Bad time to build
Several of the oldest and most successful of these companies already have their networks substantially in place. But to compete on speed and efficiency, some of the others are still playing catch-up. That requires either new funding or profits, both of which are now in short supply.
The problem, these companies have found over the last few months, is complex. Even for the relatively successful companies, customers have been stingy with their wallets over the last few months. Akamai, Digital Island and others have laid off staffers and cut back on other expenditures.
Economic uncertainties resulted "in a virtual flat line in terms of new business in the first part of the second quarter," Digital Island Chief Executive Ruann Ernst said in a conference call Tuesday. "Many of our potential and existing customers had a deer-in-the-headlights reaction to any new IT spending. They froze decision making."
Less-established companies--Akamai, Speedera and Digital Island tend to be cited as the biggest three--are running into worse problems. They need money to keep building and maintaining their networks. But customers leery of farming content distribution out to a network that will go out of business aren't signing on, while venture capital funding has simply dried up.
iBeam, a content distribution company that focused on streaming media, said late last month that it was examining its "strategic alternatives"--Wall Street code for looking for a buyout partner--as it faced its own pressing cash shortage. Edgix, a newer company that had focused on ISPs instead of Web sites for its customer base, is "restructuring" and "exploring a number of different options," a spokesman said.
"All these infrastructure businesses have problems scaling fast enough to keep ahead of their capital burn rate," said Rob Batchelder, a Gartner Dataquest analyst.
New warning signs
Even beyond the economic downturn, companies from Akamai on down have to worry about a new threat, analysts say. The big telecommunications companies, which own networks of their own that crisscross the United States, are getting into the game.
Qwest Communications International announced early last month that it would begin offering content delivery services in conjunction with technology provider Cisco Systems. Analysts say other giants--most notably WorldCom, which owns the UUNet data services company and Web site hoster Digex--are likely to follow suit shortly.
These companies may not offer the same level of service as Akamai or the other leaders in the start-up world, which have devoted considerable capital and programming talent to adding software-based Net-speeding capabilities to their networks. But the presence of new, deep-pocketed competitors will likely have a downward pressure on prices for the services, analysts say.
Moreover, they will be competing for a limited number of valuable customers. The number of sites that are large, well-funded and popular enough to require content-speeding services is dwindling. And many of these have already signed up with one of the existing services.
"The cream has already been skimmed off this business," Batchelder said. "So now the question is, how does Akamai keep people interested? I think this market is going to go through a period of extreme transition over the next 24 months."
