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SECURITIES AND EXCHANGE COMMISSION

Form 10-K

FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTIONS 13 OR 15(d) OF THE

Commission File number 0-27275

Registrant’s Telephone Number, including area code:     (617) 444-3000

Securities registered pursuant to Section 12(b) of the Act:     None.

Securities registered pursuant to Section 12(g) of the Act:     Common Stock, $.01 par value

      Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     þ

      The aggregate market value of the voting common stock held by non-affiliates of the registrant was approximately $323,511,813 based on the last reported sale price of the common stock on the Nasdaq consolidated transaction reporting system on February 25, 2002.

      The number of shares outstanding of the registrant’s common stock as of February 25, 2002: 116,276,079 shares.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission relative to the registrant’s 2002 Annual Meeting of Stockholders are incorporated by reference into Items 10, 11, 12 and 13 of Part III of this Annual Report on Form 10-K.

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AKAMAI TECHNOLOGIES, INC.

ANNUAL REPORT ON FORM 10-K

For the Fiscal Year Ended December 31, 2001

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PART I

Item 1.     Business

Overview

      Akamai Technologies, Inc. is a leading provider of secure, outsourced e-business infrastructure services and software. These services and software enable enterprises to reduce the complexity and cost of deploying and operating a uniform Internet Protocol, or IP, infrastructure while ensuring superior performance, reliability, scalability and manageability. We principally target enterprises and government entities as our customers. Our services give our commercial customers a competitive advantage by providing a rich experience for their end user customers without the need to manage and deploy a complex internal infrastructure. Our intelligent edge platform for content, streaming media, and application delivery is comprised of more than 13,500 servers within over 1,000 networks in 66 countries. We were incorporated in Delaware in 1998 and have our corporate headquarters at 500 Technology Square, Cambridge, Massachusetts. We operate in one business segment: outsourced e-business infrastructure services and software.

      We offer enterprises a more effective, reliable and scalable method for delivering Web content and applications over global networks using IP technology. We began selling our content delivery services in 1999 under the trade name FreeFlow. Through our acquisitions of Network24 Communications, Inc., which we refer to as Network24, and InterVu, Inc., which we refer to as InterVu, during 2000, we enhanced the streaming media delivery services in our service portfolio. Also during 2000, we introduced traffic management services that allow customers to monitor traffic patterns on their Web properties both on a continual basis and for specific events. We also introduced software that identifies the geographic location and network origin from which site visitors access our customer’s Web sites, enabling content providers to customize content without compromising user privacy.

      In October 2000, we launched our EdgeSuite offering, a suite of services that allows for the high-performance and dynamic delivery of Web content and applications to end users, wherever they are located globally. These services include content and application delivery, content targeting and personalization, business intelligence and streaming media. We view EdgeSuite as our core service offering for 2002.

      Our services are easy to implement and are highly scalable. Using our software utility, a customer controls which pieces of its Web site will be delivered over our platform. Historically, our FreeFlow customers selected bandwidth-intensive content for delivery over our platform, typically rich non-text objects such as photographs, banner advertisements and graphics. With the introduction of our EdgeSuite service, customers may dynamically deliver a broader range of content and applications — such as e-commerce, customer relationship management tools, pay-per-view video, software updates, and even entire Web sites — over our platform. This enables us to locate applications and content geographically closer to end users. Using the proprietary algorithms we have developed that continuously monitor and load-balance our network in real-time, we determine the most efficient methods and routes available for delivering the applications and content to our customers’ end users.

Industry Background

      The end of the 20th century witnessed the explosive growth of the Internet and the emergence of e-business. E-business is the use of IP technologies to streamline processes, improve productivity and increase efficiencies, enabling enterprises to easily communicate with customers, vendors and partners, connect back-end data systems and transact commerce in a secure manner. The Internet, however, is a complex system of networks that was not originally created to accommodate the volume or sophistication of today’s business communication demands. As a result, information is frequently delayed or lost on its way through Internet as a result of many potential bottlenecks, including:

	•	bandwidth constraints between an end user and its network provider, such as an Internet Service Provider, or ISP, cable provider or digital subscriber line provider;
	•	Internet traffic exceeding the capacity of routing equipment;

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	•	inefficient or nonfunctioning peering points, or points of connection, between ISPs; and
	•	clogging of data centers.

In addition to the explosive growth of the Internet, enterprises have widely deployed IP technology on their public Internet Web sites, their internal networks, commonly called Intranets, and their networks that are accessible by their customers, partners, and vendors, commonly called Extranets. This convergence of applications toward using IP technology is raising the demand that all IP networks — Internet, Intranet and Extranet — function with better performance and reliability. Akamai’s services address these demands for enterprise customers.

      Driven by competition, globalization and cost-containment strategies, e-business is becoming a critical component for corporate enterprises. These trends require enterprises to rely on an agile e-business infrastructure to meet their real-time strategic and business objectives. We expect enterprises to favor more decentralized information technology architecture to support their goals of disaster recovery, high availability, denial-of-service mitigation and back up. We also anticipate that enterprises will continue to expand their use of IP-based technologies.

Our Solutions

      Akamai offers a broad range of secure, outsourced e-business infrastructure solutions and software that enable customers to reduce the complexity and cost of deploying and operating a uniform IP infrastructure while ensuring superior performance, reliability, scalability, and manageability. Forming the core of these solutions is our EdgeSuite offering, a suite of services that allows enterprises to maximize performance and minimize cost while distributing their Web content and applications using IP technology.

      By moving electronic content and applications closer to our customers’ end users, our EdgeSuite service allows enterprises to improve the end-user experience, boost reliability and scalability and reduce the cost of their e-business infrastructure. In contrast to our traditional content delivery services, our EdgeSuite offering is applied across an entire site’s content — not just the large objects such as graphics or video. We believe that our EdgeSuite service is the only service available in the industry capable of providing the benefits of distributed performance to an enterprise’s entire Web site and all aspects of its applications. Our EdgeSuite offering substantially reduces the amount of Internet infrastructure required to maintain a global IP presence. Site owners maintain a single-source copy of applications and content, and our EdgeSuite service provides global delivery, load balancing and storage, thereby enabling businesses to focus valuable resources on strategic matters, rather than tactical infrastructure issues.

      Customers of our EdgeSuite service have access to the following service and software features:

	•	Secure Content
		Enterprises are increasingly aware that having the ability to transmit content securely over the Internet is a crucial component of their e-business program. Our services offer support for the distribution of secure Web content. Using Secure Sockets Layer, or SSL, transport, our EdgeSuite offering ensures that content is distributed privately and reliably between two communicating applications.
	•	Tiered Distribution
		As their Web sites and interactions become more complex, enterprises are seeking tools to manage their Web presence. Our services optimize the delivery of all types of site content through the tiered nature of our platform. By using tiered distribution hubs that are connected to edge nodes close to requesting users, we are able to efficiently distribute our customers’ content based on unique characteristics and patterns. With our EdgeSuite services, enterprises can significantly reduce the load on their Web infrastructure and protect their online business from spikes in demand.
	•	Site Fail Over
		It is essential that e-businesses maintain constant availability of their Web sites. Our EdgeSuite service guarantees delivery of default content in the event that the source version of the Web site of an

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		enterprise customer becomes unavailable. Our EdgeSuite offering’s default content capabilities provide a solution for:

	•	Site mirroring — we provide an economical way to mirror a Web site without the expense of investing in additional data centers to achieve redundancy.
	•	Disaster recovery — we provide a backup if an unforeseen event causes a Web site to crash.
	•	Site maintenance — we deliver fail-over service so that a Web site remains available to end users during updates and maintenance.

	•	Net Storage
		For an enterprise to most effectively utilize the Web, efficient content storage solutions are essential. Our EdgeSuite service provides a complete solution for digital storage needs for all content types. Our EdgeSuite Net Storage feature uses multiple terabytes of storage capacity, geographical replication, a massively scalable architecture and proprietary mapping and routing technology to ensure that content is consistently available.
	•	Global Traffic Management
		Our EdgeSuite service substantially reduces the amount of Internet infrastructure required to maintain a global Web presence by providing geographically distributed Web infrastructures that reduce reliance on an origin site for presentation and application processing and enable site owners to maintain a minimal source copy of the Web site. Enterprises with geographically distributed Web infrastructures can use EdgeSuite Global Traffic Management to improve the availability, responsiveness and reliability of a multi-location Web site. When we need to access a customer’s origin site, we rely on our Global Traffic Management feature to choose the optimal site. As an outsourced service, EdgeSuite Global Traffic Management frees enterprises from managing complex hardware and allows them to concentrate on their core business. Global Traffic Management reduces the need for enterprises to purchase, maintain or house hardware that can rapidly become obsolete and provides continuous monitoring and support from our Network Operations Command Center.
	•	Dynamic Content Assembly
		Web sites depend on fresh and dynamic content to drive user acquisition and retention. For example, content may be customized based on the time of day or the geographic location of a site visitor. Site owners typically use dynamic content sparingly as it tends to slow page downloads and can even increase end user abandonment rates. EdgeSuite Dynamic Content Assembly allows organizations to assemble and customize Web pages at an optimal location within the global Akamai platform. Customized content is delivered quickly and reliably to each user.
		EdgeSuite Dynamic Content Assembly provides two main benefits. First, we are able to improve site performance for customers who use this feature by caching dynamic pages, which requires the retransmission of fewer bytes from the origin site, thus reducing the amount of infrastructure an enterprise needs to purchase and manage. Second, EdgeSuite Dynamic Content Assembly allows for a high degree of personalization without compromising performance. Currently, personalization requires a centralized model of Web serving that is subject to performance and scalability problems. Dynamic Content Assembly off-loads personalization capabilities to the edge of the Internet, allowing content to be generated with browser-based user variables, such as “cookies”. EdgeSuite Dynamic Content Assembly gives enterprises the best of both worlds: rich, dynamically rendered pages delivered without degradation of performance; thereby enabling our customers to easily and cost effectively build personalized, targeted content leveraging our intelligent platform.
	•	Content Targeting
		Content Targeting allows our customers to customize content by accurately identifying the visiting user’s geographic location, connection speed, device type or other specified information so that content can be targeted in real time and at the network’s edge for each visitor. Content Targeting enables content providers to deliver localized content, customized store-fronts, targeted advertising, adaptive marketing and a rich user experience.

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	•	Digitized Downloads
		Digitized downloads consist of software applications and documents that may be downloaded onto the computers of permitted recipients. Our EdgeSuite service provides a solution for digital file distribution that offers our customers the ability to leverage the Internet as a distribution channel, resulting in expanded customer reach, significant cost efficiencies and time-to-market advantage. The unique, globally distributed network architecture on which the Akamai platform is based enhances the security and reliability of downloads while reducing infrastructure and bandwidth requirements at the origin site.
	•	Business Intelligence
		EdgeSuite Business Intelligence applications and services provide detailed real-time and historical information on site visitors, their behavior and the effectiveness of a Web site’s content. It also provides Web infrastructure information with details on Web site performance, site visitors’ access points, traffic patterns and automated delivery of Web logs in industry-standard formats. Companies use Business Intelligence’s comprehensive tools to evaluate their strategic investments in Web site functionality.
	•	Streaming Services
		Our streaming services provide for the delivery of streaming audio and video content to Internet users. We offer streaming services in all major formats. We principally focus on enterprise streaming applications such as video broadcasting of large events over IP networks, and video archives of corporate events or public news events. We believe that we have demonstrated superior streaming network capacity and quality, particularly for broadband users.

Business Segments and Geographic Information

      We currently operate in one business segment: outsourced e-business infrastructure services and software. Although we offer our services in several foreign locations, over 90% of our revenue for each of the last three fiscal years has been derived from customers located in the United States. For more information on our segments and geographic areas, see Note 18 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

The Akamai Platform

      Our platform consists of a global network of over 13,500 computer servers and the complex proprietary software that resides on them. Our servers are deployed in over 1,000 networks including Tier 1 providers, medium and small ISPs, cable modem and satellite providers, universities and other networks. We have formed alliances with many of the leading networks worldwide. We also deploy our servers at smaller and medium-sized domestic and international ISPs through our Akamai Accelerated Network Program. Under this program, we offer use of our servers to ISPs. In exchange, we typically do not pay for rack space to house our servers or bandwidth to deliver content from our servers to Internet users. By hosting our servers, ISPs obtain access to popular content from the Internet that is served from our platform. As a result, when this content is requested by a user, the ISP does not need to pay for the bandwidth otherwise necessary to retrieve the content from the originating Web site.

      We monitor our platform through our Network Operations Command Center, which we call the NOCC, located at our corporate headquarters, with a back-up facility on the West Coast. Expert network operations personnel staff the NOCC 24 hour per day. We perform real-time monitoring of our own servers and of the Internet to make certain that content is delivered to users with the best possible performance and reliability. A key design principle of our system is the use of a distributed network of servers with no single point of failure. As a result, if any computer, data center or portion of the Internet fails, our services will continue operating. We constantly monitor the performance of connections between various locations around the Internet and our regions using numerous types of network information to determine the performance of these connections. The result is a “map” of the optimal Akamai region for each location at that point in time. We rebuild this map periodically to reflect changing conditions.

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      Real-time monitoring also enhances reliability. Our servers maintain ample redundancy with other servers in our network to ensure the highest level of performance and reliability for our customers. This is increasingly important for reliably delivering the mission-critical content and applications of an enterprise over IP networks which, on their own, are often unreliable.

Customers

      Our customer base is centered on enterprises. As of December 31, 2001, customers who have adopted our services include many of the world’s leading enterprises, including Apple Computer, Inc., Barnes & Noble, Best Buy, Federal Express, General Motors Corporation, Target Corporation and Xerox Corporation. We have also begun to address the needs of the government market and, as of December 31, 2001, had customers such as the Centers for Disease Control and Prevention, the U.S. Geological Survey’s Earthquake Hazards Program and the U.S. Government Printing Office. No customer accounted for 10% or more of total revenue for the year ended December 31, 2001. For the year ended December 31, 2000, Apple Computer represented 12% of total revenue. For the year ended December 31, 1999, Yahoo! and Apple Computer represented 22% and 13% of total revenue, respectively. During the year ended December 31, 2001, we entered into a technology license and service agreement with Sockeye Networks Inc., or Sockeye, an affiliate of Akamai. See Note 16 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K for further information on Sockeye.

Sales, Service and Marketing

      Our sales and service professionals are located in the United States and Europe, with ten offices in the United States and three offices in Europe. We market and sell our services and software domestically and internationally through our direct sales and services organization and through over 60 resellers including Compaq Computer Corporation, Digex, Inc., Electronic Data Systems Corporation, or EDS, International Business Machines, or IBM, InterNap Network Services, Telefonica Group and others. Our sales and support organization includes employees in direct and channel sales, customer service, account management and technical consulting. As of December 31, 2001, we had approximately 245 employees in our sales and support organization, including 79 direct sales representatives whose performance is measured on the basis of achievement of quota objectives. Our ability to achieve significant revenue growth in the future will depend in large part on how successfully we recruit, train and retain sufficient direct sales, technical and global services personnel, and how well we continue to establish and maintain relationships with our strategic partners. We believe that the complexity of our services will require a number of highly trained global sales and services personnel.

      To support our sales efforts and promote the Akamai name, we conduct comprehensive marketing programs. Our marketing strategies include an active public relations campaign, print advertisements, online advertisements, trade shows, strategic partnerships and on-going customer communication programs. As of December 31, 2001, we had 18 employees in our marketing communications organization. We have a prepaid advertising contract with CNN News Group that was originally entered into by InterVu, which we acquired in April 2000. The advertising agreement is effective through November 2002 and provides for on-air and online advertising and promotional opportunities across CNN’s properties. For additional information on this advertising contract, see Note 17 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

Engineering and Development

      Our engineering and development organization is continuously enhancing and improving our existing services, strengthening our network and creating new services in response to our customers needs and market demand. As of December 31, 2001, we had approximately 300 employees in our engineering and development organization, many of whom hold advanced degrees in their field. Our engineering and development expenses were $61.5 million, $55.6 million and $11.7 million for the years ended December 31, 2001, 2000 and 1999, respectively.

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      We have numerous initiatives in our development program, including the continued development of Edge Side Includes, or ESI, a simple markup language that allows edge servers and central servers to communicate in a distributed computing environment. ESI is an open standard language, such as XML, and has been co-authored by several leading software companies including Oracle Corporation, BEA Systems, Inc. and IBM. As application providers begin to adopt ESI in their offerings, our EdgeSuite service will become immediately compatible with these applications and will allow us to sell our services to the application user. While we intend to continue to extend our platform with proprietary technology to make available to our customers our unique services and software, we also intend to simultaneously support and maintain open interconnections standards to facilitate the broadest possible deployment and partnering opportunities.

Competition

      The market for outsourced e-business infrastructure services and software is new, intensely competitive and characterized by rapidly changing technology, evolving industry standards and frequent new product and service installations. We expect competition for our services to increase both from existing competitors and new market entrants. We compete primarily on the basis of:

	•	performance of services and software;
	•	reduced infrastructure complexity;
	•	ease of implementation and use of service;
	•	scalability;
	•	customer support; and
	•	return on investment in terms of cost savings and new revenue opportunities for our customers.

      We compete primarily with companies offering products and services that address Internet performance problems, including companies that provide Internet content delivery and hosting services, streaming content delivery services and equipment-based solutions to Internet performance problems, such as load balancers and server switches. Some of these companies resell our services. We also compete with companies that host online conferences using proprietary conferencing applications. We do not believe that any other company currently offers the range of solutions that we offer through our EdgeSuite service.

Proprietary Rights and Licensing

      Our success and ability to compete are dependent on our ability to develop and maintain the proprietary aspects of our technology and operate without infringing on the proprietary rights of others. We rely on a combination of patent, trademark, trade secret and copyright laws and contractual restrictions to protect the proprietary aspects of our technology. These legal protections afford only limited protection for our technology. We currently have several issued United States patents covering our content delivery technology, and we have numerous additional patent applications pending. We cannot predict whether any of these issued patents will afford us any meaningful protection. We cannot predict whether any patent application we filed will result in any issued patent or, if a patent is issued, any meaningful protection. We seek to limit disclosure of our intellectual property by requiring employees and consultants with access to our proprietary information to execute confidentiality agreements with us and by restricting access to our source code.

      Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our services or software or to obtain and use information that we regard as proprietary. The laws of many countries do not protect our proprietary rights to as great an extent as do the laws of the United States. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity. In September 2000, we filed suit in federal court in Massachusetts against Digital Island, Inc. for infringing one of our licensed patents and certain patents issued to InterVu. Digital Island subsequently filed a patent infringing suit against us in California. For a further discussion of this litigation, see Note 8 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

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      In October 1998, we entered into a license agreement with MIT under which we were granted a royalty-free, worldwide right to use and sublicense the intellectual property rights of MIT under various patent applications and copyrights relating to Internet content delivery technology. One of these patent applications has now issued. We cannot predict whether any of the other applications will result in issued patents that will provide us with any meaningful protection. Some of our technology is based on technology licensed from MIT. The license has been granted to us on an exclusive basis, but is subject to the rights of the United States government to use the licensed intellectual property in government-funded inventions. As part of the license agreement, MIT retained the right to use the licensed intellectual property for non-commercial, teaching and educational purposes. In connection with the license agreement, we issued 682,110 shares of our common stock to MIT in October 1998. The license agreement is irrevocable and is effective for the life of the relevant patents and patent applications, but MIT may terminate the agreement if we cease our business due to insolvency or if we materially breach the terms of the license agreement.

Employees

      As of December 31, 2001, we had a total of 841 full-time and part-time employees. Our future success will depend in part on our ability to attract, retain and motivate highly qualified technical and management personnel, for whom competition is intense. Our employees are not represented by any collective bargaining unit. We believe our relations with our employees are good.

Factors Affecting Future Operating Results

      We believe that this report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties and are based on the beliefs and assumptions of our management based on information currently available to our management. Use of words such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “should,” “likely” or similar expressions, indicate a forward-looking statement. Forward-looking statements involve risks, uncertainties and assumptions. Certain of the information contained in this Annual Report on Form 10-K consists of forward-looking statements. Important factors that could cause actual results to differ materially from the forward-looking statements include the following:

      We have never been profitable. We have incurred significant losses since inception and expect to continue to incur losses in the future. We cannot be certain that our revenue will continue to grow or that we will produce sufficient revenue to achieve profitability. Our failure to significantly increase our revenue would seriously harm our business and operating results. We have large fixed expenses, and we expect to continue to incur significant sales and marketing, product development, administrative and other expenses, including fees to obtain access to bandwidth for the transport of data over our network. As a result, we will need to generate significantly higher revenue to achieve and maintain profitability.

      If our revenue grows more slowly than we anticipate or if our operating expenses increase more than we expect or cannot be reduced in the event of lower revenue, we may need to obtain funding from outside sources. If we are unable to obtain needed outside funding, our business would be materially and adversely affected. In addition, even if we were to find outside funding sources, we might be required to issue to such outside sources securities with greater rights than those currently possessed by holders of our currently

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      We were founded in August 1998 and began offering our services commercially in April 1999. We have limited historical financial data upon which to base planned operating expenses and upon which investors may evaluate our prospects and us. In addition, while our operating expenses are largely based on anticipated but unpredictable revenue trends, a high percentage of these expenses is and will continue to be fixed in the short-term. Because of our limited operating history, our business strategy may not successfully address all of the risks we face.

      Our future growth currently depends on the commercial success of our outsourced e-business infrastructure services and software solutions for enterprises. We refer to such enterprises as e-businesses. While we have been selling our services commercially since April 1999, sales may not continue in the future for a variety of reasons. First, the market for our services and software is relatively new and issues concerning the commercial use of the Internet, including security, reliability, speed, cost, ease of access, quality of service, regulatory initiatives and necessary increases in bandwidth availability remain unresolved and are likely to affect its development. Furthermore, our new services, including those under development, may not achieve widespread market acceptance. Failure of our current and planned services and software to operate as expected could also hinder or prevent their adoption. If a broad-based, sustained market for our services does not emerge and our target customers do not adopt, purchase and successfully deploy our current and planned services and software, our revenue will not grow significantly and our business, results of operations and financial condition will be seriously harmed.

      Our business is dependent on providing our customers with fast, efficient and reliable Internet distribution application and content delivery services. To meet these customer requirements, we must protect our network infrastructure against damage from:

	•	sabotage and vandalism;
	•	human error;
	•	physical or electronic intrusion and security breaches;
	•	fire, earthquake, flood and other natural disasters;
	•	power loss; and
	•	similar events.

      For our EdgeSuite, FreeFlow and FreeFlow Streaming services, we currently provide a content delivery service guarantee that our networks will deliver Internet content 24 hours a day, seven days a week, 365 days a year. Generally, if we do not provide this service, the customer does not pay for its services on that day. Any widespread loss or interruption of services would reduce our revenue and could harm our business, financial results and reputation.

      Although we believe we have sufficient controls in place to prevent intentional disruptions of our services, such as disruptions caused by software viruses specifically designed to impede the performance of our services,

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      Terrorist attacks in New York, Pennsylvania and Washington, D.C. in September of 2001 disrupted commerce throughout the United States and other parts of the world. The continued threat of terrorism within the United States and abroad and the potential for military action and heightened security measures in response to such threat may cause significant disruption to commerce throughout the world. To the extent that such disruptions result in delays or cancellations of customer orders, a general decrease in corporate spending on information technology, or our inability to effectively market and sell our services and software, our business and results of operations could be materially and adversely affected. We are unable to predict whether the threat of terrorism or the responses thereto will result in any long-term commercial disruptions or if such activities or responses will have a long term material adverse effect on our business, results of operations or financial condition.

      Our services are highly complex and are designed to be deployed in and across numerous large and complex networks. As of December 31, 2001, our network consisted of over 13,500 servers across more than 1,000 different networks. Our customers and we have from time to time discovered errors and defects in our software. In the future, there may be additional errors and defects in our software that may adversely affect our services. If we are unable to efficiently fix errors or other problems that may be identified, we could experience:

	•	loss of or delay in revenues and loss of market share;
	•	diversion of development and engineering resources;
	•	loss of credibility or damage to business reputation;
	•	increased service costs; and
	•	legal actions by our customers.

      Our operations are dependent in part upon transmission capacity provided by third-party telecommunications network providers. A number of these network providers have recently filed for protection under the federal bankruptcy laws. As a result, there is uncertainty about whether such providers or others that enter into bankruptcy will be able to continue to provide services to us. Any failure of these network providers to provide the capacity we require may result in a reduction in, or interruption of, service to our customers. This failure may be a result of the telecommunications providers or Internet service providers ceasing operations, experiencing interruptions or other failures, failing to comply with or terminating their existing agreements with us, otherwise denying or interrupting service, refusing to enter into relationships with us or only agreeing to enter into relationships with us on terms that are not commercially acceptable to us. If we do not have access to third-party transmission capacity, we could lose customers. If we are unable to obtain transmission capacity on terms commercially acceptable to us, our business and financial results could suffer. In addition, our telecommunications and network providers typically provide rack space for our servers. Damage or destruction of, or other denial of access to, a facility where our servers are housed could result in a reduction in, or interruption of, service to our customers.

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      We compete in markets that are new, intensely competitive, highly fragmented and rapidly changing. We have experienced and expect to continue to experience increased competition. Many of our current competitors, as well as a number of our potential competitors, have longer operating histories, greater name recognition, broader customer relationships and industry alliances and substantially greater financial, technical and marketing resources than we do. Our competitors may be able to respond more quickly than we can to new or emerging technologies and changes in customer requirements. Some of our current or potential competitors may bundle their services with other services, software or hardware in a manner that may discourage Web site owners from purchasing any service we offer or Internet service providers from installing our servers.

      As competition in the Internet content, streaming media and applications delivery markets continues to intensify, new solutions will come to market. We are aware of other companies that are focusing or may in the future focus significant resources on developing and marketing products and services or entering into strategic alliances that will compete with us. These companies include networking hardware and software manufacturers, content distribution providers, traditional hardware manufacturers, telecommunications providers, software database companies, and large diversified software and technology companies. Increased competition could result in:

	•	price and revenue reductions and lower profit margins;
	•	increased cost of service from telecommunications providers;
	•	loss of customers; and
	•	loss of market share.

      Any one of these could materially and adversely affect our business, financial condition and results of operations.

      We derived a portion of our revenue in the year ended December 31, 2001 from fees under license and development agreements. We expect to derive a portion of our revenue in the future from license agreements that we have entered into as well as additional licensing arrangements, development agreements and other strategic technology arrangements that we may enter into. We may not be successful in completing any additional arrangements within the time periods we anticipate or at all, which could have an adverse effect on our results of operations.

      Some of our customers are emerging Internet-based businesses, and we expect to earn a portion of our future revenue from this customer base. The unproven business models of some of these customers make their continued financial viability uncertain. Given the short operating history and emerging nature of many of these businesses, there is a risk that these customers will encounter financial difficulties and fail to pay for our services or delay payment substantially. In fact, a number of our customers have filed for protection under federal bankruptcy laws. The failure of our emerging business customers to pay our fees on a timely basis or to continue to purchase our services in accordance with their contractual commitments could adversely affect our accounts receivable collection periods, our future revenue and other financial results.

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      Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and expenses, including expenses and liabilities recorded in connection with our restructurings in 2001, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. There can be no assurance, however, that our estimates, or the assumptions underlying them, will be correct. If, for example, the costs associated with terminating certain real property leases vacated by us in our restructurings is greater than the amount we have accrued in connection therewith, our net income would be reduced which could have a negative impact on our financial statements and results of operations. This, in turn, could adversely affect our stock price.

      Our network of servers may not be scalable to expected customer levels while maintaining superior performance. We cannot be certain that our network of servers will connect and manage a substantially larger number of customers at high transmission speeds. In addition, as customers’ usage of bandwidth increases, we will need to make additional investments in our infrastructure to maintain adequate data transmission speeds. We cannot ensure that we will be able to make these investments successfully or at an acceptable or commercially reasonable cost. Our failure to achieve or maintain high capacity data transmission could significantly reduce demand for our services, reducing our revenue in general and causing our business and financial results to suffer.

      The market for outsourced e-business infrastructure services and software is likely to continue to be characterized by rapid technological change, frequent new product and service introductions and changes in customer requirements. We may be unable to respond quickly or effectively to these developments. If competitors introduce products, services or technologies that are better than ours or that gain greater market acceptance, or if new industry standards emerge, and our services become obsolete, which would materially and adversely affect our business, results of operations and financial condition which would be materially and adversely affected.

      We have licensed from the Massachusetts Institute of Technology, or MIT, technology covered by various patent applications and copyrights relating to Internet content delivery technology. Some of our technology is based in part on the technology covered by these patent applications and copyrights. Our license is effective for the life of the patent and patent applications; however, under limited circumstances, such as our insolvency or our material breach the terms of the license agreement, MIT has the right to terminate our license. A termination of our license agreement with MIT could have a material adverse effect on our business.

      We rely on a combination of patent, copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. These legal protections afford only limited protection. Monitoring unauthorized use of our services is difficult and we cannot be certain that the steps we have taken will prevent unauthorized use of our technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States.

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      Although we have licensed and proprietary technology covered by United States patents, we cannot be certain that any such patents will not be challenged, invalidated or circumvented. Moreover, although we have filed international patent applications, none of our technology is patented abroad. We cannot be certain that any pending or future patent applications will be granted, that any future patent will not be challenged, invalidated or circumvented, or that rights granted under any patent that may be issued will provide competitive advantages to us.

      We expect that our cost to obtain bandwidth capacity for the transport of data over our network will decline over time as a result of, among other things, the large amount of capital currently being invested to build infrastructure providing additional bandwidth and volume discounts available to us as our network usage increases. We expect the prices we charge for our services may also decline over time as a result of, among other things, existing and new competition in the markets we address. As a result, our historical revenue rates may not be indicative of future revenue based on comparable traffic volumes. If we fail to accurately predict the decline in costs of bandwidth or, in any event, if we are unable to sell our services at acceptable prices relative to our bandwidth costs, or if we fail to offer additional services from which we can derive additional revenue, our revenue will decrease and our business and financial results will suffer.

      We have expanded our operations rapidly since our inception. This growth has placed, and our anticipated growth in future operations will continue to place, a significant strain on our management systems and resources. Our ability to successfully offer our services and implement our business plan in a rapidly evolving market requires an effective planning and management process. We expect that we will need to continue to improve our financial and managerial controls, reporting systems and procedures, and will need to continue to train and manage our workforce worldwide. In order to grow and achieve future success, we must also improve our ability to effectively manage multiple relationships with our customers, suppliers and other third parties. In addition, from time to time, we have been required to downsize our operations in order to effectively manage our business. Failure to take any of the steps necessary to manage our growth properly would have a material adverse effect on our business, results of operations and financial condition.

      We acquired Network24 in February 2000, InterVu in April 2000 and CallTheShots Inc., which we refer to as CTS, in July 2000. As a part of our business strategy, we may enter into additional business combinations and acquisitions. Acquisitions are typically accompanied by a number of risks, including the difficulty of integrating the operations and personnel of the acquired companies, the potential disruption of our ongoing business, the potential distraction of management, expenses related to the acquisition and potential unknown liabilities associated with acquired businesses.

      If we are not successful in completing acquisitions that we may pursue in the future, we may be required to reevaluate our growth strategy and we may have incurred substantial expenses and devoted significant management time and resources in seeking to complete proposed acquisitions that will not generate benefits for us. In addition, with future acquisitions, we could use substantial portions of our available cash as all or a portion of the purchase price. We could also issue additional securities as consideration for these acquisitions, which could cause our stockholders to suffer significant dilution. Our acquisitions of Network24, InterVu and CTS and any future acquisitions may not ultimately help us achieve our strategic goals and may pose other risks to us.

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      Our future success depends upon the continued services of our executive officers and other key technology, sales, marketing and support personnel, who have critical industry experience and relationships that they rely on in implementing our business plan. None of our officers or key employees is bound by an employment agreement for any specific term. We have a “key person” life insurance policy covering only the life of F. Thomson Leighton. The loss of the services of any of our key employees could delay the development and introduction of and negatively impact our ability to sell our services.

      We face intense competition for qualified personnel, including research and development personnel and other persons with necessary technical skills, particularly in the Boston, Massachusetts and San Mateo, California areas. Our employees require extensive training in our outsourced e-business infrastructure services and software. If we are unable to hire and promptly train service and support personnel, we may not be able to increase sales of our services, which would seriously harm our business.

      We have expanded our international operations to Munich, Germany; London, England and Paris, France. In addition, in April 2001, we formed a joint venture with SOFTBANK Broadmedia Corporation to create Akamai Technologies Japan KK, of which we own 40% of the common stock. A key aspect of our business strategy is to continue to expand our sales and support organizations internationally. Therefore, we expect to commit significant resources to expand our international sales and marketing activities. We are increasingly subject to a number of risks associated with international business activities that may increase our costs, lengthen our sales cycle and require significant management attention. These risks include:

	•	market acceptance of our software and services in countries outside the United States;
	•	increased expenses associated with marketing services in foreign countries;
	•	general economic conditions in international markets;
	•	currency exchange rate fluctuations;
	•	unexpected changes in regulatory requirements resulting in unanticipated costs and delays;
	•	tariffs, export controls and other trade barriers;
	•	longer accounts receivable payment cycles and difficulties in collecting accounts receivable; and
	•	potentially adverse tax consequences, including restrictions on the repatriation of earnings.

      Provisions of our amended and restated certificate of incorporation, by-laws, and Delaware law could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders.

      Our revenue and operating results may vary significantly from quarter to quarter due to a number of factors, many of which are outside of our control and any of which may cause our stock price to fluctuate. The primary factors that may affect us include the following:

	•	demand for outsourced e-business infrastructure services and software;
	•	the timing and size of sales of our services;
	•	the timing of recognizing revenue and deferred revenue;
	•	new service and license introductions and enhancements by our competitors and us;

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	•	changes in our pricing policies or the pricing policies of our competitors;
	•	our ability to develop, introduce and deliver new services and enhancements that meet customer requirements in a timely manner;
	•	the length of the sales cycle for our services;
	•	increases in the prices of, and availability of, the products, services, components or raw materials we purchase, including bandwidth;
	•	our ability to attain and maintain quality levels for our services;
	•	expenses related to testing of our services;
	•	costs related to acquisitions of technology or businesses; and
	•	general economic conditions as well as those specific to the Internet and related industries.

      Due to the above factors, we believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance. It is likely that in some future quarters, our operating results may be below the expectations of public market analysts and investors. In this event, the price of our common stock will probably decrease.

      In December 1999 the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements,” which we adopted in 2000. This guidance may continue to evolve. In addition, applying revenue recognition principles to a business like ours is complex. This complexity is in part a function of the continual interpretation of accounting principles by those that set accounting standards. In addition, changes in our relationships with particular customers may require us to change how we account for revenue from those customers. Such changes could have a material adverse effect on the timing of revenue recognition and could adversely affect our financial results.

      Other companies or individuals, including our competitors, may obtain patents or other proprietary rights that would prevent, limit or interfere with our ability to make, use or sell our services. As a result, we may be found to infringe on the proprietary rights of others. In the event of a successful claim of infringement against us and our failure or inability to license the infringed technology, our business and operating results would be significantly harmed. Companies in the Internet market are increasingly bringing suits alleging infringement of their proprietary rights, particularly patent rights. Any litigation or claims, whether or not valid, could result in substantial costs and diversion of resources. Intellectual property litigation or claims could force us to do one or more of the following:

	•	cease selling, incorporating or using products or services that incorporate the challenged intellectual property;
	•	obtain a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms or at all; and
	•	redesign products or services.

      If we are forced to take any of these actions, our business may be seriously harmed. Although we carry insurance, our insurance may not cover potential claims of this type or may not be adequate to indemnify us for all liability that may be imposed.

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      Laws and regulations that apply to communications and commerce over the Internet are becoming more prevalent. In particular, the growth and development of the market for online commerce has prompted calls for more stringent consumer protection and privacy laws, both in the United States and abroad, that may impose additional burdens on companies conducting business online. This could negatively affect the businesses of our customers and reduce their demand for our services. Internet-related laws, however, remain largely unsettled, even in areas where there has been some legislative action. The adoption or modification of laws or regulations relating to the Internet, or interpretations of existing law, could adversely affect our business.

      The market price of our common stock has been extremely volatile and has fluctuated significantly in the past. The following factors could cause the market price of common stock to continue to fluctuate significantly:

	•	the addition or departure of our key personnel;
	•	variations in our quarterly operating results;
	•	announcements by us or our competitors of significant contracts, new or enhanced products or service offerings, acquisitions, distribution partnerships, joint ventures or capital commitments;
	•	changes in financial estimates by securities analysts;
	•	our sales of common stock or other securities in the future;
	•	changes in market valuations of networking, Internet and telecommunications companies;
	•	fluctuations in stock market prices and volumes; and
	•	changes in general economic conditions, including interest rate levels.

      In the past, class action litigation has often been brought against companies following periods of volatility in the market price of those companies’ common stock. Litigation is often expensive and diverts management’s attention and resources which could materially adversely affect our business and results of operations.

      We and several of our officers and current and former directors are named as defendants in several purported class action complaints which have been filed allegedly on behalf of certain persons who purchased our common stock during different time periods, all beginning on October 28, 1999 and ending on various dates, the latest of which is August 31, 2001. These complaints allege violations of the Securities Act of 1933 and the Securities Exchange Act of 1934. Primarily they allege that there was undisclosed compensation received by our underwriters in connection with our initial public offering.

      We can provide no assurance as to the outcome of these complaints. Any conclusion of these matters in a manner adverse to us would have a material adverse affect on our financial position and results of operations. In addition, the costs to us of defending any litigation or other proceeding, even if resolved in our favor, could be substantial. Such litigation could also substantially divert the attention of our management and our resources in general. Uncertainties resulting from the initiation and continuation of any litigation or other proceedings could harm our ability to compete in the marketplace.

     We may become involved in other litigation that may adversely affect us.

      In the ordinary course of business, we may become involved in litigation, administrative proceedings and governmental proceedings. Such matters can be time-consuming, divert management’s attention and resources and cause us to incur significant expenses. Furthermore, there can be no assurance that the results of

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Item 2.     Properties.

      Our headquarters are located in approximately 130,000 square feet of leased office space in Cambridge, Massachusetts. In addition, our primary west coast office is located in approximately 50,000 square feet of leased office space in San Mateo, California. We maintain offices in several other locations in the United States, including Los Angeles, California; San Diego, California; Atlanta, Georgia; Chicago, Illinois; New York, New York; Fairfax, Virginia and Seattle, Washington. We also maintain offices in Europe including Munich, Germany; Paris, France and London, England. During 2001, we commenced an operating lease for approximately 110,000 square feet of additional office space in Cambridge, Massachusetts. As a result of reductions in head count in 2001, we are not currently utilizing this additional space and we are actively marketing the space to potential subtenants. We have also exited approximately 175,000 square feet of office space under non-cancellable leases in other locations in the United States including San Diego, California, and Santa Clara, California. If we are unable to successfully sublease our vacated and unoccupied office space, our business may be adversely affected. See Note 10 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Item 3.     Legal Proceedings.

      We are subject to legal proceedings, claims and litigation arising in the ordinary course of business. We do not expect the ultimate costs to resolve these matters to have a material adverse effect on our consolidated financial position, results of operations or cash flows.

      On September 13, 2000, Akamai, together with the Massachusetts Institute of Technology, or MIT, filed suit in Massachusetts federal court against Digital Island Inc., or Digital Island, a wholly-owned subsidiary of Cable and Wireless, plc., for infringing an MIT patent licensed exclusively to us. We refer to such patent as the 703 patent. The complaint was subsequently amended to include a count seeking a declaratory judgment that we did not infringe a Digital Island patent and a count that Digital Island infringes a patent we acquired as a result of our acquisition of InterVu. On September 19, 2000, Digital Island filed suit against us in federal court in California alleging infringement of the Digital Island patent that was the subject of our declaratory judgment request. All claims were heard in a jury trial in Massachusetts federal court in December 2001. On December 21, 2001, the jury found that Digital Island’s Footprint 2.0 content delivery network and service offering infringes seven asserted claims of the 703 patent, but that Digital Island does not infringe the other patent at issue. The jury also ruled we do not infringe Digital Island’s patent. Finally, the jury indicated that three of the seven asserted claims of the 703 patent, although infringed, were invalid due to a United States patent that was filed prior to the patent application that matured into the 703 patent. No judgment has been entered on the jury verdict, and we intend to ask the Court to set aside the adverse jury verdict as to those three claims. Following entry of judgment, the Court will set a schedule for a separate trial to be held on the damages payable by Digital Island as a result of its infringement of the 703 patent.

      On September 21, 2000, we filed a lawsuit against Digital Island in federal court in California for false advertising, unfair competition, intentional interference with contractual relationships and intentional interference with business advantage. We are seeking damages and injunctive relief. On October 26, 2000, Digital Island filed a counterclaim against us alleging that distribution of certain marketing materials and statements constituted false advertising, unfair competition, intentional interference with contractual relationships and intentional interference with business advantage. Digital Island is seeking monetary damages and injunctive relief. We intend to vigorously prosecute our claim and aggressively defend Digital Island’s counterclaim. Although we cannot be assured that we will prevail in these actions, we believe that we have meritorious defenses to the claims asserted by Digital Island. We do not believe that the resolution of these claims will have a material adverse effect on our financial condition or results of operations.

      Between July 2, 2001 and August 31, 2001, ten purported class action lawsuits were filed in the United States District Court for the Southern District of New York against us and several of our officers and directors

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      In January 2000, a former employee of InterVu filed an action against InterVu alleging that InterVu had breached two restricted stock purchase agreements by failing to deliver certain shares of stock after the employee’s resignation. The plaintiff sought specific performance and monetary damages. A bench trial was held in March 2001, and in April 2001 the court ruled in favor of the plaintiff. The court assessed damages against us in the amount of $1.9 million. We have filed a notice of appeal of the trial court’s decision in this case.

      In August 2001, Network Caching Technology, L.L.C., or NCT, amended an existing patent infringement action pending in the United States District Court for the Northern District of California to join Akamai as a co-defendant. The case alleges that numerous entities, namely, Novell, Inc., Volera, Inc., CacheFlow, Inc., Inktomi Corporation and Akamai, infringe four patents relating to network file services and cache mechanisms. We have filed an answer denying the allegations of infringement. Discovery proceedings in the case are on-going. We believe that NCT’s infringement allegations are without merit; however, given the inherent uncertainty of litigation, there can be no assurance that we will prevail in this action. We are not presently able to estimate potential losses, if any, related to this lawsuit.

Item 4.     Submission of Matters to a Vote of Security Holders.

      None.

PART II

Item 5.     Market For Registrant’s Common Equity and Related Stockholder Matters.

      (a) Price Range of Common Stock

      Our common stock is listed on the Nasdaq National Market under the symbol “AKAM.” Public trading of our common stock commenced on October 29, 1999. Prior to that, there was no public market for our common stock. The following table sets forth, for the periods indicated, the high and low sale price per share of the common stock on the Nasdaq National Market: