Akamai, Others Set to Benefit From Demand for Fast Web Content
10/28/99 12:06:00 PM
Source: Bloomberg News
Cambridge, Massachusetts, Oct. 28 (Bloomberg) -- Akamai Technologies Inc., selling shares for the first time today, is one of a host of companies looking to get rich by solving an Internet conundrum.
Akamai and its rivals have realized that as people log on to the Internet at faster speeds, they'll demand even quicker delivery of Web content. With thousands of Internet sites vying for the same consumers, top Web sites such as Yahoo! Inc. want be sure their services outperform competitors -- and they're willing to pay for the guarantee.
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Akamai sells FreeFlow, a service that speeds Internet delivery by linking 1,475 computer servers in 24 countries through 55 telecommunications networks. Companies such as Yahoo place their content on those servers. Akamai transmits the material at speeds it says are two to 10 times faster than Yahoo can do on its own. Akamai does it by constantly monitoring Internet traffic, re-routing transmissions to avoid tie-ups. ''We have more people demanding more content at higher speeds,'' said Charles Rutstein, an analyst at Cambridge, Massachusetts-based Forrester Research, a technology research firm. ''The ability to deliver the content when it's required is core for the Internet economy.''
Akamai -- pronounced ''ACK-a-my,'' a Hawaiian word that means clever or cool -- was founded by Massachusetts Institute of Technology professor Tom Leighton, who began developing the technology in 1995.
The company opened shop in August 1998 in a gritty area of Cambridge, Massachusetts, near MIT's campus. Yahoo signed on as an early customer last June. Microsoft Corp. has announced it'll spend $15 million for a roughly 1 percent stake.
Price Rising Yesterday, Akamai increased the expected price of its shares at today's initial stock sale by 29 percent. It plans to sell 8 million shares at $21 to $23 each, raising $176 million and giving the company a market value of $1.99 billion. Akamai previously had expected to sell shares at $16 to $18.
Akamai executives declined to comment.
The company had $1.29 million of revenue in the nine months ending Sept. 30, mostly from contracts with Apple Computer Inc. and Yahoo, and lost $28.3 million before paying deferred stock dividends. In the same period a year ago, it had no revenue and lost $890,000.
Akamai is one of several new Web-caching companies, so called because content is ''cached,'' or stored, on computers linked to the Internet. More are likely to go public as demand for their services increases, analysts said.
Rivals
Others in the field include Edgix, based in New York, and SkyCache Inc., based in Laurel, Maryland. Both use satellites in at least part of their operations. Adero Inc., based in Boston, resembles Akamai, but targets smaller Web sites.
Sandpiper Networks Inc., another operation much like Akamai, agreed to be bought earlier this week by publicly traded Digital Island Inc., which runs a private network. Xcelera.com Inc., formerly the Scandinavia Company, provides Web-content delivery services through its Mirror Image Internet unit.
Inktomi Corp., relatively a veteran in this industry, sells network-caching software called Traffic Server. Its shares have tumbled 21 percent since Oct. 21 after Merrill Lynch analyst Henry Blodget reported the company is spending more on product development in the face of increased competition.
''That's the million-dollar question: How will these (companies) coexist?'' said Zia Daniell Wigder, an analyst with Jupiter Communications, a New York-based technology research company. ''We're at early stages of this marketplace.''
Still, Inktomi said it works with most of the newer companies rather than competes with them.
''We're a supplier of technology to almost all of them,'' said Kevin Brown, director of marketing for Inktomi.
Faster Connections High-speed Internet connections able to transmit data over the Internet to personal computers up to 100 times faster than traditional phone-and-modem connections are expected to boom over the next several years.
Cable-Internet users should reach 13.6 million by 2002 from 700,000 last year, according to Forrester Research. Fast connections by digitally-boosted telephone lines should gain 4 million subscribers by 2003 from 25,000 last year, according to Yankee Group, another technology research company.
Faster connections encourage consumers to download large audio and video files. That, in turn, puts more strain on the Internet's ability to deliver content promptly, analysts said. For example, when America Online Inc.'s MovieFone unit began selling tickets in May to the latest Star Wars movie, the surge in traffic overwhelmed the Web site. High demand similarly marred an online Victoria's Secret lingerie fashion show in February.
This week, Encyclopaedia Brittanica Inc. was swamped when it offered free online access to its reference books, with just 1 percent of 10 million attempts getting through.
''If you're in business on the Internet, and your competitors are faster, that's a bad sign,'' said Peter Christy, vice president of Internet Research Group, a Los Altos, California-based research company.
Web-caching appeals to companies because storing information costs less than repeatedly transmitting data, said Abhi Chaki, head of business development for Edgix and a former analyst at Jupiter Research in New York.
''Disk space is cheaper every day,'' said Chaki. ''Some things you want live, but if 50 million people are requesting the same Web page, why transmit it 50 million times individually
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