Akamai success rides on need for faster Net
In the wake of successful Internet public offerings and investor interest in Web caching technology, start-up Akamai may be in the right place at the right time.
The firm, whose name means "clever" or "cool" in Hawaiian, saw its shares skyrocket on its second day of trading, following one of the most successful initial public offerings ever to hit Wall Street.
The continued rise in the company's share price in part marked an endorsement of Akamai's under-the-hood Web technology, aimed at speeding Internet downloads. Analysts say the company is also well positioned to take advantage of investors' current obsession with Internet technology.
"All of a sudden there's a slew of companies that are focusing on optimizing the Internet's existing infrastructure," said First Albany analyst Ullas Naik. "That's the current phase [of interest] we're seeing."
Akamai's jump follows similar IPOs by Net infrastructure companies Juniper Networks and Sycamore Networks, each of which promise to speed data traffic along the Internet in different ways.
The limited number of infrastructure firms so far has intensified demand in the investment community for their shares and has helped to inflate stock prices, Naik added.
But does this mean that these tiny start-ups are really worth what investors are paying for them?
"In any rational view, it's hard to say a company with $1 million in revenue is worth $15.9 billion," said Peter Christy, principal analyst with Internet Research Group, publishers of the Web site caching.com.
"But you can't talk about Internet valuations except in the same way that you talk about Palo Alto [California] real estate: in terms of comparable value."
Reaping the rewards
Timing aside, Akamai is reaping the rewards of a technology that has already won endorsements from some of the most powerful companies on the Web, including Yahoo and Disney's Go Network, analysts noted. The company also has garnered investments from Apple Computer, Cisco Systems, and Microsoft.
The company provides a service that aims to speed the delivery of Internet content to a Web surfer, largely by hosting Web pages as close to the end user as possible.
It's a variation on Web caching, a technology pioneered by Inktomi and others several years ago. Different copies of the same Web pages, or elements of the same Web pages, are distributed widely across the Net. If a user can download a copy of Yahoo's home page, for example, from a server nearby, instead of from one on the other side of the United States, download will be considerably faster, caching proponents say.
Akamai sells its services directly to Web content companies like Yahoo, yet also stores its caching servers in ISP offices around the country, as physically close to individual Web users as possible.
The company further maintains a kind of headquarters that constantly monitors traffic patterns on the Net, making sure that data is taking the fastest, if not necessarily the shortest, path to its destination.
Joining the bandwagon
Other companies are beginning to offer similar services. SandPiper, a company that recently merged with Web hosting firm Digital Island, has been in operation longer than Akamai, but hasn't gotten as much investor attention. Newcomer Edgix offers services similar to Akamai, but targets ISPs as clients rather than content companies. Satellite distribution companies like SkyCache and iBeam Broadcasting aim to transmit content from satellites to ISPs, avoiding bottlenecks on the conventional Internet.
All of these companies are addressing growing problems with congestion on the Net, a hurdle that analysts say must be overcome for e-commerce and high-bandwidth entertainment to reach the mass market.
Nevertheless, Akamai addresses only a small part of a growing market, analysts note.
The company's technology does help speed downloads, Akamai's customers say. But the firm focuses only on the static, or unchanging, part of Web pages, and to a lesser extent streaming audio or video. That means it can host Yahoo's navigation bar, for example--but anytime a user wants to buy an item online, or otherwise communicate directly with a Web site, Akamai's technology is of little help.
That leaves things open for improvements to the technology, and possibly for other competitors to move in to make the Internet faster, Christy said.
"There are lots of things their system doesn't do," Christy said. "That leaves room for many competing companies."