In a previous post, we explained how Akamai could hurt the competition and capture market share by dropping its data transfer prices to $1/TB. The question is can Akamai’s business model thrive at $1/TB for data transfer? There are two schools of thought when it comes to $1/TB. The general consensus and the first school of thought is that Akamai’s revenue and profit margins will suffer, because the vast majority of clients are paying higher data transfer fees. Thus, if a customer is paying Akamai $75k/month at a higher price/TB, revenue could shrink significantly at $1/TB. Let’s prove otherwise, in that Akamai can thrive and hurt the competition at $1/TB.
Yes, we agree that data transfer revenue will drop. However, by modifying the product mix in an account, the revenue from the other products will make up for the shortfall. In essence, all we are doing is manipulating the product mix and shifting revenue between products. The smart move would be to shift to products (features) that competitors don’t have. In this scenario, monthly commits, revenues and profit margins stay in tact.
Below is an example of what we’re thinking. As show here, the monthly commit of $75k remains the same. However, as the data transfer revenue decreases from $55k/month to $15k/month, the $40k/month revenue stream shifts to other services like DDoS, WAF, Secure Web Gateway, and so on. The prices and the products are not actual, we’re just showing what is achievable via creative product management, Akamai can de-emphasize commodity service and focus more on value added services. How would customers respond to Akamai’s new offering, which is basically getting more for the same price point? They would likely be ecstatic because they can now get a suite of security services in this particular case.
Akamai Product Mix Comparison (Not Actual)
|Product Mix 1||Product Mix 2|
|Data Transfer Price||$1+x / TB||$1 / TB|
|DDoS Mitigation||Not Included||$10,000|
|Bot Manager||Not Included||$5,000|
|Email Filtering||Not Included||$5,000|
|Secure Web Gateway||Not Included||$5,000|
|Malware Protection||Not Included||$5,000|