"Stability is one thing that these smaller players are using" as a selling point, says John O'Keefe, senior analyst for Internet services at research and consulting firm Current Analysis. "Speedera on their Web site has a thing that says 'Akamai customers click here.' That says a lot."
In its marketing materials, Speedera Networks Inc., whose edge delivery network is deployed in the Americas, Europe and the Asia-Pacific region, says "Speedera's financial situation is very healthy, with rapidly growing revenues, strong cash reserves, no short-term debt or interest payments, and only $3 million in long-term debt (due in December 2005). In contrast, Speedera's main competitor has about $300 million in debt. Speedera's lack of debt underscores the value of efficient technology and a smarter deployment strategy that enable the company to deliver superior performance at a fraction of the infrastructure investment and operating costs of competitors."
Gordon Smith, Speedera's vice president of marketing, confesses that the competitor the material refers to is Akamai. "In the whole larger telecom industry, clearly viability has been an issue. Speedera is certainly going counter to that trend," says Smith of Speedera, which has more than 200 customers and claims an 8 to 10 percent market share worldwide. The fact that Speedera recently became operating income positive, unlike Akamai, "translates into viability and longevity," says Smith. Customers "know we'll be around for the long haul." He adds that Speedera is the only CDN provider gaining market share at this time.
Speedera's revenues quadrupled over the last 12 months and the company is profitable on an operating basis, says Smith, but he declined to provide the actual dollar figures for the company's revenues, cash reserves or timelines for profitability.
Meanwhile, Smith says, Akamai's revenues are down 17 percent from a year ago (third quarter of 2001 vs. the third quarter of 2002), its loss for the most recent quarter is $47 million and it has seen declining customer counts for several quarters in a row. Additionally, Akamai recently announced a 29 percent headcount reducation (it expects to have 550 employees by the end of the year) and the company's CFO Timothy Weller resigned this fall.
Akamai spokesman Jeff Young confirms all that is true, but he notes that Akamai, which still has an 80 percent market share, has seen declining revenues due to "a difficult IT spending environment and customer churn related to many of our initial clients going bankrupt or downgrading their service because of their financial limitations, and the inability for them to raise capital to fund their business." The third quarter of 2001 was nearly the company's strongest quarter in history, he adds, and though the company is off 17 percent from that quarter, "it is the power of our recurring revenue model that has allowed us to avoid the significant percentage declines in revenue experienced by other high-profile technology companies." Akamai, whose revenue for the third quarter was $35.4 million, down "slightly" from the second quarter, expects to be free cash-flow positive in 2003. Regarding the loss of customers, Young says Akamai has a targeted new strategy to substantially replace churned customers with higher-value, higher-margin enterprise clients and organizations within the federal government.
"We think the overall financial health of the company is very strong, validated by our fully-funded business, our over $140 million in cash in hand, and our rapidly declining burn rate" says Young, adding that the company finished the third quarter having burned only $6.7 million before its semi-annual interest payments and one-time move related expenses, which were $2.7 million.
"In spite of the market turmoil, we have been able to significantly penetrate Fortune 500 companies; and as a result, we've seen a dramatic improvement in both the underlying growth of our customer base and revenue-generating opportunity."
