|BUSINESSWEEK ONLINE : APRIL 3, 2000 ISSUE|
|BUSINESS WEEK E.BIZ -- UPSTARTS
Akamai: Speed Master
It figured out how to make a faster I-way
Last October, Britannica.com suffered every Web site's worst nightmare. No sooner had it begun offering free access to the Encyclopedia Britannica than a tidal wave of curious surfers swamped the site and knocked out Britannica's computers. The next day, Chicago-based Britannica called Akamai Technologies Inc. (AKAM), an upstart that eliminates congestion-related crashes by delivering much of the content on
Web pages through its own chain of computers. When Britannica relaunched with Akamai on Nov. 5, ''we had a surge of traffic that we weathered very smoothly,'' says James Beattie, Britannica's chief technical officer. Since then, ''we've had no problems with the site going down,'' not even when a Super Bowl ad tripled the previous peak crowd.
Testimonials like this have helped propel Akamai to the head of the pack in a new market aimed at dramatically improving Internet performance. As more people hop onto the Net, customers can encounter nasty traffic jams--overwhelmed sites can crash and traffic zipping around the globe can slow to a crawl. Both hangups can be toxic to e-business. Akamai has come up with a winning solution. By putting the popular material from its customers' Web sites on more than 2,000 servers around the world, Akamai sharply increases the reliability of sites while delivering Web pages 2 to 10 times faster than before.
Little wonder that Akamai has taken on the aura of an Internet savior. In less than a year, it has become something of a gold standard for top Web sites, with customers such as Yahoo! (YHOO), CNN (TWX), and the Walt Disney Co.'s (DIS) Go network. ''They are awesome,'' gushes Farzad Nazem, chief technology officer at Yahoo. So appealing is Akamai's technology that Microsoft (MSFT), Cisco Systems (CSCO), and Apple Computer (AAPL) all became early investors. When Akamai went public on Oct. 29, the stock rocketed 458% the first day in one of the hottest initial public offerings ever. Akamai now trades around nine times its $26 offering price. Its market cap is more than $20 billion--staggering, considering that it rang up less than $4 million in revenues last year. ''In the '60s and '70s, IBM was the place to be,'' says George H. Conrades, Akamai's chairman and CEO who used to work at Big Blue. ''Akamai is even better.''
But euphoria is now giving way to what promises to be a bruising competitive battle. One potent rival is Digital Island Inc. (ISLD), which is allied with Sun Microsystems Inc. (SUNW) and armed with a $7 billion market cap. It is wooing customers such as E*Trade Group Inc. (EGRP), CNBC (GE), and Blue Mountain Arts with a sort of one-stop-shop for e-businesses. Unlike Akamai, it runs--or ''hosts''--Web sites on its own private network, in addition to offering content delivery like Akamai. It plans to add 5,000 Sun servers to its current network of 1,200 by 2003. ''At the end of the day, Digital Island will be the most dominant player in this space,'' predicts President Leo Spiegel.
An even bigger threat may come from the dozens of ISPs and telecom companies that handle Internet traffic. ''The big network operators are going to wake up'' to this opportunity, predicts analyst Brendan Hannigan of Forrester Research Inc. When they do, they'll be helped by Adero Inc. The Boston-based company installs its own servers into the network of an ISP or phone company. That gives the phone company or ISP the capacity to offer content delivery, video streaming, and other services to their customers. ''The competition could turn (content delivery) into a commodity market,'' warns Monty Mullig, vice-president of Internet technology at CNN.
Enormous Pressure. The flood of competition is placing Akamai under enormous pressure. While it is still the clear leader, ''all bets are off as to how this market will look in three years,'' warns analyst Joel Yaffe of market researcher Giga Information Group Inc. If Akamai starts to surrender its lead, its stratospheric stock price could plummet. ''There is no way to justify this price'' using traditional measures, argues Scott Black, president of money manager Delphi Management. Even if the market were to accord Akamai a Microsoft-like multiple of 60 times earnings, ''it would have to earn nearly $500 million'' to justify its current price, figures Black. Earnings like that are nowhere in sight at Akamai, which last year lost $59 million. Analysts believe Akamai's sales will explode to over $100 million next year, but no one expects it to make money anytime soon.
Still, Akamai has been a textbook example of how to launch an Internet skyrocket so far. It got its start at Massachusetts Institute of Technology in 1995, when Tim Berners-Lee, the man credited with inventing the World Wide Web, began worrying about the growing problems caused by congestion on the Net. He asked MIT math professor Tom Leighton, an algorithms expert whose office was just down the hall, to look into the issue. Then, Leighton assembled a team including Daniel Lewin, his top grad student, and a handful of other students.
They quickly decided that any solution would have to push content out from a Web site's centralized servers to a network of servers placed around the Internet. In itself, that was not a novel idea. Many ISPs and other companies already ''cache,'' or store content, in servers throughout the network. Problem is, such caches often serve up stale content because they're not updated very often. Worse, they sever the relationship between a Web site and its customers because the customer contacts the caching site, not the Web site itself. That can make it impossible for the Web site to know its customers well enough to customize content and ads--one of the key advantages of e-commerce.
By 1998, Leighton's team had a solution. The service, called FreeFlow, provides three major benefits to Yahoo! and other customers. By pushing content--such as photos and graphics--onto its own servers, Akamai sharply reduces the strain on a Web site's central servers. To keep the data on its servers fresh, Akamai constantly monitors its clients' sites and updates its servers regularly. Also, Akamai sharply cuts the time it takes a surfer to receive a Web page by deciding within milliseconds which Akamai server can deliver the fastest. To do that, Akamai birddogs traffic on the Net so it can route around bottlenecks. Kevin Book, director of Web development for The Motley Fool Inc., says Akamai has made his site up to six times faster than before. Finally, unlike traditional caching, Akamai keeps Web sites in full contact with their customers since every customer request for data comes through the Web site. This is the holy grail for Web sites, enabling online merchants to collect data on their customers.
To fend off competitors, Akamai is boosting its expertise in delivering the most complex services. It is the exclusive network provider for Apple's QuickTime TV, which delivers audio and video over the Net. ''We believe strongly that people want to view video over the Internet--and Akamai has the best technology to do it,'' says Apple Chairman Steven P. Jobs. Last year, for example, Apple zapped out over the Net 25 million copies of the trailer for the new Star Wars movie without any trouble. To bolster its capabilities, Akamai plans to acquire Intervu Inc. for $2.8 billion, picking up more streaming expertise and customers that include virtually every major TV network and Hollywood studio.
With a research and development team of over 130 people, Akamai is rapidly developing new services. By June, it will offer ad customization. That will allow Akamai to detect, for instance, that a consumer in northern Virginia interested in cars has just dialed into a Web site using a cable modem. Within milliseconds, Akama could deliver a streaming ad for a local Lexus dealer. Consumers using slower modems who may have a tough time with video clips would not see the ad. Ultimately, Akamai could offer 50 such services.
That kind of innovation could pay off big. ''There really is an early-entrant advantage [in this market],'' argues Apple's Jobs. Akamai has one of the industry's most formidable brain trusts, and there has been no letup in the seven-day-a-week pace since the IPO made many employees wealthy. ''I've never had less sleep in my life,'' says Earl Galleher, Akamai's hyperkinetic vice-president for worldwide sales and support. ''But I've never had more fun.'' That's the kind of spirit that already has won over the Web's elite. If it persists, bet on Akamai to lead the market in making the Internet a better place for e-business.
By WILLIAM SYMONDS
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Akamai: Speed Master
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