Message-ID: <9046490.1075843083621.JavaMail.evans@thyme> Date: Thu, 4 Nov 1999 07:35:00 -0800 (PST) From: scott.bolton@enron.com To: sue.nord@enron.com, susan.landwehr@enron.com, jeff.dasovich@enron.com, marchris.robinson@enron.com, lisa.yoho@enron.com, aleck.dadson@enron.com Subject: FYI - one aspect of ECI Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Scott Bolton X-To: Sue Nord, Susan M Landwehr, Jeff Dasovich, Marchris Robinson, Lisa Yoho, Aleck Dadson X-cc: X-bcc: X-Folder: \Jeff_Dasovich_Dec2000\Notes Folders\Eci X-Origin: DASOVICH-J X-FileName: jdasovic.nsf Interactive Week 11/1/99 Wall Street enthusiasm and a growing list of brand-name clients have legitimized content distribution as a business, putting two companies that started it all - Akamai Technologies and Sandpiper Networks - into the spotlight. Digital Island's $630 million acquisition of Sandpiper last week and Akamai's $2.2 billion pre-initial public offering valuation are likely to make merger and acquisition artists wonder how much their company would be worth with the inclusion of a Sandpiper or Akamai. Akamai, which priced it shares at $26, saw its stock hit $125.50 in midday trading Oct. 29. Digital Island, the San Francisco-based Web hosting shop that was worth $1.2 billion on Oct. 25 when it announced the Sandpiper acquisition, saw its market capitalization gain $1 billion in the course of four days. Why are the services of Akamai and Sandpiper so valuable all of a sudden? The Internet can't deliver Web - much less broadband - content fast enough, and network backbone companies are taking too long to solve the bottleneck puzzle, industry experts said. "We looked at content sites A through Z, and 52 percent of them are planning to buy content delivery services next year," said Greg Howard, principal analyst and owner of the HTRC Group, a market research company. With customers that eager to show service providers the money, many are scrambling to deliver. In a space where a year ago Sandpiper was a lone evangelist and Akamai a rocket from nowhere, new content distributors are popping up like mushrooms. Adero, Edgix and Mirror Image are three companies that are gaining mindshare in the market. Since at the core of a content distribution system lies a massive task managing hundreds and eventually thousands of caches operated as one network, such companies as iBeam Broadcasting and SkyCache are also gaining credibility in the market. And then there are a few sudden entrants. Enron Communications and Exodus Communications are trying to amend existing business models to take advantage of the new opportunity. How big is the opportunity? The content distribution market, Howard said, will grow from $62 million this year to $306 million next year, and to about $2.3 billion in 2002. Acquisition as an exit strategy is certainly something new content distributors are thinking about. "I think it's hard to say what will happen in this industry next. All business models are very different," said Rangu Salgame, president and chief executive of Edgix. "I think we will stand independent - for a while." Potential buyers include any given content provider - from CNN Interactive to Pets.com - that writes three checks every month: one for bandwidth, one for Web hosting and, lately, one for content distribution. These groups have the most to gain from content delivery services, executives said. "There are a couple of likely players in this space. One, there are new start-ups like Adero and specialized content distributors like Intervu; two, there are colocation providers like Exodus; and three, there are traditional telcos like MCI WorldCom, who are standing on the sidelines right now, but have a lot of edges for content to reside on," said Leo Spiegel, president and CEO of Sandpiper, soon to be Digital Island. What would happen if any given company were to buy all three components? "This would mean running content distribution through a single network and maintaining a global footprint," Howard said. "It is hard, but doable." There are reasons why the network-content distributor combination could backfire. Akamai executives declined interviews for this story due to the Securities and Exchange Commission-imposed quiet period. But in the past, they have been vocal about a single network scenario being untenable for content distribution because their business model is predicated on carrier neutrality. This is why Internet service providers and telephone companies are open to content distributors colocating servers within their networks. Another possible exit strategy for content distributors is to sell out to large media companies such as America Online, Disney and Time Warner. These companies could maintain the content distributors' "Switzerland" status and still use the service as a competitive advantage by speeding up content delivery, industry watchers said. Scott Bolton Government and Regulatory Affairs Enron Communications, Inc 210 SW Morrison, Suite 400 Portland, OR 97204 503.464.8611 503.464.3636 fax