1. 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 M
9. Competitive Environment
The Content Distribution Network Industry:
Small Object Delivery
Market Share of
CDN
Application Acceleration
Electronic Software Download
Media Delivery
Akamai
Market Structure Limelight
Level 3
Akamai has lost market share in recent years Other firms
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
17. Market Presence
Market Segment Akamai’s Presence
• Serves content for 5 of the top 6 online music sites, 29 of the top 30
Media & Entertainment media/entertainment companies
• Leaders in information services like Thomson Reuters, and comScore
Business Services rely on Akamai to provide customers with reliable access.
• Protects and enables transactions for Charles
Financial Services Schwab, E*TRADE, Easy-Forex and other top institutions.
• Enables delivery of gaming content for next-generation consoles from
Gaming Nintendo, and helps many other companies to meet gamers.
• Handles online bookings for world’s largest hotel firm & big brands like
Hotel & Travel Expedia, Marriott, & Travelocity.
• 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
Manufacturing & Automotive more.
• Enables online operations for 10 of the world’s governments, all
Public Sector branches of the US Military, and many other agencies
• Enables $200 billion in annual e-commerce revenue; used by over
Retail & Consumer Goods 90% of the top online retailers.
• Used by all of the top 5 anti-virus companies to distribute software
Software & Technology online.
18. 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
19. 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.
20. 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)
21. Promotion
2010 EVP, Global Sales, and
Marketing Compensation Mix
13% 13% Base Salary
28% Annual Cash
28% Incentive
59%
59% Long Term Equity
Incentive
General push is to boost product usage (CDN)
Name recognition
Bestknown through reputation, and sheer size.
Tagged videos
Small Akamai Icon as content loads
Faster load time associated as Akamai’s reputation.
22. 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.
23. Competitors
Limelight
Advertising
CDNetworks
Private
firm
Expanding quickly across the North Eastern
Hemisphere
Level 3 Communications
Primarily an ISP
25. 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
30. “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
31. 2009 2010
Year over year Revenue Growth
GM 2009 2010 2007->2008 24.28%
Growth ($) $64 Mil $103 Mil
2008->2009
2009->2010
SG&A $25 Mil $69 Mil
Growth ($) Year over Profit % of
year Growth Revenue
2007->2008 43.75% 18.35%
SG&A Growth
39% 67% 2008->2009 16.97%
GM Growth
2009->2010 16.73%
32. Future Issue
“We expect to utilize
“We expect to utilize
substantially all of
substantially all of our
our tax credit
tax credit carryforwards
carryforwards in in 2011. Once we have
2011. Once we have done so, the amount of
done so, the amount cash tax payments we
of cash tax make will increase
payments we make over those made in
will increase over previous years.”
those made in
previous years.”
34. Acquisitions
Netli. INC
2010
2009
2008
2007
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5
-Growth of 571%
-Acquired at 154.4 million on March 2007
35. Other Acquisitions
% Growth in Net Income
Netli. INC
aCerno. INC
% growth
Red Swoosh. INC
Nine System. INC
0 100 200 300 400 500 600 700
36. 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
37. 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.
39. Debt Management
Started to 450 Long term debt
decrease debt 400
350
starting 2003 300
250
Paid off all long 200 Long term debt
term debt in 150
100
2009 50
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
42. Action Plan
1. 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.
43. Action Plan
2. 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.
44. Action Plan
3. Target firms that cover major events in other countries
March Madness Super Bowl
FIFA World Cup Cricket World
Cup
45. 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
Editor's Notes
Akamai is in the content distribution market, it specializes in providing customers’ data to users all around the world. This market can be broken down into four smaller categories: small object delivery, application acceleration, electronic software download, and media delivery. Although most firms only specialize in small object delivery or media delivery, Akamai offers all four services, giving it an edge over competitors who cannot satisfy the more sophisticated needs that customers such as Apple or the Department of Defense may have.Akamai has traditionally been the dominant firm of the CDN market, but in recent years, a large number of start-up firms have entered the market with hopes of directly competing with the CDN behemoth. Because of this, the CDN industry has gone from a monopoly in 1998, in which Akamai was the only firm, to an oligopoly, in which Akamai must now compete. Although Akamai has long been regarded as the most reliable and most secure CDN company, many rivals such as Level 3 and Limelight have taken advantage of Akamai’s premium pricing to gain market share. For example, Akamai has recently lost one of its most important customers, Netflix, to Limelight because of its pricing. Bringing in $15M a year to its CDN provider, Netflix is a customer that no CDN firm, not even Akamai, can disregard. Because of such competition, Akamai has seen its market share dwindle below 70% to the benefit of rivals such as Limelight, Level 3, and CDNetworks.
As a result of increased competition, Akamai has decided to aggressively change its corporate strategy from one of dominant firm to one of intense competitor. It has recently forgone it’s longstanding premium and has re-priced 75% of its contracts in order to retain its customers and attract new ones. This reflects how Akamai is now facing an oligopolistic market structure in which competitors are dependent on each other’s pricing decisions. Indeed, Akamai can longer enforce a price premium while also protecting its market share. Because oligopolists tend not to engage in price wars, their best option is to gain an edge over competitors by offering new products and increasing awareness. However, CDN firms rarely use conventional advertisement to promote brand awareness. As a result, Akamai must begin differentiating its products from those of competitors. This is perfectly exemplified in Akamai’s recent decision to launch new products, such as Electronic Software Delivery for Games, that competitors have yet to develop. This allows Akamai to still keep an edge over competitors while it figures out a way to protect and develop its market share as new rivals enter the market and offer close substitute products.
As a result of increased competition, Akamai has decided to aggressively change its corporate strategy from one of dominant firm to one of intense competitor. It has recently forgone it’s longstanding premium and has re-priced 75% of its contracts in order to retain its customers and attract new ones. This reflects how Akamai is now facing an oligopolistic market structure in which competitors are dependent on each other’s pricing decisions. Indeed, Akamai can longer enforce a price premium while also protecting its market share. Because oligopolists tend not to engage in price wars, their best option is to gain an edge over competitors by offering new products and increasing awareness. However, CDN firms rarely use advertisement to promote brand awareness. As a result, Akamai must begin differentiating its products from those of competitors. This is perfectly exemplified in Akamai’s recent decision to launch new products, such as Electronic Software Delivery for Games, that competitors have yet to develop. This allows Akamai to still keep an edge over competitors while it figures out a way to protect and develop its market share as new rivals enter the market and offer close substitute products.
Hi everyone, I’m Ross and I’m here to breakdown the financials of Akamai and tell you what they mean for the company. As you all should know, corporate finance is all about increasing shareholder value. On that note, I thought it would be appropriate to include the growth of their stock. This segment is from the lowest point of their stock, just under $10, since the tech bubble in the early 2000’s when they dropped to less than $1. After being hit by the financial crisis and the recession, you can see that the stock has rebounded in under a year. Keep that in mind as we delve deeper into the financials. COMPETITORS!
Here is our DuPont analysis for Akamai. We’ll address each of these factors in this presentation. To be brief, let me just point out that the profit margin has been decreasing, the equity multiplier has been decreasing, while the TAT marginally increased. This explains the decrease overall in ROE. First, we’re going to talk about profit margin.
Take a look at 2005, this is important for the end of the presentation. It seems like we did the graph incorrectly, but I assure you it’s correct. What happened in 2005 was that they has a revenue of 283.1 with an EBTaxes of 70mil. However, they exercised 257 million of NOL tax credits, resulting in a profit margin of 115%.What we’re seeing here in the graph is that revenue has had strong growth over the 5 year timeframe. Even in the midst of the financial crisis, from 2008-2009, revenue was able to grow by 8%. Akamai was able to manage this because of a huge market share, as Micro has already pointed out in their presentation, combined with strong financials, and a growth strategy that we’ll explain later. One problem area for Akamai in 2008-2009 was that their profit margin growth dropped from 18.35% to 16.97%. This is a pretty substantial one year drop, and by itself, looks dangerous. However, we’re going to dig a little deeper. The financial reason their PM dropped was because revenue increased by 8.7% where as pm growth was only .5%. This led to an overall lower PM for the year. After some analysis, we initially concluded that it was because of a lack of cost control. Once we did some more research and analysis, we found that it’s really because Akamai is increasing their investment in their 4 p’s to help combat some of the issues in the competitive environment. To put some weight behind this claim, let’s take a look at their SG&A expenses.
Since we’re taking a look at costs control, we wanted to go ahead and move past the COGS. Their COGS remained relatively constant and in 2009 gross margin as a percentage of revenue actually increased by almost 2 percentage points to 73.51%. With that said, we’ll be talking about expenses from here on out with gross margin as our starting point. In 2009, Gross margin grew by 64 mil in dollar amount. In the same year, SG&A increase 25 million. This alone decreases GM growth by 39%. T.hat’s a pretty substantial cost increase in that one item line of the income statement. We have an explanation for thisTAXESSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS
Since we’re taking a look at costs control, we wanted to go ahead and move past the COGS. Their COGS remained relatively constant and in 2009 gross margin as a percentage of revenue actually increased by almost 2 percentage points to 73.51%. With that said, we’ll be talking about expenses from here on out with gross margin as our starting point. In 2009, Gross margin grew by 64 mil in dollar amount. In the same year, SG&A increase 25 million. This alone decreases GM growth by 39%. T.hat’s a pretty substantial cost increase in that one item line of the income statement. We have an explanation for thisTAXESSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS. The reason.
