Your browser is not supported. Please update it.

17 November 2022

Akamai lays groundwork for fusing delivery with compute

From the beginning of 2022, CDN behemoth Akamai changed the way it reported its product segments in financial filings – switching from two divisions (Security and Edge) to three divisions (Security, Delivery, and Compute).

Breaking its Edge segment out into two distinct divisions allowed Akamai to more easily project the growth coming from Compute, while setting the fast-growing cloud computing  arm free from the traditional Delivery division which is stuck in a rift after flying high during the pandemic.

However, the previous method of reporting results by product group had only lasted twelve months. Up until Q4 2020, Akamai’s product breakdown was split between the Web Division, alongside the marginally smaller Media and Carrier Division. But here things were complicated as Akamai separately reported results from Cloud Security Solutions, as a product-focused reporting view separately from all other categories. It also broke out revenue from Internet Platform Customers separately, to highlight the big bucks coming from Akamai’s biggest clients such as Amazon, Apple, Facebook, Google, Microsoft, and Netflix.

Suffice it to say, things are simpler these days, but we wouldn’t rule out another Akamai revenue reporting refresh.

What stands out from Akamai’s third quarter results filing is that the Security Division is on the cusp of overtaking the Delivery Division for quarterly revenues for the first time. This could come as soon as next quarter if the current rate of quarterly revenue decline from the delivery segment sustains, falling by 16.5% from the end of 2021 to Q3 2022, at $393 million, although Q4 is typically a strong period.

Even though Security revenues have plateaued so far in 2022, after impressive growth in the last few years, it might not matter if delivery revenues decline at the current run rate.

Akamai’s delivery division has shed an average of $22.5 million in revenue from each of the three quarters of 2022 so far. Down by 15% year on year, Akamai is scrambling for answers to the deceleration in traffic growth among its largest customers.

One likely answer is to align the pricing strategy with the slower traffic growth rates experienced over the past year.

Another simple attack has been to scale back discounts for client renewals, and as a result Akamai is even declining business from customers with extreme traffic peaks compared to daily usage patterns. Akamai attests that this is a “very small” subset of special cases being rejected business.

While revenue is down in delivery, these contingency plans have enabled Akamai to lower its delivery network capex as it directs cash flow from delivery to compute and security businesses where it benefits from higher ROI.

As a result, Akamai’s emphasis is well and truly turning to compute. It has big ambitions of transforming its compute segment into a billion dollar standalone business as the company has done successfully with its delivery and security businesses. In fact, Akamai CEO Tom Leighton believes the opportunity in cloud computing is even larger than in delivery and security – estimated to be a $100 billion market today and growing at quite a clip.

In other words, Akamai is preparing to merge its delivery and compute segments. Leighton sees Akamai seizing a share of this business from the established trio of titans AWS, Google Cloud, and Microsoft Azure. Akamai believes clients that value its delivery and security services are resistant to being locked into more expensive options with a cloud giant that also competes against them in some capacity.

Akamai made a big statement in the cloud computing race in early 2022 with the acquisition of infrastructure provider Linode for $900 million, a deal designed to provide a developer-friendly and massively distributed computing platform. We understand that Linode’s reputation in the IaaS game, dominated by the likes of AWS, GCP, and Azure, is one that is well-liked and trusted – a position that the big vendors are envious of.

Elsewhere, Akamai is also stealing business from hyperscalers, citing an unnamed large media workflow company in Germany that is planning to migrate apps from a hyperscaler to Akamai. This customer is particularly enamored with plans for a high number of distributed sites and the tight integration with Akamai content delivery, the company claims.