Apple eyes CDN build-out; Akamai may take revenue hit

Summary:Akamai is likely to take a revenue hit should Apple build its own content delivery network, but the impact appears to be manageable, analysts say.

Apple is reportedly building out its own content delivery network and the move is likely to hit Akamai's results when the infrastructure goes live. However, the hit to Akamai's revenue may not be all that severe. 

According to Dan Rayburn, who tracks the CDN industry well at StreamingMedia, Apple is planning its own content delivery network (CDN) to deliver apps, video and software. To date, Apple has paid Akamai, which noted recently that it is renegotiating a deal with its largest media customer (think Apple).

Akamai reports fourth quarter earnings on Wednesday. Analysts are expecting non-GAAP earnings of 51 cents a share on revenue of $422.4 million.

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When it came to paying Akamai more or building out its own network, Apple chose to build over buy. What's unclear is whether this new CDN will add value over time. Apple's CDN would also hit Level 3, according to Rayburn. Other large media players also have their own distributed networks to deliver content, but rely on Akamai too.

Enterprises often choose to build their own infrastructure over buying it, but in many cases they just allocate resources in the wrong area. For instance, a company can build out a big data warehouse to track Web sites, employ a bunch of engineers, but could probably use Adobe's Omniture.

In terms of quality of service, Apple may just want more control over its delivery infrastructure. The catch here is that Apple's cloud infrastructure has had its hiccups relative to others. It's unclear whether Apple can execute well with a CDN.

media usage

 

As for Akamai, analysts are starting to fret a bit. Stifel Nicolaus analyst Benjamin Lowe said in a research note:

At this point, it remains too early to gauge the potential impact on Akamai as the scale/scope of Apple’s plans are not clear. Our working assumption with respect to the contract renewal is that it could represent a ~500 bps headwind to growth this year within Akamai’s Media Delivery segment, which accounts for nearly 50% of total revenue.

Wells Fargo analyst Gary Powell shrugged off the news about Apple's plans. Powell said the impact would be "fairly minimal" given Akamai was most likely getting $24 million in revenue from Apple a year. Apple may have received a 50 percent price reduction from Akamai in a new three-year contract. Powell said even if Apple moved all traffic away from Akamai the hit won't occur until 2015.

Topics: Networking, Apple, Data Centers

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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