was kind of surprised with the depth of your despair. I think you have valid points but may suffer from being too knowledgable.
    “Lose ground” is a fairly broad statement. If ten people are running up a sandy hill and the first 2 beginning wrestling with each other then they will “loose ground” to the others…….even if the others don’t actually gain momentum. I felt that was the point.
    Internap was the biggest Akamai reseller as you pointed out. That’s dangerous. They know how to bundle CDN’s into deals and know alot of those key accounts very well. VitalStream gives them a competitive advantage in the video delivery market over the other CDN’s. So I think it’s a real threat.

  • “VitalStream gives them a competitive advantage in the video delivery market over the other CDN’s.” How? Based on your opinion or based on actual facts of the service?

  • I agree, it’s hard to get to the level that Akamai has built up over the years.