Q – Unidentified Analyst: Got it. And then for the Connected Cloud and just the compute segment as well, you guys talked about a lot of really nice international deals, but also just wanted to get a pulse on what’s happening domestically and appetite for the products here.
Tom Leighton: Again, I think that is universal as well. We’ll have special advantages in locations where the hyperscalers aren’t. But that kind of compute capability can be accessed by customers anywhere. Big U.S. companies care a lot about being able to give really good performance for their users all around the world. So again, I think that’s — there’s not a fundamental difference between the U.S. or other regions. We have gotten off to a really good start, and I would say APJ, but it’s across the board. We’re deep in conversations with major enterprises across all the major geos.
Q – Unidentified Analyst: Got it. Congrats.
Operator: The next question is from Ray McDonough of Guggenheim Securities. Please go ahead.
Ray McDonough: Thanks for taking the questions. And Ed, I appreciate the color on the additional bundles of security and the additional services you added to those bundles. And then in our conversations, we did pick up a decent price up with when those services are added. So can you help us understand what sort of pricing uplift, if any, there might be there? And what the penetration rate is in your installed base currently of those services and what the opportunity is going forward?
Ed McGowan: Yes. So I’ll start and then Tom, if there’s anything you want to add. So this is a pretty targeted program that we identified customers in selected verticals primarily in commerce, manufacturing, health care, pharma, financial services, what we traditionally call sort of our legacy web customers. And as we have talked about, included a lot more services and functionality into the bundles. And upon renewal, we’re able to upsell. And we’re about — this is probably 2,000 to 3,000 customers that fit into this sort of targeted group. We’re probably about halfway through in terms of the customers that come up for renewal. If you remember, our customer — average customer contract length is about 18 months. So this probably runs about 18 months to 2 years kind of a program, but we’re very happy with what we’re seeing with the average uplift on the average sale price.
Ray McDonough: Great. And then maybe if I could, just on compute. Now that the majority of those core data centers are online. Can you talk about how much of the contracted space you filled out and what sort of utilization you’re hoping to achieve as you enter 2024? I know you’re not going to provide any sort of guidance here, but any sort of guidepost in terms of the actual capacity that will be online in ’24 and what the compute pipeline looks like heading into next year to fill that capacity, it would be helpful just to understand kind of the capital needs of that business as we think about ’24.
Ed McGowan: Yes. In terms of the capital, we pretty much now done the major buildout. And of course, we’re big consumers of that ourselves as we move our own applications in-house to Akamai Connected Cloud. And we’ve also got plenty of room to take on major enterprise business. So I don’t think you’ll see a lot of CapEx associated with the big core data centers until we start generating a lot more revenue from that. And then we would build out further. There’ll probably be another couple that we do. What you will see is a relatively smaller amount of CapEx as we do build out into our existing Edge pops. And our goal is to start equipping them with compute so that you can run containers, VMs, Kubernetes and many more cities around the world.
And so that — and more cities than you can do that with, for example, the hyperscalers. And so that will be taking place over the course of the next year, but it’s not a large amount of CapEx, so much smaller than what you saw this year. And then going from there, it will depend on how fast the revenue grows. So it will be a good news story if we’re back next year saying that, okay, great, we fill that up, and now we’re going to be building out some more. So it’s a much better situation than we were in this year where there was a lot of build out getting ready and no revenue yet.
Operator: The next question is from Frank Louthan from Raymond James.
Frank Louthan: Great. Thank you. Can you give us some color on sort of the nature of the compute deals that you’re getting now versus maybe 6 to 12 months ago? And then what have you learned by putting some of your own enterprise-level workloads on the compute platform that you’ve maybe been able to utilize as you sell to customers? And how has that process benefited the product?
Tom Leighton: Yes. Good question. I would say you start going back 6-plus months ago, there really wasn’t a lot of compute deals at that time because the Linode infrastructure really wasn’t ready for it. There was some early experimentation. Now we’re in a position where we really can take on mission-critical applications from big enterprises. We’re starting to do that. Some are starting to grow very nicely. In terms of the learnings, we’ve learned a lot. I would say on the good news side, we’re saving a lot of money. And we’re going to help our customers save a lot of money. We’re also seeing really good performance and better in many cases than we can get with the hyperscalers. And as we go forward, we’ll get — we, of course, have better scalability in terms of faster scalability.
And for Akamai, that’s really important because we have a lot of customers that have flash crowds, peak events and so forth, Hard to predict how big they’ll be. And with our deployed platform, we’re really good at that, of course, with security and with delivery. And now we’re applying those capabilities to compute so that we can spin up more compute instances in a faster, more responsive way. So we’re very happy consumers of our own cloud. Now on the other side, we’ve learned that it’s not just flip a switch. And you just don’t flip a switch and suddenly you’re off the hyperscaler and you’re on to Akamai. And of course, that’s true when you move from any cloud environment into another one, it does take some effort to do it, but it is well, well worth it.
And we’re so a great reference, and we can now help our customers and our partners. We’re working with many partners in cloud so that they can take their customers and get them on to Akamai Connected Cloud.
Operator: Next question is from Tim Horan of Oppenheimer.
Tim Horan: Staying on that point, can you maybe just talk about the backlog and customer interest at this point? Just any update, it sounds like it’s going well. Also, where are you kind of all the value-added services and tools? And I just — maybe just a complete cloud portfolio at this point? And then lastly, could you just remind us what the margins of this business will look like longer term? And I guess we do get asked a lot like why can you sell this cheaper than the cloud providers, I guess, at the end of the day? And will that impact your margins?
Tom Leighton: Okay. A lot of components there. I’ll start with some of them and then probably Ed will fill in with some. Yes, we’re in a lot of really good conversations, as you can imagine, because the world’s major media companies, gaming companies, commerce companies all use Akamai. They had for many, many years. They trust us for scale, reliability, performance, they trust us with security. They trust us not to compete with them. And as they see what we’re building in terms of compute, they like the idea of getting better performance, more distributed compute capabilities. And some of those folks really like the idea of a much lower price point. And as an extra benefit, especially if you’re in media or commerce, it’s getting to be a bigger problem that they’re cutting such giant checks to their leading competitor and sharing all the crown jewels of their data with their leading competitor.
