Q1) Discuss Akamai's business model and whether it makes sense. Hint: Use Porter's 5 force model.
Akamai had a successful business model which helped it to succeed where several other companies providing similar services failed. Akamai was in the playing field with big corporations but they strategically built relationships in networks for server colocation and they possessed good software and patents that kept them indispensable in the networking layer. They kept out of the software layer where the big corporations were busy battling each other. We can study their business strategy in handling their competition using Porterâ€™s five forces model.
A Threat of new entrants
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The technology of caching and mirroring that were adopted by certain solution providers proved to be more costly to implement and provided outdated web content than the Akamai Free Flow technology. The other CDN providers like Sandpiper were not able to compete with Akamai in terms of their total number of server locations. Akamai was able to foresee the competition and adopt the most efficient technology and acquired strategic network locations and patents to stay ahead of competition.
While introducing the Edge Suite, Akamai considered forming a partnership with either IBMâ€™s Web sphere or Microsoftâ€™s .NET or EDSâ€™s Framework for Accelerated Solutions (FAS) or HPâ€™s Adaptive Enterprise or BEAâ€™s Weblogic or Sunâ€™s Open Net Environment (ONE). Each of these platforms offered proprietary features. Akamai had to undertake custom software development work to support each system rather than take sides on the battlefield of big software enterprises. This strategy ensured that they were not directly threatened by the large corporations.
When IBM decided to enter into on-demand computing for their applications, Akamai evaluated the risks that the big enterprises like IBM and Microsoft captured up to 90% of the market. They figured that even holding on to the remaining 10% would be good for the company. Ultimately other content delivery network providers backed by Microsoft like Exodus, UUNET and Cable & Wireless failed, leaving Microsoft the only option of depending on Akamai for their CDN services.
C Bargaining power of customers (buyers)
Akamai estimated that its EdgeSuite customer would spend about 4 times more than they would spend on a traditional CDN service like FreeFlow. They were able to convince their customers by explaining that EdgeSuite was a much better value proposition by offering superior features than the completion. Some of the features offered were a) improved page load times by a factor of 2 by using dynamically generated web pages, b) 100% increase in savings within 2 years by using Akamai Edge servers over using the existing technology of overloading the original websites, c) savings on bandwidth by reducing data transfers substantially d) improved scalability to handle flash crowds that could overwhelm the traditional architecture e) greater security from hacking and physical disasters.
D Bargaining power of suppliers
Akamai sales were always driven by the support of their partners-system integrators, hosting firms and network carriers. Their partners like IBM had a lot of technical expertise as well as the skills and corporate relationships that made it very easy for them to sell the Akamai ESI products. They often sold 2-3 dollars of professional services for every dollar a customer spent on Akamai. Akamai lost about a third of the revenue by involving these suppliers but they were a major driving force in increasing Akamaiâ€™s revenue. Akamai however retained their own direct sales force to act as a contingency...