John Katsaros

Akamai Makes a Move Toward the Enterprise Market

For years Akamai has wanted to increase its participation within the enterprise market.  Although they made reasonable strides in the enterprise space with services like Akamai Edge Control for improving corporate portal performance, the company never "nailed" the enterprise market.  We have believed it was only a matter of time till Akamai either acquired Netli or came out with an equivalent offering to Netli's NetLightening application optimization service.  That question was settled last week when Akamai spent $177M to acquire Netli. That's roughly 2% of Akamai's overall capitalization and a pretty reasonable price to pay considering how many top tier customers Netli has acquired over the years.  Netli's success as a startup wasn't clear back in 2001 when the company started.  Back then the Internet bubble was bursting and the last thing that investors wanted to do was invest in a services company.  Things were looking pretty bleak and most infrastructure investors were focused on ROI savings, not application optimization.  But, amazingly, Netli succeeded in first bringing online a reasonable application optimization service and, most importantly, signing up high profile companies like HP as their initial customers.  Netli CEO Gary Messiana kept the company focused on bringing in large scale enterprise customers and continuing the expansion of its enterprise service offerings.  Venture investors who funded the company with $47M stand to make a nice return.  At the end of the day, it's a pretty nice outcome for acquirer and acquiree.

Luxury Boxes

We got our wish.  In the last issue we hinted that the best way to get a mention in this newsletter would be through a lavish gift.  We suggested a Sharp 1080P 57" LCD HDTV.  Akamai took the hint and offered up a trip to Fenway to see the Red Sox during their recent Akamai analyst conference.  Back in 2002, many had given up on Akamai -- the icon of the Internet infrastructure bubble hit bottom, their stock had dropped below $10 and investors were running away.  Today, that's all changed. The stock is above $50 for the first time in years and their business is booming.  What they told us five years ago was basically "wait till broadband connections get above 20%, then everything changes."  Well their 20% estimate might have been a little optimistic but now that broadband penetration rates are so high (near or above 50% in many countries)  Akamai's sales are greater than $100M per quarter.  And they make a good point -- just look at how much content is on the home page of most sites these days.  While they still stumble over making their case on the enterprise side, their business seems to grow with the times.