November 2, 1999 3:55 PM PST
Can Inktomi hold its lead among caching firms?
Inktomi has long had a diversified business model, selling so-called portal services such as its search engine and shopping engine in addition to its network infrastructure caching product.
But even as the Net infrastructure market heats up with renewed interest and competition from Akamai, Inktomi appears to have shored up the advantage gained by its early entry with wide-ranging relationships with both established firms and some of the new entrants.
Firms in the caching arena fall roughly into two categories: those like Inktomi, which provide software products for caching, and those like Sandpiper Networks--recently acquired by Digital Island--and Akamai, which use those products to provide distributed content services to Internet service providers.
In other words, the recent boom in caching and content distribution business benefits Inktomi almost regardless of who comes out on top.
Adero, for example, last month integrated Inktomi's Traffic Server software and Content Delivery suite--software acquired in September with the purchase of WebSpective--into the AderoWorld Service network.
Sandpiper is another Inktomi customer, as is Web hosting provider Exodus Communications.
"Frankly, we're quite happy with the way the market is developing," said Inktomi spokesman Dick Pierce. "We were really the pioneers that helped create the network caching space as it's known today, and Inktomi is at the top of the list in terms of market share."
But one services company not using Inktomi's technology is Akamai. Instead, Akamai is using its own technology and aligning itself to be interoperable with other cache technology providers, including Cisco Systems, Novell Networks, Network Appliance, CacheFlow, and InfoLibria.
And Akamai's allies are nothing to sneeze at. They include investors Apple Computer, Cisco Systems, and Microsoft, as well as customers like Yahoo and Disney's Go Network.
"The ascendancy of Akamai creates at least confusion on the part of investors who have long viewed Inktomi as the sole and preeminent provider of Internet infrastructure," said Chris Tuttle, analyst with SoundView Technology Group in Stamford, Connecticut. "Before Akamai, service providers like Sandpiper and Exodus used Inktomi technology at their core. But Akamai is the first viable service provider with their own proprietary core."
Another caching provider with its own technology is CacheFlow, which today gained Netscape cofounder Marc Andreessen as a board member and investor. In the commercial caching arena, Inktomi will encounter competition from CacheFlow.
A direct competitor?
But Tuttle said there is some question about whether Akamai's service offering and Inktomi's technology are competitive or complementary.
"In my opinion, they are complementary, but as the companies evolve, they may view themselves as competitors," Tuttle said. "That could in effect lead to more direct competition from a product standpoint."
Tuttle has a "buy" rating on Inktomi.
One of Inktomi's biggest customers, America Online, is experiencing 3.3 billion hits per day on its service, Inktomi's Pierce said. Although AOL does not pay Inktomi on a per-hit basis, it does buy licenses based on the traffic volume.
Still, there is skepticism about Inktomi's strategy. Inktomi last week released quarterly earnings that were in line with analysts' expectations, but the company's stock fell by 14 percent after Merrill Lynch analyst Henry Blodget lowered his intermediate-term rating on Inktomi to "neutral" from "accumulate" and said it would incur wider losses, according to Bloomberg.
Blodget projected that Inktomi would lose $24 million this fiscal year. Inktomi attributed projections of increased losses to the WebSpective acquisition, Bloomberg said.
Other analysts reiterated their Inktomi ratings last month. Goldman Sachs reiterated its "recommend list" rating on the company, and Volpe Brown Whelan reiterated its "buy" rating.
Now that Inktomi has commanded the network business, it's moving into the enterprise market. The company this week introduced a version of its caching product for large, non-ISP businesses to use on their networks. Bristol Myers-Squibb, Merrill Lynch, and Sun Microsystems will use Traffic Server E5000 and E200 for their networks; Fidelity Investments is evaluating it.
Analysts point to Akamai and Inktomi's deal-making as evidence that the two companies aren't necessarily competing with each other but, paradoxically, are behaving like competitors.
"Inktomi has signed deals with everyone but Akamai," said Jupiter Communications analyst Zia Daniell Wigder, noting also that Akamai has formed alliances with most significant caching technology providers except for Inktomi.
That may indicate a competitive chill between the two companies, but it also shows that Akamai's technology is compatible with caching technology in general, Wigder said.
Although Inktomi is selling software to ISPs and Akamai is selling a service to content providers, both may be angling to prepare for a future in which there isn't a need for both types of companies.
"The way they compete going forward is if there isn't going to necessarily be a need for both," Wigder said. "Because if an ISP is going to be caching its own content and pushing it out to the edge of the network, there's not necessarily a need for the content provider to be pushing it to the edge as well."
Bloomberg contributed to this report.