Akamai and Riverbed have signed a significant partnership deal to jointly develop solutions that combine Internet acceleration with WAN optimization. The two companies will be incorporating each other’s technologies into their platforms; this is a deep partnership with significant joint engineering, and it is probably the most significant partnership that Akamai has done to date.

Akamai has been facing increasing challenges to its leadership in the application acceleration market — what Akamai’s financial statements term “value added services”, including their Dynamic Site Accelerator (DSA) and Web Application Accelerator (WAA) services, which are B2C and B2B bundles, respectively, built on top of the same acceleration delivery network (ADN) technology. Vendors such as Cotendo (especially via its AT&T partnership), CDNetworks, and EdgeCast now have services that compete directly with what has been, for Akamai, a very high-margin, very sticky service. This market is facing severe pricing pressure, due not just to competition, but due to the delta between the cost of these services and standard CDN caching. (In other words, as basic CDN services get cheaper, application acceleration also needs to get cheaper, in order to demonstrate sufficient ROI, i.e., business value of performance, above just buying the less expensive solution.)

While Akamai has had interesting incremental innovations and value-adds since it obtained this technology via the 2007 acquisition of Netli, it has, until recently, enjoyed a monopoly on these services, and therefore hasn’t needed to do any groundbreaking innovation. While the internal enterprise WAN optimization market has been heavily competitive (between Riverbed, Cisco, and many others), other CDNs largely only began offering competitive ADN solutions in the last year. Now, while Akamai still leads in performance, it badly needs to open up some differentiation and new potential target customers, or it risks watching ADN solutions commoditize just the way basic CDN services have.

The most significant value proposition of the joint Akamai/Riverbed solution is this:

Despite the fundamental soundness of the value proposition of ADN services, most SaaS providers use only a basic CDN service, or no CDN at all. The same is true of other providers of cloud-based services. Customers, however, frequently want accelerated services, especially if they have end-users in far-flung corners of the globe; the most common problem is poor performance for end-users in Asia-Pacific when the service is based in the United States. Yet, today, doing so either requires that the SaaS provider buy an ADN service themselves (which it’s hard to do for only one customer, especially for multi-tenant SaaS), or requires the SaaS provider to allow the customer to deploy hardware in their data center (for instance, a Riverbed Steelhead WOC).

With the solution that this partnership is intended to produce, customers won’t need a SaaS provider’s cooperation to deploy an acceleration solution — they can buy it as a service and have the acceleration integrated with their existing Riverbed solution. It adds significant value to Riverbed’s customers, and it expands Akamai’s market opportunity. It’s a great idea, and in fact, this is a partnership that probably should have happened years ago. Better late than never, though.