George Conrades of Akamai Technologies: Jump in, the Water’s Fine
Like its Internet brethren, Akamai has been on a wild ride. If a picture is worth a thousand words, is a stream worth a million?
Never mind its stunning public market debut. Akamai Technologies of Cambridge, Massachusetts, just might deserve more plaudits for preventing a fierce traffic jam on the information superhighway on May 18, when 2 million people successfully clicked through to watch the Akamai-enabled Webcast of the annual Victoria’s Secret fashion show. A year earlier the first online opportunity to ogle the merchandise, without the benefit of Akamai’s content-delivery service, was a disaster because of Web congestion.
Akamai logged its first sale in April 1999, when it had just 50 employees. Six months later it went public with what was then the fourth-best first-day price pop in history. Investors briefly valued Akamai at $36 billion, despite the fact that it had tens of millions in accumulated net losses.
Akamai now has 1,000 employees and more than 1,000 clients for its services, which speed the delivery of graphics-rich Web content to Internet users. But potholes have appeared along the virtual road.
Like those of most Internet-related companies, Akamai shares have taken a wild ride. Since its October 29 IPO, Akamai reached a high of 345½ and a low of 56 5/8. Recently, the shares traded at about 120, as investors rewarded more stable Internet infrastructure plays such as Akamai and banished e-commerce companies without a second look.
Looking ahead, Akamai faces potential competition from deep-pocketed Intel Corp., among others. At the same time, the technology and business models in Akamai’s budding sector will continue to change and evolve. Akamai CEO George Conrades recently discussed his fast-moving business with Institutional Investor Staff Writer Justin Schack.
Institutional Investor: How has your life changed since Akamai went public?
Conrades: Last summer I used to tell folks, “These are the halcyon days; live it up.” We had venture capital money, and we had a lot of it. So I told my IT guy, “You’ve got $10 million, let’s get the best consultants in the industry and put in place the systems that will allow us to scale like crazy, because we are going to get customers as fast as we can.” And we did that. I knew that no one could spend $10 million in the nine or so months between when we starred this and the IPO, but I knew if we were very successful that that amount of money in hindsight would seem small. As a private company, we could think like that. If we wanted to spend $10 million in a quarter, who the hell cared? Now, as a public company, you have to be careful what you say externally and people scrutinize your results every quarter. We try to work with the Street to make sure the expectations are reasonable. And like any other company, we work our buns off to bear those expectations. I think it’s good because it helps you meet your goals.
How will the Internet infrastructure and services sector change during the next few years?
We think it’s going toward multiple services from the same delivery point. Our core graphics and content delivery service overcomes the slowness and unreliability that comes from individual Internet subscribers being dispersed across 7,000 different Internet-service networks around the world. We move the delivery of content to servers that are closer to where the users are, and we improve response time by a factor of between two and ten. Our customers improve their revenue as people stay on their sites longer. But to succeed as the Internet evolves, without incurring many added costs, we need to provide other services from that same technology platform and same server deployment.
What other services will you provide?
Well, first there’s streaming [audio and video delivered on the Internet]. Content providers are saying, “If a picture is worth a thousand words, a stream is worth a million.” We just alter the software a little bit in the servers to do streaming. Another service is providing information to our customers about things like where their users are and who’s watching what portions of their site. We know all that because we monitor and bill for every hit. SO we’re able to data-mine that information and give it to the customer in real time. Shortly, we’ll be able to tell our customers everything about a hit. We can tell them, “Okay, it’s a woman who lives in Illinois who’s been shopping for a car and at this moment is on a [digital subscriber line] connection. Okay, send her the streaming Lexus ad.” So in real time, we insert the ad on behalf of the content provider, and if her cookie a kind of online ID card that facilitates retail e-commerce permits, we will tell the dealers in her area that she just saw this. And if she wants it, we’ll tell her who the dealers are.
Are you concerned about problems regarding the privacy of Internet users?
No. We would not be in the business of selling information. We would enable others to do it. We stick to helping content providers deliver their content more efficiently. That’s it. We would count on the DoubleClicks and 24-7 Medias and Engage Technologies, to name a few examples, to carry the privacy banner. And they are greatly concerned about doing things the right way with cookies and so forth.
Who are your main competitors?
There’s one company that approximates what we do, but it has not been able to get the marketing traction, and that’s Sandpiper, which has joined with Digital Island. Then there are caching companies like CacheFlow, F5 and Alteon, who sells caches to network proviers, and those caches hold information and can improve the performance of that particular network. But they work on behalf of the individual network, not the content providers that use the network. They sell products; we are a service. Then there are others that make fast pipes, like Enron. We love that. They talk about their ability to stream at the speed of light across the country. We say, “Great, stream right into Manhattan.” Now what happens? There are hundreds of networks in Manhattan, so the problem of managing content across all of them is still there.
Are you concerned that bigger companies will muscle in on your turf?
Yes, they definitely will. Intel just announced a streaming division. But companies like Intel and Cisco [Systems] are great product companies. In the past they have resisted going into services because they didn’t want to compete with their customers. Intel now is making the choice to start competing with its customers. Here’s a bit of a conundrum. We’re a huge consumer of Intel’s top-of-the line servers. So Intel loves us, trust me. Now they start this services unit on the side. It may have a big brand, but it’s going to have to compete on its own. Even if you’re Intel, you’re playing catch-up.
Are analysts more anxious now to learn when you’ll earn a profit than before the Nasdaq sell-off earlier this year?
Yes and no. They’ve always been cognizant that if all this stuff works, we have a good business. So they were interested in when we’d turn a profit, but they probably were not so intensely focused on it. Today, there’s more focus on profits. If the money goes out of technology for a while, it will come back, because technology is the lifeblood of our global economy.
Your stock has been incredibly volatile. What has it been like watching that?
Oh God, it’s just an amazing roller coaster. I think if you charted the market activity on Nasdaq, it would look something like the EKG of an Internet executive. That is just something one has to live with, I think. I’m always asked whether I can justify Akamai’s market cap. At one point we were at more than $30 billion for a company in its first year, with $4 million in revenues and $60 million in losses. In my judgment, investors see the potential for this platform and the need on the Internet to improve performance and reliability. So that’s how I’d answer, and there still would be all these objections, and “God, it’ll be years before you’re profitable.” And I say, “Okay, that’s fine, let the investors decide.”
Was the stock even a bit overvalued at 345?
Oh no, we were going for 1,000 [laughs]. Look, if I get into that, then I must have some set of assumptions, and why would I do that to myself? Valuation has to be in the eye of the beholder, the investor. It has to be based on whether they believe you have a great idea, you’re making progress and you can close on this idea and make it profitable. And so I don’t in any way want to handicap 350 or 65 or whatever.
What other trends will affect your business the most?
We’re excited by the major media companies’ plans to extend the channels of distribution for content onto the Internet. That’s a $250 billion industry. Add the opportunity for interactivity, then just take a fraction of that and our opportunity in the short run is enormous. Then you have bricks-and-mortar companies embracing the Internet. They are less fearful of dot-com upstarts than they of their traditional competitors with e-commerce capabilities. They’re not the Old Economy dinosaurs people make them out to be. And all these companies will benefit from our services. Look at the auto companies with these exchanges they’re forming. They’re going to be pumping lots of bits, and the Internet isn’t built for this. We make it work for them. Those two developments are going to be very big for us.