Will Operators Embrace Akamai's Licensed CDN?

On Tuesday, Akamai Technologies Inc. (Nasdaq: AKAM) launched "Aura Network Solutions," a set of licensed content delivery network (CDN) products aimed at network operators. It allows operators to couple licensed software and applications from Akamai with commercial off-the-shelf (COTS) hardware and create their own CDN. The first component of the solution will be a caching platform, and is expected to launch next quarter.

Over the past couple of years, operators have been launching their own CDNs in direct competition with Akamai. Given the operators' scale and the R&D capabilities of their large vendors, they are clearly a threat to Akamai's long-maintained dominance of this market.

However, Akamai has two major advantages in this space. Operators are largely restricted to their own network footprint, while Akamai boasts global reach, with 100,000 servers deployed on more than 1,000 networks worldwide. The other advantage is that Akamai has developed sophisticated capabilities beyond basic content delivery, in areas such as cloud services, software delivery and Web acceleration. It also has years of real-world experience in this space and the customer relationships to prove it, while operators are just starting out in this market.

Still, operators are working on CDN federation standards and initiatives, allowing them to potentially collaborate and use each others' networks to provide a global footprint in time. And they (along with various telecom vendors) are working to develop greater sophistication, better interfaces and more features for their CDNs. They are also leveraging the advantages they have, such as ownership of the network and proximity to the consumer.

It's also worth noting that other CDNs (EdgeCast Networks Inc. , for example) have already targeted this CDN-as-telecom-vendor opportunity and have signed up Tier 1 operators such as AT&T Inc. (NYSE: T) and Deutsche Telekom AG (NYSE: DT). As such, Akamai is a little late, but is hoping its size and its relationship with Ericsson AB (Nasdaq: ERIC) -- building on last year's Mobile Cloud Accelerator agreement -- will help it gain acceptance from operators.

The licensed CDN model allows Akamai to hedge its bets. By supporting operators' CDN plans, it could build a business as a telecom vendor should the operators succeed in dominating the CDN space. At the same time, it can maintain its traditional CDN business.

The big question is how operators will view Akamai's licensed CDN offering: Will they prefer to work with traditional vendors that are creating telecom-oriented solutions over which they have more control? Or will Akamai's reach and feature set be sufficiently compelling for them to choose it instead?

— Aditya Kishore, Senior Analyst, Heavy Reading