Akamai walks fine line with Web hosters
The company creeps into new territory and threatens to take significant amounts of business away from Web hosting centers, even as these companies scramble to reinvent themselves.
Technology for speeding content across the Web, pioneered by companies like Akamai, has matured to the point that these content distribution companies can handle far more than the fast delivery of Web page elements such as static graphics and text they began with two years ago.
This threat has been lurking behind Akamai's business model since the beginning. But the industry is now seeing Web sites such as Motley Fool moving a majority of their services--representing up to 90 percent of their traffic--into the newcomer's network, and away from the traditional hosting companies.
"I have to view (Akamai's moves) as a competitive threat," said Peter Christy, an analyst with Jupiter Research who follows the industry. "Where is all that money for Akamai going to come from? It's dollars that (customers) would have spent for hosting before."
While little of this change is visible to the average Web surfer, aside from slightly faster downloads, it marks a substantial shift in the Net's electronic geography, and a potential diversion of the flow of the profits that go with it.
For the last year, big Web hosting companies such as Exodus or Digital Island have seen bits of their original business eaten away by younger rivals, including Akamai. The older companies were originally built on a centralized computing model, with vast data centers filled with powerful Web servers located around the world.
Content distribution companies, led by Akamai, introduced a more decentralized model with thousands of smaller server computers installed as close to surfers as possible: inside Internet service provider networks, hosting companies' data centers, or any other convenient points in a network. Thus, when a computer asked for something stored inside one of these networks, it could be downloaded faster, with fewer "hops" through often-crowded segments of the Internet.
Most of the hosting companies have adapted, buying their own content distribution divisions. The companies also still serve as home to pieces of Web sites that companies like Akamai can't support, such as databases. They also are moving into more complicated hands-on services guaranteeing Web site stability and performance.
"We see the lines blurring between hosting and content delivery," said Digital Island Chief Marketing Director Tim Wilson, whose company bought Akamai rival Sandpiper Networks early last year. Although both sides of his business are growing, Wilson said that the decentralized content distribution side is growing more rapidly.
An Exodus spokesperson could not immediately be reached for comment.
Akamai itself is careful to avoid giving any indication that it is taking direct aim at the hosting companies' business. Many of the biggest hosting operations resell Akamai's services, and it paints each new advance as a benefit for both sides.
In the case of a new "EdgeSuite" service now being adopted by customers, Akamai executives say that hosting companies will be freed to dedicate their space and energies to higher margin businesses that require more processing power, such as hosting powerful transaction or other Web databases that can't be decentralized.
"We're seeing an enormous level of excitement from our resellers," said Akamai marketing director Kieran Taylor. "Web serving is fast becoming a low-margin, commodity business."
But hosting companies such as Digital Island and Exodus say they are better positioned than Akamai, because they can offer customers both content distribution and centralized hosting. Customers need both sides of the equation, and are ultimately likely to select a single company to do both, the hosters contend.
"You need to use both these things in conjunction with each other," Wilson said. Akamai, with only its decentralized network, can't do this as well as the companies that have both, he added.
Building the faster Net, again
Analysts say Akamai's EdgeSuite, which is just beginning to resonate with
big Web site clients, marks a significant step forward in the way the Net is
organized.
In the earlier centralized model, companies paid for considerable redundancy inside hosting companies in order to ensure they could handle peak demand--during a Madonna or Victoria's Secret Webcast, or to handle stock traders' requests for data at the close of Wall Street trading, for example. Most of the time, this extra power went unused, however.
Motley Fool Chief Technical Officer Dwight Gibbs says he's testing Akamai's newest service, and plans to move 80 percent to 90 percent of his traffic to Akamai, away from conventional hosting services.
Other companies, including Excite@Home's Blue Mountain Arts, have already moved 40 percent to 60 percent of their services to Digital Island's competing service, Wilson said. This number rises as more of the processing power involved in serving a Web page can be moved into the decentralized networks.
Akamai's financial figures underscore the effect its technology is having on the market. While other companies are routinely reducing their future years' profit guidance, Akamai handily =" news="" 0-1004-200-4590330.html"="">beat fourth-quarter 2000 expectations, and said it would lose considerably less money this year than it had originally predicted.
Those numbers alone serve as strong warning to hosting companies that it's time to get away from the low-level side of their business, according to analysts, dismissively dubbed by many in the industry as "ping, power and pipe." For most hosters, with their eyes on the higher-margin managed services that include more hands-on management of Web sites, it's a lesson they're already trying to react to, but with only marginal success so far, analysts say.
"Add all this up, and it has a pretty profound effect on the hosting business," Christy said.