Akamai -- Analysis and RecommendationPresentation Transcript
CONTENT DELIVERY: POWERING AN INDUSTRY AND THE WORLD WIDE WEBPresented by Team 2-7: Matt Muller, Austin Ros, Zi-Jay Chen, Josh Phitoussi, Ross Simons, and Doug M
Microeconomics Akamai and the Industry Landscape
Competitive EnvironmentThe Content Distribution Network Industry: Small Object Delivery Market Share of CDN Application Acceleration Electronic Software Download Media Delivery AkamaiMarket Structure Limelight Level 3 Akamai has lost market share in recent years Other firms From a monopoly to an oligopoly Akamai’s pricing premium has given it’s competitors an opportunity Direct competitors now threaten to develop market share
Strategy & Trends Akamai has recognized its dependence on its competitors pricing decisions Aggressive re-pricing Product differentiation
Marketing Akamai and Their Expansion
Market Presence Market Segment Akamai’s Presence • Serves content for 5 of the top 6 online music sites, 29 of the top 30 Media & Entertainment media/entertainment companies • Leaders in information services like Thomson Reuters, and comScore Business Services rely on Akamai to provide customers with reliable access. • Protects and enables transactions for Charles Financial Services Schwab, E*TRADE, Easy-Forex and other top institutions. • Enables delivery of gaming content for next-generation consoles from Gaming Nintendo, and helps many other companies to meet gamers. • Handles online bookings for world’s largest hotel firm & big brands like Hotel & Travel Expedia, Marriott, & Travelocity. • Six of the top ten US insurance companies rely on Akamai. Insurance • Trusted by all of the top auto makers – Toyota, GM, Audi, BMW, andManufacturing & Automotive more. • Enables online operations for 10 of the world’s governments, all Public Sector branches of the US Military, and many other agencies • Enables $200 billion in annual e-commerce revenue; used by overRetail & Consumer Goods 90% of the top online retailers. • Used by all of the top 5 anti-virus companies to distribute software Software & Technology online.
Product Content Delivery Network Geographically diverse network of servers. Fast, secure, and reliable means of decreasing the user’s wait time for accessing content. Scalable to still provide content even when suffering from burst traffic. Targeted Advertizing Ability to move and capture 30% of all web traffic
Product Differentiation The market for our services is intensely competitive and characterized by rapidly changing technology, evolving industry standards and frequent new product and service installations. We expect competition for our services to increase both from existing competitors and new market entrants. We compete primarily on the basis of: • performance of our services; • return on investment in terms of cost savings and new revenue opportunities for our customers; • reduced infrastructure complexity; • sophistication and functionality of our offerings; • scalability; • ease of implementation and use of service; • customer support; and • price.
Place/Price Two channel means of sales and distribution Akamai Sales People Outside Resellers Act as competitors Create a small area of monopolistic competition I’ve long believed that you don’t want to entrust everything to resellers. Having a direct sales force helps you keep the game straight; it’s a back stop. What if a reseller abandons you? Sure, with dual channels you end up tripping over each other sometimes, and you have to figure out whether to double commission you in-house reps for sales made in their accounts by resellers. But it’s worth accepting the conflict that goes along with a dual channel structure. (Chairman Conrades)
Promotion 2010 EVP, Global Sales, and Marketing Compensation Mix 13% 13% Base Salary 28% Annual Cash 28% Incentive 59% 59% Long Term Equity Incentive General push is to boost product usage (CDN) Name recognition Bestknown through reputation, and sheer size. Tagged videos Small Akamai Icon as content loads Faster load time associated as Akamai’s reputation.
Performance Metrics Ratio is approximately a return in revenue against the invested dollars in marketing Rising until market crash in 07/08 Revenues continue to rise, but at a slower pace due to less purchasing power of investments.
Competitors Limelight Advertising CDNetworks Private firm Expanding quickly across the North Eastern Hemisphere Level 3 Communications Primarily an ISP
Relating Marketing & Finance Akamai’s increasing TAT indicates its efficiency in making key acquisitions High cash & liquidity allow potential flexibility in price competition Increasing R&D expenditures allows for expansion into growing markets
“We expect increased R&Dexpenditures as we continue to hireadditional development personnel in order to make improvements in our core technology, develop new services, and make refinements to our other service offerings.” – 10k
2009 2010 Year over year Revenue Growth GM 2009 2010 2007->2008 24.28% Growth ($) $64 Mil $103 Mil 2008->2009 2009->2010 SG&A $25 Mil $69 Mil Growth ($) Year over Profit % of year Growth Revenue 2007->2008 43.75% 18.35%SG&A Growth 39% 67% 2008->2009 16.97% GM Growth 2009->2010 16.73%
Future Issue “We expect to utilize “We expect to utilize substantially all of substantially all of our our tax credit tax credit carryforwards carryforwards in in 2011. Once we have 2011. Once we have done so, the amount of done so, the amount cash tax payments we of cash tax make will increase payments we make over those made in will increase over previous years.” those made in previous years.”
ASSETS AND DEBTMANAGEMENT
Acquisitions Netli. INC2010200920082007 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 -Growth of 571% -Acquired at 154.4 million on March 2007
Other Acquisitions % Growth in Net Income Netli. INC aCerno. INC % growthRed Swoosh. INCNine System. INC 0 100 200 300 400 500 600 700
Acquisition Summary Acquisitions can be risky without good management. Akamai does a very good job in managing it’s acquisitions and assets This has resulted in a TAT increase
TAT ratio Akamai’s revenue comes from efficient utilization of long term assets: Servers, infrastructure However, Akamai has grown cash and cash equivalents to roughly 10% of total assets in 2010.
Cash vs. Total Assets 94% Cash TA 6% 2006 90% 10% 2010
Debt Management Started to 450 Long term debt decrease debt 400 350 starting 2003 300 250 Paid off all long 200 Long term debt term debt in 150 100 2009 50 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Action Plan1. Enter mobile marketing / SMS delivery “Mobile advertisements are 30 times more effective than internet ads.” MobileMarketer• Globally, mobile ownership andusage far exceeds the ownershipof PCs with Internet access.• Unlike other mobilemarketers, Akamai already hasthe servers and businesspartnerships necessary todominate this market.• Akamai can help firmseffectively gather and analyze amore specified range ofinformation about theircustomers.
Action Plan2. Targeted Marketing • Akamai collects large amounts of data about web users and their behavior. • To increase a firm’s profitability, Akamai can create profiles about users to more effectively place advertisements on the firm’s webpage. • This model has worked for firms such as Facebook, Pandora, and Amazon.
Action Plan3. Target firms that cover major events in other countries March Madness Super Bowl FIFA World Cup Cricket World Cup
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