Internap Is Not The Next Akamai
In an article on Barron's website this week, which Seeking Alpha has an annotated article summary of by Judy Weil, Mark Vererka says that Internap may be the next Akamai. No offense to Internap, but that's an absurd statement for anyone to make. As you'll see below when it comes purely to revenue, numbers don't lie.
It's amazing the amount of analysts who make blanket statements about vendors in our industry, yet then provide no data to back up their predictions and even contradict themselves with the numbers they use in their articles. For starters, Judy Weil's summary of Mark's article says that "Patent and price battles have seen content-delivery-network giant Akamai and upstart competitor Limelight lose ground." Lose ground to who? How can you make a statement that the number one and number two companies in the space, based on revenue, are losing ground but then don't say who they are losing it to?
The article also says "Internap only recently entered the CDN business with its VitalStream acquisition, and CDN accounts for just 10% of Internap's $192.3 million in revenues." That amounts to roughly $20 million last year for Internap in CDN revenue compared to Akamai's roughly $200 million last year on CDN services and Limelight Networks $60 plus million from CDN services. How do those numbers show Internap becoming the next Akamai? Akamai is doing 10x the CDN revenue Internap is. The fact that the article does not mention that last year, Internap was the number one reseller of CDN services for Akamai also goes to prove that even with the revenue Internap was getting from CDN, it was paying Akamai at the same time. These analysts need to do their homework.
The article does seem to be implying that Internap can become the next Akamai because it says "it (Internap) foresees explosive CDN growth as net users increasingly seek smooth delivery of rich online content." And the other CDNs aren't seeing the same growth as well? That's the best reason you have for saying how Internap can grow it's revenue to be that of Akamai? Akamai as a company did over $400 million in revenue last year, Internap did under $200 million. Big difference.
It also goes on to say that "Internap's edge is its proprietary software that has guaranteed 100% reliable internet-routing services and data center hosting (90% of Internap's business), and now guarantees 100% uninterrupted content delivery. The reliability guaranty premium keeps Internap out of CDN price wars while gaining it market share." For starters, that SLA it is referring to is specific to network and data center services, it does not apply today to the CDN services of Internap. Internap has confirmed that it intends to offer a 100% SLA specific to CDN services but not until it integrates the VitalStream platform and customers into the Internap network, something Internap is still working on. And even with a 100% SLA, how would that keep Internap or any other CDN provider out of price wars? If it is implying that customers will pay more for a 100% SLA, then the article should give details on what the premium is over the going rate that they are willing to pay. But my guess is that the authors have no idea what CDN pricing even costs in the market.
The article then goes on to compare Akamai's revenue and product line with that of Internap. "Akamai shares fell about 25% last week over forecasts of market-share loss and shrinking orders; Limelight is down about the same this month. Barron's says Internap's Tuesday earnings report will forecast higher growth, lifting its $13.42 shares back towards January's $20 price." Last time I checked, Akamai and Limelight Networks were not in the co-lo and network business and not getting 90% of their revenue from those products, like Internap is. So how can you possibly compare Akamai, Limelight Networks and Internap's overall revenue and stock price fairly? You can't. Their core business and revenue generators are from completely different industries and different product lines.
Everyone is entitled to their opinion and who am I to try and tell someone they are wrong. But when you make blanket statements like this article does, back it up with no data, and then don't even look at the data that is out there that proves you wrong, you shouldn't be writing about that segment of the market.
I recently got to sit down with management at Internap and
VitalStream to ask about and get an update on their CDN offering and I
hope to get to finish my write up of that for my blog this week.
Note: Since I wrote this post on Sunday night, I see that Yahoo! has
updated the page I was linking to and now better defines who wrote
what. I have edited the text below on Monday morning to reflect the
correct authors names. I'd also like to point out that after reading
the Baron's article by Mark Vererka, it is my opinion that Judy's
summary of Mark's article takes a lot out of context.