Is Limelight Networks really a more efficient at CDN delivery than Akamai?
Content Delivery Networks (CDN) having been having a tough time recently.
The leader in this space is clearly Akamai Technologies, however even this leader has been seeing its top line revenue remain stagnant at around $206M a QTR over the last year. The stock which had a meteoric run up in valuation from it’s sub $1 in 2002 to lofty peaks in the $50+ range in 2007 only to languish in the mid $20’s over the last year.
Thanks to CNBC’s Kramer publicity, the stock was the smart and clever (Akamai = smart, clever, knowledgeable in Hawaiian) choice for the right investor during the 2003 time frame. The company has survived the “dotcom” blowup and a staggering blow of the loss of one of its well-respected founders in 9/11. Its management team had beaten the odds and built a strong, fast growing company
From 2003 to 2009 Akamai has grown its revenues 5X to an impressive $790M . The majority of this coming from an explosion in its Media and Entertainment division with the growth of music and video delivery on the net, however a downturn in 2009 CDN pricing has obviously put pressure on top line revenue growth in this sector.
The entry of Limelight networks onto the scene in 2006 seemed to be a thorn in the side of Akamai, who had until this point seen little serious competition in the media delivery space. Limelight’s claim to fame is that it has built a next generation CDN that can deliver Media CDN services at a lower cost due to its “newer” technology. Despite it’s claims of “newer” technology Limelight network has been embattled in a nasty IP patent lawsuit against Akamai technologies.
Is Limelight’s newer technology really unique and does it give Limelight a cost advantage in the market ?
To answer this question we jumped into the time machine and set the clock back to March 2003 a year where Akamai reports its QTR’s numbers of $36M which is within range of Limelight recently reported $33M Q3 2009 number.
What’ interesting here is that the numbers seem comparable, they certainly do not seem to demonstrate a “major” advantage for Limelight technology, but lets look at this a little closer. Wholesale bandwidth was almost 40X more expensive for Akamai in 2003 than Limelight’s costs today
So where are the economic advantages to Limelight’s technology?
Limelight claims that its technology advantage is based upon three main premises.
1) Massively provisioned delivery centers
2) Direct connections to access networks
3) Global fibre-optic interconnect
The thought behind this is that there is an economic advantage to centrally locating servers at major peering points such as Equinix and exchanging traffic with major networks at these locations. By doing this it doesn’t need to locate 55,000 servers at the edge of the network as Akamai does.
However, what is sometimes overlooked is Akamai does this in addition to its thousands of servers embedded in networks across the world. Whilst figuring the amount of traffic “peered” by network is an imprecise science it is possible to look at public peering information and get a least a representative picture of the scale of their public peering.
The chart below represents public peering connections as reported on peeringdb.org.
What might surprise many viewers here is that Akamai on the surface actually has more peering than Limelight. However considering that Akamai has been a major player in the Internet for longer than Limelight, it has over time developed long standing relationships when it comes to peering and interconnections with major networks.
Lets roll the clock forward and take a look at Akamai’s last QTR where it reported $206M in revenue with $62M in cost of revenue.
It’s fairly clear that Akamai’s margin continues to improve in comparison to Limelight and has of course improved dramatically from its 2003 levels. However, what also seems clear is that Limelight’s cost advantage in this marketplace seems not to be as clear as you would first think.
It is of course unfair to represent and assume that “peering” is the only economic variable when it comes to CDN efficiency and margin, there are many more, which we will be covering in later reports. Additionally the extent of private peering that Limelight and Akamai has in place is unknown, since it is by its nature “private”.
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Two major issues with the two graphs presented.
1. First graph re: revenue margins. There is zero consideration for
price compression here. What this graph shows is that at 2003 prices
Akamai got more profit than LL does at 2009 prices. Duh!
2. The second graph re: peering. Yes, Akamai has more PUBLIC peering.
You’ll notice the number at the bottom states Limelight’s public
peering as 633Gbps. In total, Limelight has 3,000 Gbps (3Tbps), so they have accounted for just over 1/6 of the network and use it to show a
comparison.
The report is flawed.
I guess one question not answered is the market growth. It may be that both companies will struggle to provide enough bandwidth in which case its not a win-lose but a win-win? On the location front, I think Akamai has it right, I have spent many years in technology and its better to have a lot of ways to deliver than one fast way.
[...] Analysis of: Is Limelight Networks really a more efficient at CDN delivery than Akamai? [...]
This post makes no sense. You’re asking if Limelight’s assertion that they have a more “technically” efficient CDN over Akamai is accurate, but you’re trying to answer a technical question, with financial data.
Limelight’s CDN is not more efficient than Akamai’s when it comes to cost as the CDN business is all about economics of scale, and today Akamai has a lower cost due to that scale. But the biggest point you are completely missing is that Akamai’s been able to diversify their revenue and network and gets half of their revenue from very high-margin products, something Limelight does not have today. Limelight is working hard to add more value add services, but today, that revenue does not even make up 10% of their overall revenue.
Nothing in this post takes into account the market price for CDN services from when Limelight started their CDN versus when Akamai got into the video delivery space. No one ever seems to remember that Akamai did not build their CDN for video/large object initially, they acquired InterVU in 2000 to get into this space. Nothing wrong with that, but you can’t compare the two.
If you’re going to compare the two companies, you can ONLY compare their video delivery services one to the other. You can’t compare the companies as a whole.
Dan,
You bring up some interesting points. Perhaps I am “old school” in nature and believe that the proof point in any technology should be demonstrated in financial efficiencies for that company and ultimately fisal return to its shareholders.
I believe you are correct in your statement that Akamai continues to have a sustained market advantage over Limelight due to its scale, diversified high margin revenue product services.
You also point out that I did not factor in the decline in CDN customer pricing which is correct, however for a truly comparitive view the wholesale cost of bandwidth for CDN’s has also dropped dramtically from their 2003 level’s, which in some sense would give Limelight an advantage in this report when comparing todays bandwidth costs v’s the costs in 2003.
Hi,
I actually wrote PeeringDB, so it’s always interesting to see people using it for research and other similar purposes, but I don’t think you’re doing it correctly in this case. Public peering is only a small part of the picture of any serious networks’ interconnectivity. Due to the relatively high cost is typically reserved only for peering with a “large number of small networks” who individually wouldn’t be large enough to justify dedicated circuits. You really can’t draw any conclusions from the data you’re looking at other than “which network has more public peering”.
As far as Limelight vs Akamai, I think the bottom line can best be summarized as follows. Limelight is really good at delivering bulk bits for cheap in the biggest locations (North America, Western Europe, the most well connected parts of Asia, etc). Akamai is better at delivering bits to every possible destination, but costs significantly more to do so. Realistically there is a time and a place for both services, and a smart customer will know how to make the most effective use of their options for the money.
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“You also point out that I did not factor in the decline in CDN customer pricing which is correct, however for a truly comparitive view the wholesale cost of bandwidth for CDN’s has also dropped dramtically from their 2003 level’s, which in some sense would give Limelight an advantage in this report when comparing todays bandwidth costs v’s the costs in 2003.”
Uhh, No it wouldn’t. The only thing you have demonstrated here is your complete lack of knowledge on this topic. Wholesale bandwidth prices would have a negligible effect on either Limelight or Akamai, but would have a bigger effect on Akamai. Do you even know what peering is? Peering completely bypasses wholesale bandwidth. Limelight claims about 90% of their traffic goes over peering. That means 90% of their bandwidth usage has nothing to due with wholesale bandwidth. Even if that were not the case, bandwidth would still be a miniscule percentage of either of their costs.
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