Akamai (NASDAQ: AKAM) is one of the leading content delivery network providers. For two decades, the company's fleet of servers spread throughout the world has accelerated content and media delivery. The company was talking about edge computing back in 2002, and today it offers a wide variety of services that leverages its global network, including serverless computing and data storage.
What was missing from Akamai's portfolio were more traditional cloud offerings. While edge computing is a powerful technology, customers still need to run applications and databases somewhere. The company acquired Linode, a developer-first cloud computing platform similar to DigitalOcean, last year for around $900 million to close this gap.
The integration of Akamai and Linode has been ongoing since the acquisition closed last March, and now the company is ready to talk about its plans. They include an aggressive expansion and disruptive pricing.
Akamai Connected Cloud is ready
Akamai officially launched its Connected Cloud platform on Tuesday, the culmination of its efforts to combine its edge platform with Linode's cloud computing services. The Linode branding has been largely removed, and Akamai has big expansion plans for this year.
By the end of the second quarter, Akamai will bring three new "core" cloud computing sites online in the U.S. and Europe. These core sites, which will join the 11 already in operation, will offer all Linode's cloud computing services. Another 10 core sites will go live later in the year, including planned sites in South America and Asia.
Akamai also plans to bring more than 50 "distributed" cloud computing sites online this year. These smaller sites, none of which are active right now, will offer a subset of basic cloud computing services. The idea is to bring cloud computing closer to population centers that are underserved by traditional cloud computing providers. Like the core sites, these distributed sites will be plugged into Akamai's vast edge network.
In addition to the expansion, Akamai is using bandwidth costs as a way to differentiate its new cloud platform from Amazon Web Services and the other major cloud platforms. While ingress, or data coming in, is generally free everywhere, egress, or data going out, can be extremely expensive on certain cloud platforms. Akamai will now charge just $0.01 per gigabyte for egress bandwidth for any amount over what's included in its plans.
This pricing greatly undercuts AWS. AWS customers get 100 GB of egress bandwidth for free each month aggregated across all their services, and after that, egress bandwidth is priced at $0.09 per gigabyte for the first 10 terabytes. On Akamai's cloud, each virtual server includes 1 TB of free egress bandwidth, after which the $0.01-per-gigabyte price takes effect. For someone who needs 10 TB of egress bandwidth, AWS will cost them nearly $900, while Akamai will cost them just $90.
This pitch should resonate
Akamai's strategy to offer customers significant cost savings over AWS makes a lot of sense in the current environment. Amazon is coping with a cloud computing customer base that is actively working to lower their bills in an uncertain economic environment. This has led to a slowdown in AWS's growth rate and a substantial contraction in profit margin.
While AWS customers, especially enterprise customers heavily invested in the ecosystem, are unlikely to leave entirely, shifting workloads to cheaper cloud computing providers is certainly within the realm of possibility. Many enterprises already make use of multiple public cloud providers. Switching costs are high if we're talking about moving everything off AWS, but they're manageable if we're talking about a subset of workloads.
As cloud computing customers set their sights on reining in their cloud costs, Akamai could be in a prime position to steal away some market share.
10 stocks we like better than Akamai Technologies
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
They just revealed what they believe are the ten best stocks for investors to buy right now... and Akamai Technologies wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of February 8, 2023
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Timothy Green has positions in DigitalOcean. The Motley Fool has positions in and recommends Amazon.com and DigitalOcean. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
