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Summary:

Akamai’s latest product lets operators take over their own content delivery network, using Akamai’s software but not its boxes. This is a huge change in Akamai’s business. The shift and the reasons for it offer clues about the evolution and domestication of the web.

Akamai CEO Paul Sagan at Giga OM Structure.

Akamai CEO Paul Sagan at GigaOM Structure

Akamai’s latest product launch lets network operators take over their own content delivery networks, using Akamai’s software but not its boxes. The Aura network solutions business is a huge change in Akamai’s business, given that it has spent more than a decade pushing its proprietary boxes located inside carrier networks. The shift, and the reason for it, offers a lot of clues about the evolution and domestication of the worldwide web.

Akamai, which was founded in 1998, was created with the radical business plan that by caching web content close to the end user, it could deliver movies, videos and websites faster for its customers. Part of the idea was that the content wouldn’t have as far to travel once a user requested it, but another benefit was that by caching content at the edge, content providers and ISPs won because fat files didn’t travel repeatedly across the network. Akamai has tens of thousands of servers at operators around the world and generated sales of $1.16 billion in 2011. The model worked.

A changing web and more competition

But two things happened that have led to Akamai’s shift in strategy. The content sent over the network started changing. Websites turned to downloaded video and then downloads turned to streaming video. And with the advent of apps and widgets, websites became more dynamic, forcing content delivery networks to update their caches faster and from a variety of sources. And still sites bogged down.

Akamai has been on a buying spree, trying to address these issues and the spread of content that blossomed on the web unrelated to delivering video and fat web pages, such as social commenting tools or dynamic ads. It has ventured into mobile advertising, transactional optimization and security.

At the core, though, was Akamai’s EdgePlatform of more than 100,000 servers. But operators, concerned about their bottom lines and the growth of traffic coming from video and monetized by companies that were earning a premium on their pipes, began experimenting with their own CDNs. In both wireline and wireless, ISPs were trying to push Akamai out so they could control their own destiny. (Seriously, I’ve had an executive at an ISP explain its CDN efforts that way.)

With today’s Aura product launch, which offers operators a chance to license Akamai’s software or lets them buy blade servers from network equipment vendor Ericsson that will run Akamai’s software, Akamai has given in to operators’ concerns and the reality of the web. Sure, it was once a huge advantage to have a network of servers at the edge, but plenty of CDNs work very differently now, from Akamai’s rival LimeLight to newer companies such as EdgeCast, which already licenses its software.

Plus, Akamai spends a lot of money on servers, which adds to its bottom line in a business where the price of the base service is decreasing.

Did Akamai just take sides in the taming of the web?

I also see this as an admission that in order to deliver content at a large scale, you’re going to have to get in bed with the carriers. That could be bad news for the likes of Netflix (and the Internet at large). This move takes what used to be a third-party content delivery system and gives carriers the option to control it. Frank Childs, a director of product marketing for the networks business at Akamai, explained that this isn’t necessarily a bad thing.

Hypothetically speaking, he explained that Netflix might benefit under this sort of arrangement because it could work with particular ISPs to ensure its content arrives using the most efficient route for the ISPs, giving Netflix users a better experience and perhaps saving Netflix some bandwidth costs. Childs also suggested the ISP would benefit because it could route the traffic most efficiently for it and possibly monetize traffic it previously hadn’t been able to earn money from.

But Childs also acknowledged that in some cases the product will cause channel conflict for some customers. For example, if you are Disney, do you work with Akamai as your CDN or with carriers? What if you negotiate CDN rates along with the retransmission fees you are already discussing with the pay TV side of the house at many ISPs?

At the same time, if you are Netflix, do you want to work with two or three CDNs, or do you want to negotiate with dozens of carriers in the markets where you want to deliver content? Consider also that those CDNs are willing to fight some pretty public battles with ISPs to protect your and their business.

As for Akamai’s product, it will be followed up with more announcements from Akamai throughout this year as the company seeks to continue adapting its business to the needs of the web. Call it realpolitik, or maybe just business.

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    1. Stacey Higginbotham CEO Name Tuesday, February 28, 2012

      Oh dear, that was a typo. Fixed and thank you.

  1. Sean Roberts Friday, March 2, 2012

    Internet companies have always needed strong carrier and peering relationships. Not having the talents and skills in-house to establish and maintain those relationships makes for Trouble.

  2. Jeremy Smith Tuesday, March 6, 2012

    Sounds like Akamai is realizing that the EdgeCast model of not just operating a CDN but enabling the carriers to be their own CDN’s is the way the market is moving…

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