Why I Bought Akamai (Nasdaq: AKAM) Speed and reliability mean everything online. That's why more than a thousand of the country's largest Internet companies rely on Akamai and its 15,000-server global network to serve up their content. From iPod owners loading up on the latest digital music downloads at Apple's iTunes store to folks who need the latest security patches from Microsoft to folks streaming XM Radio online Akamai is there. It's not a webhost. That would be as cutthroat as it would be vanilla. Akamai alleviates Internet bottlenecks by housing duplicate content from its growing client base and making it available faster and more efficiently through the strategic placement of its server network. As big as many companies are -- and you know that Apple and Mr. Softy are huge -- it's just not cost effective to provide the service to duplicate Akamai's service, much less attempt to substitute the proprietary algorithmic efficiency that Akamai developed in 1998. That's why Akamai controls roughly two-thirds of the market and will control an even thicker slice now that it is acquiring its second largest rival in Speedera. That's a market that analysts expect to grow by at least 40% a year as more companies come to rely on the Internet as a necessary form of content delivery and the popularity of secure audio and video stream deliveries make speed and efficiency indispensable. Akamai made it through the dot-com bubble and its eventual burst. It turned the corner towards profitability last year and the bottom line will only continue to grow given its hearty double-digit profit margins. I bought in at $12.50 in 2005. While I could have gotten in a couple of years earlier at a much lower price the fundamentals are now firmly in place and the growth trajectory of the demand for Akamai has never been clearer. Why I would sell Akamai? While there are barriers to entry (building out a global server network isn't cheap) it doesn't mean that there will never be a better mousetrap erected by someone else. Bandwidth costs also get cheaper in time. In 2004 the average cost of content delivery fell by 19%. That's great for consumers and companies but not necessarily for companies like Akamai, even if it means that adding new servers will be cheaper. Yet the demand is far outstripping the cheaper prices for now. That's worth watching though. If the trend reverses, if the costs drop too quickly and Akamai finds itself reporting lower sales and much lower earnings this model may be damaged, possibly irreparably. Go Back UNDER

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