CONTENT DELIVERY:

POWERING AN INDUSTRY AND THE WORLD WIDE WEB

Presented by Team 2-7: Matt Muller, Austin Ros, Zi-Jay Chen, Josh Phitoussi, Ross Simons, and Doug McCadden

Akamai and the Industry Landscape

Microeconomics

Competitive Environment

The Content Distribution Network Industry: Small Object Delivery Application Acceleration Electronic Software Download Media Delivery

Market Structure Akamai has lost market share in recent years From a monopoly to an oligopoly Akamai’s pricing premium has given it’s competitors an

opportunity Direct competitors now threaten to develop market share

Market Share of CDN

AkamaiLimelightLevel 3Other firms

Porter’s Five Forces

Porter’s Five Forces

Porter’s Five Forces

Porter’s Five Forces

67%11%

6%

5% 11%

1%

% Market Share by Revenue 2008

Akamai revenueLimelight revenueLevel 3 revenueAmazon AWS revenueInternap revenueOther

63%10%

4%5%

9%

9%

% Market Share by Revenue 2009

Akamai revenueLimelight revenueLevel 3 revenueAmazon AWS revenueInternap revenueOther

Strategy & Trends

Strategy & Trends

Akamai has recognized its dependence on its competitors pricing decisions

Aggressive re-pricing

Product differentiation

Akamai and Their Expansion

Marketing

Market Presence• Serves content for 5 of the top 6 online music sites, 29 of the

top 30 media/entertainment companies Media &

Entertainment• Leaders in information services like Thomson Reuters, and

comScore rely on Akamai to provide customers with reliable access.

Business Services• Protects and enables transactions for Charles Schwab,

E*TRADE, Easy-Forex and other top institutions. Financial Services• Enables delivery of gaming content for next-generation

consoles from Nintendo, and helps many other companies to meet gamers.

Gaming• Handles online bookings for world’s largest hotel firm & big

brands like Expedia, Marriott, & Travelocity. Hotel & Travel• Six of the top ten US insurance companies rely on Akamai. Insurance• Trusted by all of the top auto makers – Toyota, GM, Audi,

BMW, and more. Manufacturing &

Automotive• Enables online operations for 10 of the world’s governments,

all branches of the US Military, and many other agencies Public Sector• Enables $200 billion in annual e-commerce revenue; used by

over 90% of the top online retailers.Retail & Consumer

Goods• Used by all of the top 5 anti-virus companies to distribute

software online. Software & Technology

Market Segment Akamai’s Presence

Product Content Delivery Network

Geographically diverse network of servers. Fast, secure, and reliable means of

decreasing the user’s wait time for accessing content.

Scalable to still provide content even when suffering from burst traffic.

Targeted Advertizing Ability to move and capture 30% of all web

traffic

Product Differentiation The market for our services is intensely competitive and

characterized by rapidly changing technology, evolving industry standards and frequent new product and service installations. We expect competition for our services to increase both from existing competitors and new market entrants. We compete primarily on the basis of:• performance of our services;• return on investment in terms of cost savings and new revenue opportunities for our customers;• reduced infrastructure complexity;• sophistication and functionality of our offerings;• scalability;• ease of implementation and use of service;• customer support; and• price.

Place/Price Two channel means of sales and distribution

Akamai Sales People Outside Resellers

Act as competitors Create a small area of monopolistic competition

I’ve long believed that you don’t want to entrust everything to resellers. Having a direct sales force helps you keep the game straight; it’s a back stop. What if a reseller abandons you? Sure, with dual channels you end up tripping over each other sometimes, and you have to figure out whether to double commission you in-house reps for sales made in their accounts by resellers. But it’s worth accepting the conflict that goes along with a dual channel structure. (Chairman Conrades)

Promotion

General push is to boost product usage (CDN) Name recognition

Best known through reputation, and sheer size. Tagged videos

Small Akamai Icon as content loads Faster load time associated as Akamai’s reputation.

13%

28%59%

2010 EVP, Global Sales, and Marketing Compensation

Mix 13% Base Salary28% Annual Cash Incentive59% Long Term Equity Incentive

Performance Metrics

Ratio is approximately a return in revenue against the invested dollars in marketing Rising until market crash in 07/08 Revenues continue to rise, but at a slower

pace due to less purchasing power of investments.

Competitors Limelight

Advertising CDNetworks

Private firm Expanding quickly across the North Eastern

Hemisphere Level 3 Communications

Primarily an ISP

SWOT Analysis

Relating Marketing & Finance Akamai’s increasing TAT

indicates its efficiency in making key acquisitions

High cash & liquidity allow potential flexibility in price competition

Increasing R&D expenditures allows for expansion into growing markets

FINANCE

AKAM

A Quantitative Analysis

DuPont Analysis

Dupont 2005 2006 2007 2008 2009 2010

Profit Margin 115.85% 13.39% 15.87% 18.35% 16.97% 16.73%

TAT 0.32 0.34 0.38 0.42 0.41

0.44

Equity Multiplier 1.43 1.31 1.22 1.20 1.20 1.08

ROE 52.55% 6.01% 7.43% 9.25% 8.39% 7.86%

2005 2006 2007 2008 2009 2010 0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

900.0

1,000.0

1,100.0

328.0

57.4 101.0

145.1 145.9 171.2

283.1

428.7

636.4

790.9

859.8

1,023.6

Profit Margin

Net Income Revenue

Revenue and Profit 2009

Year over year Profit Growth % of

Revenue

2007->2008 43.75% 18.35%

2008->2009 0.53% 16.97%

2009->2010 17.34% 16.73%

Year over year Revenue Growth

2007->2008 24.28%

2008->2009 8.7%

2009->2010 19.05%

Lack

of Co

st Co

ntro

l

2008 2009 2010 300.0

310.0

320.0

330.0

340.0

350.0

360.0

370.0

380.0

390.0

400.0

300.4

325.5

394.5

SG&A Expenditures

G&A

Expe

nditu

res

GMGrowth ($)

SG&AGrowth ($)

SG&A GrowthGM Growth

2009$64 Mil

$25 Mil

39%

$69 Mil

67%

2010$103 Mil

2009 2010

“We expect increased R&D expenditures as we continue to hire additional development personnel in order to make improvements in our

core technology, develop new services, and make refinements to our other service offerings.” – 10k

GMGrowth ($)

SG&AGrowth ($)

SG&A GrowthGM Growth

2009$64 Mil

$25 Mil

39%

$69 Mil

67%

2010$103 Mil

2009 2010

Year over year Profit Growth % of

Revenue

2007->2008 43.75% 18.35%

2008->2009 0.53% 16.97%

2009->2010 17.34% 16.73%

Year over year Revenue Growth

2007->2008 24.28%

2008->2009 8.7%

2009->2010 19.05%

Future Issue “We expect to

utilize substantially all of our tax credit carryforwards in 2011. Once we have done so, the amount of cash tax payments we make will increase over those made in previous years.”

“We expect to utilize substantially all of our tax credit carryforwards in 2011. Once we have done so, the amount of cash tax payments we make will increase over those made in previous years.”

ASSETS AND DEBT MANAGEMENT

Acquisitions

2007

2008

2009

2010

0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5

Netli. INC

-Growth of 571%-Acquired at 154.4 million on March 2007

Other Acquisitions

Nine System. INC

Red Swoosh. INC

aCerno. INC

Netli. INC

0 100 200 300 400 500 600 700

% Growth in Net Income

% growth

Acquisition Summary Acquisitions can be risky without good

management. Akamai does a very good job in

managing it’s acquisitions and assets This has resulted in a TAT increase

TAT ratio

Akamai’s revenue comes from efficient utilization of long term assets:

Servers, infrastructure However, Akamai has grown cash and

cash equivalents to roughly 10% of total assets in 2010.

Cash vs. Total Assets

6%

94%

10%

90%

CashTA

2006

2010

Debt Management Started to

decrease debt starting 2003

Paid off all long term debt in 2009

2001 2002 2003 2004 2005 2006 2007 2008 2009 20100

50

100

150

200

250

300

350

400

450 Long term debt

Long term debt

*Improvement*Liquidity*Opportunity*Nimbleness

GlobalExpansi

on

Action Plan1. Enter mobile marketing / SMS delivery

“Mobile advertisements are 30 times more effective than internet ads.” MobileMarketer

• Globally, mobile ownership and usage far exceeds the ownership of PCs with Internet access.• Unlike other mobile marketers, Akamai already has the servers and business partnerships necessary to dominate this market. • Akamai can help firms effectively gather and analyze a more specified range of information about their customers.

Action Plan2. Targeted Marketing

• Akamai collects large amounts of data about web users and their behavior.• To increase a firm’s profitability, Akamai can create profiles about users to more effectively place advertisements on the firm’s webpage.• This model has worked for firms such as Facebook, Pandora, and Amazon.

Action Plan3. Target firms that cover major events in other countriesMarch Madness

Super Bowl

FIFA World Cup

Cricket World Cup

References AccuStream iMedia Research. (2009, August). CDN 2010: Revenue, R&D, Cap Ex and Operational Analytics - Market Research Reports - Research

and Markets. Research and Markets - Market Research Reports - Welcome. Retrieved April 03, 2011, from http://www.researchandmarkets.com/reportinfo.asp?report_id=1057699&t=d&cat_id

AKAM Competitors | Akamai Technologies, Inc. Stock - Yahoo! Finance. (n.d.). Yahoo! Finance - Business Finance, Stock Market, Quotes, News. Retrieved April 03, 2011, from http://finance.yahoo.com/q/co?s=AKAM

Akamai: The Leader in Web Application Acceleration and Performance Management, Streaming Media Services and Content Delivery. (2011, March). Retrieved April 03, 2011, from http://www.akamai.com/index.html

Edelman, B., Eisenmann, T., & Van Den Steen, E. (2004). Akamai Technologies - Harvard Business Review. Harvard Business Review Case Studies, Articles, Books. Retrieved April 03, 2011, from http://hbr.org/product/akamai-technologies/an/804158-PDF-ENG

Form 10-K. (2010, December 31). U.S. Securities and Exchange Commission (Home Page). Retrieved April 03, 2011, from http://www.sec.gov/Archives/edgar/data/1086222/000119312511051569/d10k.htm

Gale. (2011). Application Service Providers. Encyclopedia of Emerging Industries. Retrieved April 3, 2011, from http://galenet.galegroup.com.ezproxy.babson.edu/servlet/BCRC

Marketing Weekly News, A. (2011, March 12). Internet Software and Service Companies; Akamai's Advertising Decision Solutions Help Retailers Drive Transactions and Improve Return on Ad Spend. Internet Software and Service Companies; Akamai's Advertising Decision Solutions Help Retailers Drive Transactions and Improve Return on Ad Spend. Retrieved April 3, 2011, from http://proquest.umi.com.ezproxy.babson.edu/pqdweb?did=2281756971&sid=6&Fmt=3&clientId=5013&RQT=309&VName=PQD

Mostash. (2011, March 28). From Horseback To Bullet Train: The History Of Internet Usage And Speeds | Official WebHostingBuzz Company Blog. Web Hosting, Cheap Reseller Hosting by WebHostingBuzz, Cheap Web Host. Retrieved April 03, 2011, from http://www.webhostingbuzz.com/blog/2011/03/28/history-of-internet-usage

Phillips, M. (2011, March 14). Akamai Shares: March Madness to End Slump? - MarketBeat - WSJ. WSJ Blogs - WSJ. Retrieved April 03, 2011, from http://blogs.wsj.com/marketbeat/2011/03/14/ncaa-tournament-the-antidote-to-akamais-slump/

Rayburn, D. (2009, August 17). CDN Market Still Due For A Shakeout. Business Insider. Retrieved April 03, 2011, from http://www.businessinsider.com/the-future-of-cdn-2009-8

Rayburn, D. (2010, January 19). Akamai Gaining Market Share With Their Lower CDN Video Pricing. The Business Of Online Video. Retrieved April 03, 2011, from http://blog.streamingmedia.com/the_business_of_online_vi/2010/01/akamai-gaining-market-share-with-their-lower-cdn-video-pricing.html

Rouse, R. (2007, July 11). Akamai Technologies Still in the Limelight. Stock Options Trading Strategies Options Trading Course Options Mentoring. Retrieved April 03, 2011, from http://www.optionsmentoring.com/stockoptions/Akamai_Technologies_Still_in_the_Limelight.shtml

Rusli, E. M. (2007, September 20). New Competitors For Akamai Online - Forbes.com. Information for the World's Business Leaders - Forbes.com. Retrieved April 03, 2011, from http://www.forbes.com/2007/09/20/akamai-technology-entertainment-markets-equity-cx_er_09020markets22.html