Alibaba Group Holding Ltd (NYSE:BABA) recently took Wall Street by storm with one of the biggest initial public offerings ever. Now analysts are pondering what’s next for the Chinese ecommerce giant. The company does have a tendency to expand by acquiring web-related businesses.
So what about Akamai Technologies, Inc. (NASDAQ:AKAM)? Could it be a potential target for Alibaba, or would Alibaba be better off just being a customer?
Could Alibaba acquire Akamai?
Writing on Forbes, Trefis analysts consider what the best type of relationship between Alibaba Group and Akamai Technologies might be. Akamai is a dominant force in delivery content and value-added services. As a result, Alibaba would greatly benefit from Akamai’s web data and marketing services.
And the company certainly has plenty of cash to do it. Akamai’s value is less than $11 billion, while Alibaba has a valuation of about $220 billion.
Is an acquisition of Akamai plausible?
However, they say it seems unlikely that Alibaba would be allowed to acquire Akamai because Akamai’s assets do hold strategic value for the U.S. government, particularly because the Dept. of Defense is one of Akamai’s customers. Also at the end of last year, the company had several other U.S. agencies as customers, including the Federal Aviation Administration, the U.S. Air Force, The Federal Emergency Management Agency and others. U.S. regulators would surely block an acquisition of such a strategic company by a company in China.
They point out that Alibaba could try to buy Akamai’s non-U.S. business but say that also seems unlikely because of how intertwined Akamai’s thousands of services are throughout the world. It would be very difficult, if not nearly impossible, to separate the company’s businesses.
Alibaba would make a great customer
So an acquisition seems unlikely, the Trefis team suggests that Alibaba Group would make an excellent customer for Akamai Technologies. They say Akamai may be able to help by offering infrastructure to support Alibaba’s online marketplaces. The company’s infrastructure could help Alibaba improve marketplace user experience.
In addition, they say Alibaba could make good use of Akamai’s value-added services by attracting more merchants to its marketplaces. That would then attract even more buyers and result in rising gross merchandise volume. Also Akamai’s strong U.S. presence could help the Chinese ecommerce company expand in the U.S., which is seen as one of its most important international markets.