Can Akamai’s Business Model Thrive At $1/TB

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
Monthly Commit $75,000 $75,000
Commit Breakdown  ——–  —–
Data Transfer $55,000 $15,000
SSL Certs included included
Reporting included included
Transcoding Hours included included
Origin Storage $5,000 $5,000
DNS Service $5,000 $5,000
DSA $5,000 $5,000
Mobile Acceleration $5,000 $5,000
WAF Not Included $10,000
DDoS Mitigation Not Included $10,000
Bot Manager Not Included $5,000
Bloxx Features  —–  —–
Email Filtering Not Included $5,000
Secure Web Gateway Not Included $5,000
Malware Protection Not Included $5,000
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1 thought on “Can Akamai’s Business Model Thrive At $1/TB”

  1. Ernie, thanks for developing more on your opinion (considering your last post and my comment on this subject). I just need to say again that if Akamai choses this approach, they could suffer a drastic margin cut. The only way it would not happen is in case those new services offer much higher margins than their current bandwidth margin and most of their customer base choses to buy those adicional services you mentioned, which will not happen, for sure! Replacing the bandwidth revenue by other VAS revenue will not happen for customers willing to buy bandwidth only (which is their largest revenue). So, achieving the same EBITDA considering the above, might not be so easy. You end up killing yourself. Its a complex decision and remember they are public traded, so any misunderstanding in a possible change can be drastic. Anyway, I believe the whole market is going in the direction you are saying: reducing bandwidth cost and selling more advanced services, so I’m not saying you are wrong 🙂 just don’t believe this is the solution for Akamai! They have many other approaches to dominate this market for much longer and still playing safe. Maybe they need their 2000’s spirit back 🙂

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