Akamai Takes Strategic Steps With Focus On Video
Akamai (NASDAQ:AKAM) recently announced the integration of Adobe Primetime ad insertion capabilities into its network. [1] The company also acquired IP video services firm Octoshape last week. [2] Video is an integral and rapidly growing part of Internet traffic and Akamai is clearly focusing on improving its capabilities on this front.
We currently have a price estimate of $66.16 for Akamai, which implies a discount of around 7% to the market price.
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Akamai Bolsters Its Video Capabilities
Akamai is a leading Content Delivery Network (CDN) provider and delivers between 15-30% of all Web traffic. [3] The company has made two big strategic moves in the last few days with focus on online video content. The company has integrated Adobe Primetime’s ad insertion capabilities into its network. [1] Akamai believes that the integration will help simplify and improve the way video ads are delivered on the Internet. This integration will use a technique called server-side ad insertion, in which advertisements will be stitched into content at the network level. This technique offers many benefits including better monetization opportunities, reliability, enhanced viewing experience, smoother transitions across a larger audience, increased device reach and resiliency to ad blocking. The deal combines the scale of Akamai’s global network with the reach of Adobe Primetime and its ad insertion technology. The two companies have also collaborated in the past on a number of large online events such as Super Bowls, the World Cup and the Olympics.
The company also acquired Danish IP video services firm Octoshape in a cash transaction. [2] Octoshape’s services are designed to help optimize the quality of video streams for over-the-top (OTT) content and to enable Internet Protocol television (IPTV) solutions. The acquired company caters to many high-profile clients including CNN, CBS, NBA and NASCAR. [4] Akamai is poised to benefit from Octoshape’s valuable technology and experience in the area of streaming video optimization. Octoshape uses a proprietary distribution technology called UDP protocol instead of the more widely-used TCP protocol. [5] This technology helps the company in improving streaming speeds and sustaining high quality video delivery. The company also claims that its multicast solutions help in keeping the costs down. [6]
Why Focus On Video Is Important
Video consumption on the Internet has steadily gained prominence in the last few years. We are currently witnessing a shift in balance wherein consumers are moving away from traditional methods of content consumption such as pay-TV. Instead, they are preferring to consume content through online streaming platforms such as Netflix, Hulu, etc. Netflix alone accounts for 34.9% of all downstream traffic on North American networks in peak evening hours. [7] In keeping with this trend, content providers such as Dish Network, Sony, Apple, HBO, CBS, etc., have all announced the launch of their own streaming service within the last year or so. This recent crowding of the online streaming market is poised to increase the volume of video content consumed on the Internet. A report by Cisco Systems Inc. states that video as a percentage of all Internet traffic will grow from 78% in 2014 to 84% by 2018. [8] With video gaining such prominence, Akamai’s steps to improve its video capabilities will help the company distinguish itself from its competitors in the CDN space.
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- Akamai Integrates Adobe Primetime to Increase Reach and Scale of Online Video Advertising, April 14, 2015, Akamai Press Release [↩] [↩]
- Akamai Acquires Octoshape, April 14, 2015, Akamai Press Release [↩] [↩]
- Facts & Figures, Akamai [↩]
- Company – Customers, Octoshape [↩]
- Technology – TV Quality, Octoshape [↩]
- Technology – TV Economics, Octoshape [↩]
- Global Internet Phenomena Report, Sandvine [↩]
- Videos may make up 84 percent of Internet traffic by 2018: Cisco, June 10, 2014, Reuters [↩]