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Hey Tim, Snow, and all,

First, an apology. I'm writing so much lately that I rarely get time to post or to respond to email. Tim has sent me messages before regarding Limelight, InterNAP, VitalStream, and others. I really wish I could find some time to respond to them all and post here.

Usually, I can't. So today I'm going to try and get through as much as I can, as quickly as I can, beginning with GAAP earnings in the Fool by Numbers take:

Fool by Numbers always includes a graph for GAAP earnings because too many firms are unlike Akamai in that they use non-GAAP figures to artificially inflate results. FbNs allow us to put the raw numbers out there, but only after we explain them in the bullets that introduce the figures. As a consequence, we were the only media outlet to not use a headline that claimed Akamai's earnings declined.

Next, on competition:

LimeLight: This company is a different beast in that it operates a few central data centers rather than a vast distributed network. Its network is also supposedly geared for audio or video, though it could lose YouTube as a customer now that Google has acquired it.

InterNAP and VitalStream: VitalStream recently lost MySpace's business and InterNAP appears in need of a way of beefing up what seems to me mostly a broadband offering.

Google and others like it: Though there's a decent argument that says Google, Yahoo, and others will want the infrastructure to bundle ads and content, they can't replicate Akamai's services without infringing upon its patents. Moreover, IBM, which is a huge Akamai partner, could have long ago obliterated Akamai if all that was required to do so was a lot of data center-driven processing horsepower.

Finally, let's talk valuation. It's absolutely true that Akamai trades for a nosebleed multiple. Over the short term, the stock may pay a price. But firms with sustainable advantages almost never look cheap. Think of eBay, for example.

As a business-focused investor, my primary aim is to weigh Akamai's competitive advantage versus the total market opportunity. My assessment is that digital media distribution hasn't come close to peaking and that distributors such as Google, Yahoo, and Apple won't account for more than 30% of all the content that will be flying around the Web within a decade. Will every firm that wants to distribute content or applications create a do-it-yourself infrastructure? Or will they hire Akamai or one of its rivals? I think the answer is resoundingly in favor of outsourcing.

It's for those reasons and more that I believe CEO Paul Sagan's stated goal of achieving $1 billion in revenue by the end of 2009 is possible.

And I'm content to hold the shares for the next decade barring a major change in the business model or the competitive dynamics of the industry.

I hope this helps and Foolish best,


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