Layoffs and bankruptcies: A historic traffic slowdown shakes CDN industry

Some of the nation's biggest CDN providers – including Akamai, Fastly and Edgio – are struggling to come to terms with a historic slowdown in Internet traffic growth. And they're doing so via a mixture of layoffs, restructurings, bankruptcies and other strategies. 

"It's making the market a super interesting place right now," said Todd Nightingale, CEO of Fastly, during the company's earnings call last week. 

Fastly is one of the nation's big content delivery network (CDN) operators. Such companies manage a geographically distributed network of servers that can be used to store and deliver digital goodies like videos and games. However, CDN operators like Fastly and Akamai have reported a slowdown in the use of CDNs by streaming video companies, online game providers and others. 

"In terms of traffic growth, it is growing very slowly – at rates that we haven't seen in the 25-plus years we've been in this business. So it's growing very, very slow," said Akamai CFO Ed McGowan during the company's earnings call last week. "It's just been a weak traffic environment." 

Tom Leighton, Akamai's CEO, explained during the call that there have been a number of swings in traffic levels over the years, such as the boom in Internet trafficat the outset of the pandemic. "Most recently, we've seen traffic growth slow as the streaming and gaming verticals have faced their own headwinds," he said. 

Indeed, companies like Netflix and Warner Bros. Discovery have been searching for new growth vectors as the streaming video industry cools. 

Bankruptcies and layoffs 

In the meantime, Fastly and Akamai are slimming down their operations in response to the traffic slowdown. Akamai last week said it would reduce its workforce by 2.5% (about 250 jobs). And Fastly said in August it would cut 11% of its workforce, or around 130 positions. 

For Edgio, the situation is more serious. The company filedfor Chapter 11 bankruptcy in September. 

"We have not been able to grow the revenues of our non-Content Delivery Network (CDN) businesses quickly enough to offset the costs of operating two bespoke engineered, equally sized global CDNs," explained Edgio CEO Todd Hinders in a post to the company's website. "This has led us to a crossroads, where protecting the parts of our business that we are passionate about requires an important and necessary decision." 

Edgio was originally founded in 2001 as Limelight Network. In 2022, Limelight acquired Edgecast from Yahoo and rebranded itself as Edgio. 

"We are exploring all available paths, including potential investments, full company acquisition, or the sale of our Uplynk, Applications and CDN offerings," Hinders said of Edgio's bankruptcy. "This process is progressing well and will continue under court supervision. We anticipate completing this sales process within approximately 80 days, if not sooner." 

Going forward 

But officials with Akamai and Fastly see a brighter future. 

"There's definitely potential upside here," Nightingale, the Fastly CEO, said in response to a question about Edgio's bankruptcy and what it means for Fastly. "We've seen some accounts that have, in fact, shifted traffic towards Fastly." 

Added Nightingale: "I think it also underscores the importance of a platform strategy here of building a very complete offering with strength, not just in network services but security and compute and observability as well." 

Leighton, the Akamai CEO, offered a similar outlook: "Given our scale and cost structure, we can add traffic very profitably, while it appears that many of our competitors are struggling to even stay in business." 

He said potential future catalysts for Internet traffic growth include an increase in video advertising as well as more advanced video games and online sports. "When traffic growth picks up, we believe that Akamai is in a much stronger position than competitors to capture it," he said.