The first part of 2014 experienced three major events that will dramatically change the CDN landscape. All three events involve acquisitions, with billion dollar companies buying smaller ones.
- Akamai acquires Prolexic
- Verizon acquires EdgeCast
- Imperva acquires Incapsula
Questions abound in the industry as to how these acquisitions might impact the short term outlook, and long term, within the CDN ecosystem. It’s safe to say that 2014 is going to be the biggest year the CDN industry has had in the last decade. The growth of video consumption, the proliferation of mobile devices, and the global security threats facing enterprises, have forced CDNs to change into dynamic hybrid CDNs with new business models.
The Evolving Akamai
Akamai made a brilliant decision in acquiring Prolexic. The acquisition catapults Akamai into the #1 DDoS protector in the world, surpassing Level 3, AT&T, and Verizon, in terms of infrastructure dedicated to stopping and killing off DDoS attacks. As the dominant Edge Security Protection player, there is really nowhere else to go for Akamai, but deeper into the security stack. That means Akamai must extend its security portfolio, and acquire a cloud-based security company that has a presence in the data center security niche.
Four Security Pillars
- Global Edge => Data Center => Network => Endpoint
After Akamai makes an acquisition of this kind, its business model changes for the better, and they will start competing more directly with Imperva and Zscaler. Once Akamai is in the data center security space, it will have the time to build out its feature set so its mimics Zscaler, as there are dozens upon dozens of security features in this area.
Akamai Media’s Business
Being in a dominant position, means that Akamai must fight an endless amount of new entrants, and smaller established players. In the media space, Akamai generates more than 45% of its revenue from media accounts. The #2 CDN media player is most likely Level 3, but that gap between Akamai and Level 3 is wide. It’s possible that Akamai does 4x to 6x of more revenue in the media delivery business than Level 3.
All Akamai has to do at this point to be successful in this media space is to grow with the market, which is growing between 10% to 20% per year. In conclusion, Akamai’s media business is safe, but the security business is dynamic, and Akamai has limited control over it. They will have to exercise good judgement, and take plenty of risk, to grow the security business into a $1B business.
Akamai and the Competition
Once Akamai moves deeper into the data center security tier, all CDNs will have to rethink their business models, especially those CDNs taking accounts away from Akamai. Akamai will be able to mix and match its feature set, in order to keep their accounts. Thus, Akamai will be able to match the price per GB on caching and streaming, that’s being offered by smaller CDNs, but it will make it up on the security features it sells to customers that the competition lacks.