Akami Case Hbs
Business and Management
Submitted By kpwalls
1. Why did Akamai charge content providers and subsidize ISPs?
Akamai charged content providers because they were the primary customers of the Akamai’s products. Some of the advantages that were reported in the reading after adopting Akamai’s FreeFlow technology was: * A content provider’s website would load 10x faster after using Akamai * There was protection against sudden traffic bursts * Content providers could save money from ISPs because less bandwidth was being transmitted from the origin servers and more were being sent from Akamai’s servers.
Later in its Edgesuite venture, these above benefits continued to be offered in the face of even greater content-heavy web pages. In addition, Edgesuite offered robust security against denial of service attacks and continued flash crowd reliability. All these benefits came at a price for the content providers whom were charged by Akamai. However, Akamai maintained that the money being saved by content providers by using its product justified it adoption. Money here was being saved from lower bandwidth traffic through the ISPs. Several big companies bought into this business model and as outlined in the reading Akamai generated very good revenue during this time period.
Meanwhile, in dealing with the ISPs, the reason Akamai was paying them was simply to use their existing bandwidth and storage space. As detailed in the reading, the major ISPs at the time provided internet access to 81% of Americans, but the remained 19% were supplied by a disjointed group of thousands of smaller ISPs. Akamai was able to utilize the data center space and transit bandwidth free of charge from the smaller ISPs, but the larger ones maintained large costly CDNs that were more constrained. To effectively leverage this level of infrastructure advantage, Akamai compensated the larger ISPs to use this space. As a result of this, Akamai was able to expand its network. 2. Is the content delivery network business a winner-take-all category?
Content delivery networks were described in the reading as a potential solution to the bottle-necking problems of the Internet. It delivered web pages to the Internet edge, where it would be stored in ISP or NAP servers. The CDN also was comprised of software to sync with the origins website to ensure it was up to date, algorithms that determined the best CDN to feed the info to the customer, and software to allow monitoring of the CDN activity to the website owners. The CDNs were a direct competitor to Akamai systems. However, Akamai had managed to pull ahead in terms of their total server locations and numbers, forcing the remaining CDNs to join together for shared servers. CDNs also offered a cheaper alternative to the backbone transport and hosting services offered by Akamai. I don’t think the CDNs are a winner-take-all because as was apparent they teamed up to compete with Akamai. But despite joining forces it was apparent that weaker CDNs could still fall out of business. As was reported after the dot-com crash, the leading CDN alliance named Content Bridge was facing internal bickering over its members’ dichotomy on the group’s agenda, as well as differing opinions on how much each should be compensated. Smaller CDNs could not raise enough capital. So perhaps there is no clear winner here, and that the market share afforded to the CDN group is maintained by the group itself. If it cannot function cooperatively, then perhaps it would disband and we will see similar smaller CDNs going out of business. But until then, if the group is to remain intact, it should contain to function as a conglomerate of smaller CDNs.
Finally, in comparing CDNs to previous platforms that have engaged in the winner-take-all competition, we do not see the obvious correlations. There is no mention of high homing costs to content providers for adopting CDNs, there network effects do not seem to be particularly strong for one CDN over another, and there is no mention of content providers favoring one CDN over another. All this makes me believe that the CDN market is not an all or nothing, and all the CDNs can coexist together, albeit in contention