• Introduction: A Quick & Imperfect Review of Akamai
  • Kailash’s view on Carvana: How to Make Money by Losing Money
  • Conclusions & Exhibit

Introduction: A Quick & Imperfect Review of Akamai

Perusing newspapers from the late 1990s, one of the most interesting stories that caught our attention was that of Akamai. As the internet came of age, one of the major roadblocks to adoption was capacity. One article noted “Many users can almost recite the words from memory…unable to make a connection….the server may be busy….please try again later.”1 Dubbed the “World Wide Wait,” the internet had become so popular that making basic connections had become tedious and difficult.

After coming in second place at MIT’s 1998 Entrepreneurship Competition, MIT’s professor of applied mathematics, F. Thomson Leighton, and graduate student Daniel Lewin’s solution to this problem found early backers from Battery Ventures. By June of 1999, the news reported that Akamai’s breakthrough was real. Akamai improved website performance for the likes of Time Warner, CNN, Walt-Disney, and other major firms delivering content over the internet.2 Akamai had truly solved a major problem for adoption of the internet.

Figure 1 shows an imperfect record of Akamai’s private funding values through its closing on the Nasdaq in 1999. Battery Ventures’ first investment at a nominal value in late 19983 was rapidly followed by Apple’s purchase at $250m, Cisco’s purchase at $1.2bn, and Microsoft’s purchase at a “whopping $1.4bn.”4 While the rapid escalation in private valuations stunned people, the public market validated the private market’s view: on the first day of listing in 1999, Akamai was valued at over $13bn. By December of 1999 Akamai had soared to a staggering $30 billion market cap.

While the chart below is fairly boring Kailash encourages readers to note that in the span of just over a year, Akamai’s complex mathematical solution to a global problem went from nothing to $30 billion. Readers interested in the lessons of history – particularly those concerned about increasing risks from bear market indicators and the mania in fast growing stocks should read on!

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