Akamai Case Study

Case Digest: Akamai Technologies

The charging of content providers and subsidization of Internet Service Providers (ISPs) by Alkaline would suggest that the company is acting within a two sided market. Conventional wisdom within a two sided market situation suggests that a provider should subsidize the more sensitive side of the market and charge the side that most strongly values growth or need of the service or product. Akamai’s distributed servers are located close to end users, speeding the delivery of content. ISPs conserve bandwidth by relying on Akamai, and visitors are more likely to linger when pages load quickly. In an almost “catch 22” position, providers often are incentivized to subsidize users on one side permanently, pricing platform goods and services below marginal cost or even giving them away. This effort is to attract more users to a platform’s “subsidy side,” boosting users’ willingness to pay on the money-side users and recover the subsidy. In Akamai’s case, the subsidy of ISPs is justified given the inherent “need” of content providers for the distribution networks provided through ISPs.

Content Providers Akamai mirrors content across servers located around the world and thus allows providers to pay for improved delivery of content. The internet has become increasingly dominated by advertising revenue paid to content providers. Content providers benefit from the ever increasing opportunities for advertising revenue. Internet service providers allow for the expansion and increased user satisfaction of content managers’ sites, this providing increased opportunity for advertising revenue; this is a result of more “eyeballs” being able to view a site without the site crashing. As a result, the volume of demand for increased bandwidth capabilities is coming from content providers, who are provided with a humongous incentive to find an increased bandwidth capable ISP.

The transitionary exit of competitors moves the...