Tiny Newcomer Gives Inktomi a Run for Its Money

SAN FRANCISCO -- Inktomi (INKT Quote) is playing catch-up to a pipsqueak.

Foster City, Calif.-based Inktomi pioneered the deployment of traffic servers, software designed to ease congestion on the Internet by storing, or "caching," copies of frequently accessed information. But Akamai (pronounced AH-kuh-my), a white-hot Cambridge, Mass.-based start-up on the verge of going public, has developed a technology that analysts say is giving Inktomi a run for its money by providing a smarter method of accelerating Web download times.

Inktomi reported $25.3 million in revenue in the first half of its fiscal year, which ends this month, while Akamai had just $404,000 in revenue in the six months ended June 30.

But Akamai's success is a big reason why Inktomi on Thursday announced an agreement to acquire content distribution and tracking software company WebSpective Software. The deal, worth $106 million in Inktomi stock, is expected to close next quarter. Inktomi closed Thursday off 25/32 at 128 5/8.

WebSpective boosts Inktomi right where Akamai is hitting it hardest.

"Akamai is Inktomi's worst nightmare," says Peter Christy, a principal analyst with the Internet Research Group, a research and consulting firm based in Los Altos, Calif. (His firm hasn't done recent consulting for Inktomi or Akamai.) "They have demonstrated a new way of getting value out of caches."

There are two major differences between the companies' products.

Akamai, a Hawaiian word for clever or cool, sells its content-delivery services directly to heavily trafficked Web sites of companies such as Yahoo! (YHOO Quote), CNN and The New York Times. Akamai charges the content providers $2,000 a month for each megabit-per-second at peak usage. Customers tag bandwidth-intensive content such as advertising banners, icons and graphics. When users request this content, Akamai's proprietary algorithms find the least congested route to serve it up.

By contrast, Inktomi now sells its traffic servers to telecommunications companies like Qwest (QWST Quote), Internet service providers like Excite@Home (ATHM Quote) and Web-hosting companies like Exodus (EXDS Quote). Inktomi uses a traditional software-licensing model to sell its servers.

"WebSpective allows us to dynamically distribute content based on the needs of the content provider," says Richard Pierce, Inktomi's vice president of marketing. The WebSpective acquisition also will help Inktomi sell traffic servers directly to the enterprise market, made up of corporations, later this year, say Inktomi executives.

Another difference in the products is in the cache network. And some analysts say that's where Inktomi is still vulnerable to Akamai.

Rather than selling its caches to various networks, Akamai gives its servers away for free to ISPs, in a sense squatting on their networks. ISPs have allowed Akamai to squat because its servers lead to cheaper bandwidth costs and faster download times at no cost. So far, Akamai has placed 900 servers on 25 networks in 15 countries. "Yahoo! would have to buy caching services from many people to get the equivalent of what they get from Akamai," says Christy at Internet Research.

Inktomi and Akamai share similar origins. Inktomi was founded by two computer scientists at the University of California-Berkeley. Akamai grew out of the Massachusetts Institute of Technology's Laboratory for Computer Science.

For now, the two competitors are maintaining an air of civility. "Akamai is a demand catalyst for content-distribution services," says Inktomi's Pierce. Akamai declined to comment, citing the quiet period before its IPO.

But the competition appears to be heating up. Akamai's IPO riches, for instance, will be used to market its brand, develop new technology and expand its sales force and network of servers. Akamai also has poached Chuck Neerdaels, former development manager for Inktomi's traffic server, as director of engineering. And it hired Peter Danzig, Network Appliance's (NTAP Quote) former chief Internet product architect, as vice president of technology.