Akamai buys Cotendo

Akamai is acquiring Cotendo for a purchase price of $268 million, somewhat under the rumored $300 million that had been previously reported in the Israeli press. To judge from the stock price, the acquisition is being warmly received by investors (and for good reason).

The acquisition only impacts the website delivery/acceleration portion of the CDN market — it has no impact on the software delivery and media delivery segments. The acquisition will leave CDNetworks as the only real alternative for dynamic site acceleration that is based on network optimization techniques (EdgeCast does not seem to have made the technological cut thus far). Level 3 (via its Strangeloop Networks partnership) and Limelight (via its Acceloweb acquisition) have chosen to go with front-end optimization techniques instead for their dynamic acceleration. Obviously, AT&T is going to have some thinking to do, especially since application-fluent networking is a core part of its strategy for cloud computing going forward.

I am not going to publicly blog a detailed analysis of this acquisition, although Gartner clients are welcome to schedule an inquiry to discuss it (thus far the questions are coming from investors and primarily have to do with the rationale for the purchase price, technology capabilities, pricing impact, and competitive impact). I do feel compelled to correct two major misperceptions, though, which I keep seeing all over the place in press quotes from Wall Street analysts.

First, I’ve heard it claimed repeatedly that Cotendo’s technology is better than Akamai’s. It’s not, although Cotendo has done some important incremental engineering innovation, as well as some better marketing of specific aspects (for instance, their solution around mobility). I expect that there will be things that Akamai will want to incorporate into their own codebase, naturally, but this is not really an acquisition that is primarily being driven by the desire for the technology capabilities.

Second, I’ve also heard it claimed repeatedly that Cotendo delivers better performance than Akamai. This is nonsense. There is a specific use case in which Cotendo may deliver better performance — low-volume customers with low cache hit ratios due to infrequently-accessed content, as can occur with SaaS apps, corporate websites, and so on. Cotendo pre-fetches content into all of its POPs and keeps it there regardless of whether or not it’s been accessed recently. Akamai flushes objects out of cache if they haven’t been accessed recently. This means that you may see Akamai cache hit ratios that are only in the 70%-80% range, especially in trial evaluations, which is obviously going to have a big impact on performance. Akamai cache tuning can help some of those customers substantially drive up cache hits (for better performance, lower origin costs, etc.), although not necessarily enough; cache hit ratios have always been a competitive point that other rivals, like Mirror Image, have hammered on. It has always been a trade-off in CDN design — if you have a lot more POPs you get better edge performance, but now you also have a much more distributed cache and therefore lower likelihood of content being fresh in a particular POP.

(Those are the two big errors that keep bothering me. There are plenty of other minor factual and analysis errors that I keep seeing in the articles that I’ve been reading about the acquisition. Investors, especially, seem to frequently misunderstand the CDN market.)

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Posted on December 23, 2011, in Infrastructure and tagged , , . Bookmark the permalink. 3 Comments.

  1. ‘The acquisition will leave CDNetworks as the only real alternative for dynamic site acceleration that is based on network optimization techniques’

  2. Obviously, AT&T is going to have some thinking to do, especially since application-fluent networking is a core part of its strategy for cloud computing going forward. thuoc lam to duong vat

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