On 2/3/14 Akamai’s stock price dropped 3.5%. Some suggested that an article from Dan Rayburn, regarding Apple building out it’s own CDN, might have caused the drop. However, it’s hard to say since the overall stock market dropped more than 2%. In general, it was just a bad day for stocks. AT&T dropped 4%, Level 3 dropped 3.4%, and Yahoo dropped 3%. My gut tells me that Akamai’s stock price would have dropped regardless of the article.
For now, let’s assume that Apple is building their own CDN. For starters, building a CDN takes two years, minimum. Hiring a top notch team of experienced CDN engineers, to build a robust CDN is just the beginning. The other element to consider is time, it takes months and months of live production testing, maybe even 1-2 years, to work out all the bugs. It took Microsoft years to build a CDN, and they are a technology company. Bottom line, its going to be more difficult for Apple to build out a CDN than Netlflix. Netflix is all long tail content. Apple on the other hand, needs to deliver small files and large files. The mixture of content these types requires the development of a dozen features.
Impact to Akamai’s Annual Revenue
If Apple builds a robust CDN successfully, what are the chances it relies completely on its own CDN? My guess is zero. If Netflix and Microsoft rely on Akamai for delivery, even after building out their own CDN, Apple will do the same. Now let’s assume that Apple does terminate its agreement with Akamai; the financial impact to Akamai’s top line is trivial. Akamai’s 2013 revenue is $1.5B. In two years, with 10% annual growth, Akamai is set to generate $1.8 billion in annual revenue. Now lets subtract Apple’s payment to Akamai, and add Prolexic’s incremental revenue; $1.8B annual revenue – $100M from Apple + incremental revenue for Prolexic = trivial amount.
Akamai is going to continue as it has been for the last few years, regardless of what Apple does. If Apple builds a CDN, it will have to rely on Akamai for some part of the delivery, just like Microsoft and Netlflix. The loss of $50M per year, or whatever it is, will be absorbed by their $1.8B in annual revenue. Finally, let’s not forget that Akamai is one hop away from AT&T’s last mile customers; it would be in the best interest of Apple, to continue to use Akamai for some part of the delivery, in order to have quicker access to AT&T’s last mile customer base.