Analysts Covering Akamai Should Not Be Worried About AT&T

This morning, I had about half a dozen e-mails from analysts asking about AT&T and their CDN business. Yesterday, at AT&T’s analyst day they announced that they will grow their streaming and caching services by 6x and said they were going to increase their CDN capabilities. Because of this, an analyst at Cowen and Co. downgraded Akamai on concerns of greater competition from AT&T.

Now I am the first one to say I am not a financial analyst, I don’t own shares in any company and I have no vested interest at all whether Akamai or any other stock goes up or down. And while I don’t pour over the numbers like financial analysts do, I listen and hear what is really taking place in the market from customers. Numbers and spreadsheets only tell you so much.

For the past 4+ years AT&T claims to have been in the CDN market for the delivery of static content and video. Yet in that time, I have never spoken to or heard of a single customer using AT&T for any CDN services pertaining to video. I have never seen AT&T even bid on any RFP, have not seen any customers listed on their website, have not found a single customer case study, have not seen AT&T put out any data on their CDN business and have not seen anyone from AT&T speak at any conference or event about their CDN business. If AT&T is in the CDN business today, and I don’t mean via the way of customers delivering content via AT&T’s co-location or IP services, where is the business?

Could AT&T be in the CDN business? Yes. But are they today? No. I find it amazing that analysts are going to think AT&T is competition to Akamai or anyone else when they don’t have a real offering today, and even by the analyst’s own omission, AT&T would not be a competitor until late 2008. You’re downgrading a stock based on what a company "may" do a year from now? Am I the only one who does not see the logic in this? It took Level 3 acquiring the CDN assets of SAVVIS and 12 months of build out just to get a basic offering out the door. If AT&T does not acquire anyone, how long would it take them to  be at even 30% of the capacity Akamai is at today? They can’t do that in a year. And what about streaming support? Whatever limited CDN service AT&T has today, it does not support delivery via streaming, live or on-demand, has no support for Flash, no content management system, no video reporting etc…. all things Akamai and others have today.

In the report the analyst wrote, "AT&T’s extensive network reach could shrink the average distance between a CDN node and a customer to as little as 100 miles versus Akamai’s 25O-plus miles." Ok that may be, but what does that mean for Akamai? How does that affect them? That statement alone does not say how that is suppose to impact Akamai’s business. Plus, AT&T is not going to place servers for CDN services at every location in their network, just like Akamai doesn’t, so it’s not valid to look at AT&T’s entire network and say they can leverage that for one specific service offering like CDN.

If AT&T were to go out and acquire someone like Limelight Networks, which they should do if they are serious about being in the space, then they would have a real shot at the getting into the CDN business and providing real competition to the market in the next 12 months. But if they don’t acquire any company or assets, they will have little to no offering when compared to Akamai or others 12 months from now.

Also, does anyone remember back around 2000 when Quest, MCI, AT&T,
Sprint and others all had CDN offerings and divisions? They lasted
about 12-18 months in the market before they all decided to no longer
be in the CDN business. Yes, they had a lot of factors going against
them in those years, especially being in the market in the wrong time,
but how many people "assumed" they would make it just because they are
big named networks?

In my opinion, many analysts are too quick to listen to what vendors tell them without doing enough research to really know what is taking place in the market. Speak to customers. Look at RFPs. Evaluate pricing trends. Know what products companies actually offer. Compare product to product, not company to company. Anyone can say they are going to be a competitor in any market, but they don’t get any creditability in my eyes just because they are a big company.

  • abe

    How would AT&T handle distribution outside of their own network? Would a competing ISP accept an AT&T server as they do Akamai’s?
    I think AT&T might be contemplating improving content distribution within their own network, but that hardly obviates the need for Akamai. I don’t think AT&T even sees itself as competing with Akamai.

  • vincent thomas

    AT&T 100 miles versus Akamai 250.. But this is where Akamai is king the last mile. What does AT&T do when it becomes badly congested?Akamai /No problemo. Tell that analyst to forget it. Great Article, good explanation.

  • Statements about “miles” are irrelevant when it comes to content delivery. The only metric relevant for CDN is performance. Not miles, POPs, servers, GB, mbps etc.
    -Steve Lerner
    Practice Leader- Media Technology

  • This is all silly. Even if ATT were to pull in 30% of the CDN market (which it won’t) it would have little impact on Akamai. The CDN market is growing by twice that each year and likely to accelerate as handheld devices like the Iphone become ubiquitous.

  • JK

    Besides lacking the technology, servers, and portal infrastructure, AT&T has no trained sales force to bring the service to market, and no marketing team experienced in positioning a CDN service. Great article Dan, and as usual, the Wall Street gang does its “customers” a dis-service.

  • The last thing I would contribute to ATT’s possible success is the iPhone. In a quickly expanding market with literally 100’s of different broadband enabled PDAs out there, the iPhone is just another device. In the corporate space the iPhone is a non-starter and companies like HTC etc are much further down the road in terms of market share and I don’t expect that to change. Not to mention Android.

  • Dan Rayburn is wrong about ATT and Akamai

    Dan Rayburn has some interesting thoughts on Akamai being downgraded because of competitive concerns over ATT.  Not to put to fine a point on it but if Dan hasnt found ATT in the CDN business he havent been looking in the right…

  • Not to put to fine a point on it but if Dan hasn’t found AT&T in the CDN business he hasn’t been looking in the right places. When I was responsible for which CDN’s to use on the Nine Systems overlay solution there were several months where we utilized over 80TB of delivery from AT&T’s ICDS (Internet Content Delivery Service) product. The majority of this was in streaming services. During 2004 and 2005 we used over 20TB of CDN service from AT&T pretty much every month and it was generally much more than that. We also had to compete against them in large accounts. They certainly had shortcomings but it would be unwise to think that they can’t deliver content. They have a large sales and marketing infrastructure and are able to leverage their existing relationships with many corporations who also need CDN services in addition to their other services. If AT&T decides to actually make such a move and puts the resources behind it I would worry more about them than I would about Level 3. Though I don’t really think that either is that big a threat to Akamai. Nor do I think that it would be wise for AT&T to pick up LimeLight. Frankly I don’t think that Limelight has enough compelling, proprietary technology to make it worth it and AT&T certainly doesn’t need the network capacity. They have existing peering relationship with basically everyone. Thus, it’s not as though they’re going to be blocked in delivering content to end users. What they should do is pick up a smaller company that has the expertise that they’re missing. Specifically around creating value added applications to enable their customers to be more successful. Things like Digital Right Management, Commerce, Content Management, Reporting and Syndication. I can think of a couple. The delivery itself is a commodity business these days and margins are being driven ever downward. The value added apps are likely to be the best way to maintain reasonable margins. Akamai had a great opportunity to do this with the acquisition of Nine Systems but frankly I think that they squandered it because it didn’t fit the model that they were used to.
    As a disclosure I do own shares of Akamai, which probably aren’t helped by the above.

  • abe

    Pete: Wouldn’t a further disclosure be that you used to work for Nine System but they were taken over by Akamai. But I guess u don’t think that’s relevant, I mean that you somehow don’t work at Akamai now?

  • Hi Pete, I don’t doubt that AT&T probably has a few CDN customers, but I can’t find anyone who is in the industry or at AT&T who can even tell me the names of as little as six customers. And when I ask the other CDNs, none of them are seeing AT&T in the market today bidding on the same business they are. I’ve seen over 50 RFPs this year and AT&T was not bidding on a single one.
    As you know, too much of our industry is hype. AT&T said they would grow their CDN infrastructure by 6x next year. 6x what? And for what service? Streaming? Downloads? Static caching?
    I welcome AT&T making a push in this space, but so far all the have done is say that they have been in the space for 5 years but have next to nothing in the way of traction or business.

  • Abe I did disclose that I used to work for Nine Systems in my post. Right up there in the second sentence. I left Nine Systems in January 2006 which was 11 months before the acquisition. I was fully vested and had already excercised.
    To answer your other question;
    AT&T doesn’t need to put servers inside other networks. Traffic from their servers will flow to endpoints that are on other networks via these peering arraingments. These peering points are distrubuted around the country with multiple connections to many different networks. In AT&T’s case their peering capacity totals 100’s of Gbps. This is a core tenant to how traffic flows on the internet. In the case of streaming, RTT and Latency are important factors in performance to end users. AT&T manages their native network and peering to reduce those metrics. As I said in my post AT&T has been doing this successfully for years. All CDN’s rely on the peering of their network providers to some extent. Level 3 is another example of a company that is essentially a core backbone provider utilizing their peering to provide CDN services. Much of content delivered by Akamai will also flow over peering points.

  • abe

    I am sorry about missing the Nine Systems thing.
    Again, if Akamai has a server in a particular network and AT&T doesn’t, then Akamai should be able to provide better service to users of that particular network.

  • abe

    A P.S. about latency:
    You sort of gloss over it by saying “AT&T… manages… to reduce these metrics…”
    Fine, but speed of light cannot be managed and unless they have a server physically close to the end-user, the latency will be a hugely limiting factor for large files and streaming. So AT&T really DOES need to have servers in other networks. They will not say this, but it is certainly true. And those other networks will almost certainly choose to limit this.
    Of course, other competitors who do not own their own large networks can compete directly with Akamai; it is important to understand how technically non-trivial this is. Streaming is just the tip of the iceberg — applications are a much harder problem.

  • I actually should have said RTT and packet loss as RTT and latency are pretty much the same thing. That’s what I get for posting while trying to get a 5 year old to eat breakfast. I won’t dispute that Akamai can likely provide better delivery performance in most cases. Really the question is can a CDN deliver well enough. When it’s all said and done for audio and video delivery they need to be able to deliver as fast or faster than the client device can consume and render. For instance we used to leave AT&T in the mix for the Microsoft Tier 1 streaming provider program. They performed well enough without having servers in other networks. Apps are of course a whole different beast. The point isn’t to say that anyone is better than Akamai. The point was that I wouldn’t dismiss AT&T out of hand. When I was utilizing them they had ICDS footprint in 27 or so locations between the US, Europe and (limited) Asia.

  • abe

    I mention a recent discovery. looks like they are using Akamai. Seems like AT&T would have gotten off of Akamai already if they had their CDN stuff together.
    Here’s the punchline: I use AT&T as my ISP. So, even within their own network, T relies on Akamai to serve content.
    Try tcpdump utility when accessing to see this.