Akamai content model gives companies pause

The ground is shifting under the Web hosting industry, driven by the runaway success of newcomer Akamai Technologies and its peers.

Akamai burst into the business just a year ago, offering to host small pieces of Web sites such as Yahoo or CNN.com on a fast new kind of network. The idea has spread like wildfire, attracting a long list of clients from Yahoo to America Online to Microsoft. Today Akamai said it has already doubled its customer base, to more than 400 customers, since the beginning of this year.

Now some of the big centralized Web hosting companies, many of which actually host parts of Akamai's network, are beginning to see the upstart as a threat to their own business.

Akamai is reaping the benefits of an insatiable appetite for improved Web site performance on the part of the major players in the Net industry. By handling some of the graphics-intensive components of a Web site and placing its technology as close to a Web surfer as possible, Akamai can speed downloads significantly in a world where a slow site can mean a lost opportunity for a young Net firm.

A few of the established players

	The president and COO talks about ending the World Wide Wait.

in the Web hosting business have partnered with the young company. Others, like Exodus Communications and Digital Island, have taken stakes in or bought Akamai's competitors, and are hoping to beat back the newcomer on its own turf. But they're all responding, at the risk of seeing Akamai or its rivals chip into their profits.

"If we had waited five or six months, we would have had revenue bleeding out of us," said Niel Robertson, vice president of research for Exodus Communications, which invested $637.5 million in Akamai competitor Mirror Image Internet last week. "People were looking at some of Akamai's innovations, and then coming to us saying 'How can you take us to the next level in terms of performance?'"

The shifting focus hasn't yet slowed the traditional Web hosting business. Billions of dollars are being poured into construction of massive centralized data centers that are secure and reliable enough to host critical e-commerce sites. All of the major telephone companies are rushing to join the business, trying to catch up to Internet players such as Exodus, Digital Island and AboveNet.

Nevertheless, Akamai's approach has attracted scores of blue-chip customers and a high-flying stock price. Other similar competitors, such as Adero and Cidera (until recently known as Skycache), have also been gaining ground. Analysts say it's a warning sign for the hosting companies, which are suddenly seeing content they might have hosted winding up inside Akamai's network.

Traditional Web hosting is the equivalent of Fort Knox: A company's critical Web data is stored in a central location. Most host companies, such as Exodus or Global Crossing's GlobalCenter, have up to dozens of these centralized sites located around the world. This allows them to have backup facilities, in case one is destroyed by a natural disaster, or taken offline by hackers' attacks.

Akamai and other content distribution companies' systems are more akin to bank automated teller machines; there are many of them, and they're as close to actual individuals as possible. Akamai has spent the last year and half putting server systems inside hosting company facilities, inside individual service provider networks, and anywhere else it can find space, with the goal of getting its servers physically within a few miles of as many Web surfers as possible.

That means that when a computer user views content such as a banner, icon or video that is hosted on Akamai's network, chances are it's actually being downloaded from a local Internet service provider (ISP), hosting facility or something not far away.

Reaching content from a Web hosting facility often requires downloading from that particular Web server, which might be in Palo Alto, Calif. or Herndon, Va. That's usually only a difference of milliseconds, but as Web pages get more complex, those milliseconds add up.

"People are probably going to use centralized facilities less and less, and use distributed facilities more," said Peter Christy, an industry analyst with Jupiter Communications.

An independent test performed by CNET Networks found that pages hosted on Akamai's network were able to load an average of 25 percent faster across the United States, as compared to pages hosted directly by CNET. This advantage grew to 30 percent for overseas access.

Because its model requires having thousands of servers storing Web content in as many networks as possible, Akamai has wound up both competing and partnering with the hosting companies.

The company uses many hosting facilities as storage for its own facilities, including Exodus. It also contracts with several of the largest Web hosting companies, including Digex, Navisite, IBM and Global Crossing's Global Center, to resell its services.

Some hosting company insiders say that the relationship has caused tension even inside these firms, as some of the content they would ordinarily serve is moved to Akamai's network.

But the relationships still make sense, the insiders say. The hosting companies actually save money on network bandwidth costs by allowing Akamai to cache content closer to the user. Even more practically, Akamai currently has the momentum of a freight train--if the hosting companies didn't partner with the upstart, it could likely steal their customers anyway, one insider noted.

Despite the steady upturn in the company's customer base, Akamai has had a tough time on Wall Street in recent weeks. The company has lost close to 180 points, or more than half of its value, since January. Its slide has sped up slightly since last week, when Exodus bought competitor Mirror Image, after some analysts predicted that big customers would now seek out the full-service shops like Exodus instead of Akamai's stand-alone business.

"I think the one-stop shop is the way to go. As a content provider that's where I want my content," said Kevin Mitchell, a service provider analyst at Infonetics Research.

A few analysts have predicted that Akamai itself would move into the full hosting business, particularly as Exodus, Digital Island and others begin offering their own content distribution facilities that compete with Akamai. But the company says it doesn't want to move down that path, at least for now.

"It's like going to the guy who makes really good engines, and asking him to build you a whole car," said Jonathan Seelig, vice president of strategy and corporate development at Akamai, and one of the company's founders. "We don't have a competency in building big facilities. The guys at Global Crossing are really good at that."

News.com's Corey Grice contributed to this report.