The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the related notes thereto included elsewhere in this quarterly report on Form 10-Q and the audited consolidated financial statements and notes thereto and management's discussion and analysis of financial condition and results of operations for the year ended December 31, 2008 included in our annual report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on March 13, 2009. This quarterly report on Form 10-Q contains "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements as to industry trends and future expectations of ours and other matters that do not relate strictly to historical facts.

These statements are often identified by the use of words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "estimate," or "continue," and similar expressions or variations. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled "Risk Factors" set forth in Part II, Item 1A of this quarterly report on Form 10-Q and in our other SEC filings. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

Overview

We were founded in 2001 as a provider of content delivery network, or CDN, services to deliver digital content over the Internet. We began development of our infrastructure in 2001 and began generating meaningful revenue in 2002. As of September 30, 2009, we had approximately 1,370 active customers worldwide. We primarily derive income from the sale of services to customers executing contracts with terms of one year or longer, which we refer to as recurring revenue contracts or long-term contracts. These contracts generally commit the customer to a minimum monthly level of usage with additional charges applicable for actual usage above the monthly minimum. We have entered into an increasing number of customer contracts that have minimum usage commitments that are based on twelve-month or longer periods and in some cases, other arrangements. We believe that having a consistent and predictable base level of revenue is important to our financial success. Accordingly, to be successful, we must maintain our base of recurring revenue contracts by eliminating or reducing any customer cancellations or terminations and build on that base by adding new customers and increasing the number of services, features and functionalities our existing customers purchase.

On May 20, 2009 we entered into an Asset Purchase Agreement to acquire substantially all of the assets of Kiptronic. Kiptronic develops mobility and monetization solutions for content publishers. The combination of our distributed computing and delivery platform with Kiptronic device-targeting and dynamic ad insertion technologies will allow us to provide media and entertainment companies a streamlined and scalable solution for the migration of media consumption from the PC to a wider variety of Internet-connected and mobile devices.

We primarily derive revenue from the sale of CDN and related services to our customers. These services include delivery of digital media, including video, music, games, software and social media as well as associated services such as storage, data center, transit and consulting services. We primarily generate revenue by charging customers on a per-gigabyte basis or on a variable basis based on peak delivery rate for a fixed period of time, as our services are used. During 2007, we entered into a multi-element arrangement which generates revenue by providing consulting services related to the development of a Custom CDN solution, through the cross-license of certain technologies, including certain components of our CDN software and technology, and post-contract customer support (PCS) for both the custom CDN-solution and the software component. We also derive some business from the sale of custom CDN services. These are generally limited to modifying our network to accommodate non-standard content player software or to establish dedicated customer network components that reside both within our network or that operate within our customers' network.

Traffic on our network has continued to grow. This traffic growth is primarily the result of growth in the traffic delivered on behalf of existing customers, and to a lesser extent traffic delivered on behalf of new customers. Our revenue is generated primarily by charging for traffic delivered. During the quarter ended September 30, 2009, we continued to add new customers, but also eliminated many customers as we continued to focus on customer quality. We have seen an increase in the length of our sales cycle, but we continue to see that new and existing customers want the benefits of the specialized services that we bring to the market. We are also experiencing continued pricing pressure, particularly with our larger customers.

Historically, we have derived a portion of our revenue from outside of the United States. Our international revenue has grown recently, and we expect this trend to continue as we focus on our strategy of expanding our network and customer base internationally. For the year ended December 31, 2008 revenue derived from customers outside the United States accounted for approximately 16% of our total revenue. For the year ended December 31, 2008 we derived approximately 75% of our international revenue from operations in Europe and approximately 25% of our international revenue from Asia Pacific, respectively. For the three month periods ended September 30, 2009 and 2008, respectively, revenue derived from customers outside the United States accounted for approximately 22% and 16% respectively, of our total revenue. For the nine month periods ended September 30, 2009 and 2008, respectively, revenue derived from customers outside the United States accounted for approximately 20% and 16% respectively, of our total revenue. For the three and nine month periods ended September 30, 2009, we derived approximately 67% and 71%, respectively, of our international revenue from Europe and approximately 33% and 29%, respectively, of our international revenue from Asia Pacific, respectively. We expect foreign revenue as a percentage of our total revenues to increase in 2009 compared to 2008. Our international business is managed as a single geographic segment, and we report our financial results on this basis.

During any given fiscal period, a relatively small number of customers typically account for a significant percentage of our revenue. For example, in 2008, sales to our top 10 customers, in terms of revenue, accounted for approximately 38% of our total revenue. During 2008, one of these top 10 customers, Microsoft, represented approximately 15% of our total revenue for that period.

For the three and nine month periods ended September 30, 2009, sales to our top 10 customers, in terms of revenue, accounted for approximately 40% and 37%, respectively of our total revenue. During the three and nine month periods ended September 30, 2009 we had one customer, Microsoft that accounted for approximately 15% and 16%, respectively of our revenue during those periods. During 2007, we entered into a multi-element arrangement with Microsoft which generates revenue by providing consulting services related to the development of a Custom CDN solution, amortization of prepaid license and amortization of prepaid post-contract customer support (PCS) for both the custom CDN-solution and the software component. Revenue from this multi-element arrangement is being recognized over the term of the software agreement which at September 30, 2009, had 17-months remaining. Our relationship with Microsoft includes a minimum annual traffic commitment that may vary in duration based upon traffic utilization rates. We anticipate customer concentration levels will remain constant compared to prior years. In addition to selling to our direct customers, we maintain relationships with a number of resellers that purchase our services and charge a mark-up to their end customers. Revenue generated from sales to reseller customers accounted for approximately 1% for the year ended December 31, 2008. For the three and nine month periods ended September 30, 2009, revenue generated from sales to reseller customers was less than 3% and 2%, respectively of our total revenue.

In addition to these revenue-related business trends, our cost of revenue decreased in absolute dollars and as a percentage of revenue for the three month period ended September 30, 2009 compared to the three month period ended September 30, 2008 and increased in absolute dollars and decreased as a percentage of revenue during the nine month period ended September 30, 2009 compared to the nine month period ended September 30, 2008. This increase in absolute dollars is primarily the result of increased network operations personnel related to the increased investments to build out the capacity and operate our network.

Through 2008 operating expense has increased in absolute dollars each period as revenue has increased. In 2008, these increases were primarily due to increased litigation costs and legal fees associated with ongoing intellectual property litigation. For the three month period ended September 30, 2009, operating expenses, excluding the provision for litigation, decreased compared to the three month period ended September 30, 2008. This decrease was primarily due to decreased general and administrative costs (primarily litigation costs and lower bad debt expense) and decreased sales and marketing costs (primarily due to a reduction in marketing programs) off-set by increased non-network related depreciation. Research and Development expenses remained constant for the three month period ended September 30, 2009 compared to the three month period ended September 30, 2008. For the nine month period ended September 30, 2009, operating expenses, excluding the provision for litigation, decreased compared to the nine month period ended September 30, 2008. This decrease was primarily due to decreased general and administrative costs (primarily litigation costs, bad debt expense and legal fees) and decreased sales and marketing (primarily due to a reduction in marketing programs) off-set by increased research and development costs and non-network related depreciation.

We make our capital investment decisions based upon careful evaluation of a number of variables, such as the amount of traffic we anticipate on our network, the cost of the physical infrastructure required to deliver that traffic, and the forecasted capacity utilization of our network. Our capital expenditures have varied over time, in particular as we purchased servers and other network equipment associated with our network build-out. For example, in 2006, 2007 and 2008, we made capital purchases of $40.4 million, $26.5 million and $20.1 million, respectively. For the three and nine month periods ended September 30, 2009, we made capital investments of $11.1 million and $19.8 million, respectively. We continue to see improvements in the efficiency of our network allowing us to meet traffic growth with less investment, however, we expect to have ongoing capital expenditure requirements, as we continue to invest in and expand our CDN. For 2009, we currently anticipate making aggregate capital expenditures of approximately 18% to 19% of total revenue for the year.

During 2008 we generated revenue from certain customers that are entities related to certain of our founders. The aggregate amounts of revenue derived from these related party transactions was less than 1% for the year ended December 31, 2008. For the three and nine month periods ended September 30, 2009, we did not generate any revenue from related parties.

We are currently engaged in litigation with one of our principal competitors, Akamai Technologies, Inc., or Akamai, and its licensor, the Massachusetts Institute of Technology, or MIT, in which these parties have alleged that we are infringing three of their patents. In February 2008, a jury returned a verdict in this lawsuit, finding that we infringed four claims of the patent at issue (U.S. Patent No. 6,108,703 (the '703 patent) and rejecting our invalidity defenses. The Court conducted a bench trial in November 2008, regarding our equitable defenses; and we filed a motion for reconsideration of the Court's earlier denial of our motion for Judgment as a Matter of Law (JMOL). Our motion for JMOL was based largely upon a clarification in the standard for a finding of joint infringement articulated by the Federal Circuit in the case of Muniauction, Inc. v. Thomson Corp. (the Muniauction Case), released after the Court denied our initial motion for JMOL. On April 24, 2009 the Court issued its order and memorandum setting aside the adverse jury verdict and ruling that we did not infringe Akamai's '703 patent and that we are entitled to judgment as a matter of law. Based upon the Court's April 24, 2009 order we reversed the $65.6 million provision for litigation previously recorded for this lawsuit as we no longer believe that payment of any amounts represented by the litigation provision is probable. The Court entered final judgment in favor of us on May 22, 2009, and Akamai filed a notice of appeal on May 26, 2009 and filed its appeal brief on September 15, 2009 with the United States Court of Appeals for the Federal Circuit. We cannot assure you that this lawsuit ultimately will be resolved in our favor. Our legal and other expenses associated with this case have been significant. We include these litigation expenses in general and administrative expenses, as reported in our condensed consolidated statement of operations. We expect that these expenses will continue to be significant.

In December 2007, Level 3 Communications, LLC, or Level 3, filed a lawsuit against us in the U.S. District Court for the Eastern District of Virginia alleging that we were infringing certain patents Level 3 acquired from Savvis Communications Corp. In addition to monetary relief, including treble damages, interest, fees and costs, the complaint sought an order permanently enjoining us from conducting our business in a manner that infringed the relevant patents. A jury trial was conducted in the U.S. District Court for the Eastern District of Virginia in January 2009, and on January 23, 2009 the jury returned a verdict favorable to us finding that we did not infringe the Level 3 patents. We believe the jury verdict finding that we did not infringe the Level 3 patents is correct, and that the claims of infringement asserted against us by Level 3 in the litigation were without merit. The Court denied Level 3's subsequent motion for JMOL or alternatively for a new trial, and entered a judgment in our favor. Level 3 filed a notice of appeal on July 21, 2009 and filed its appeal brief on October 5, 2009. We intend to vigorously defend the action. Our legal and other expenses associated with this case have been significant. We include these litigation expenses in general and administrative expenses, as reported in our condensed consolidated statement of operations. We expect that these expenses will continue to be significant.

In August 2007, we, certain of our officers and current and former directors, and the firms that served as the lead underwriters in our initial public offering were named as defendants in several purported class action lawsuits filed in the U.S. District Courts for the District of Arizona and the Southern District of New York. All of the New York cases were transferred to Arizona and consolidated into a single action. The plaintiffs' consolidated complaint asserted causes of action under Sections 11, 12, and 15 of the Securities Act of 1933, as amended, on behalf of a purported class of individuals who purchased our common stock in our initial public offering and/or pursuant to our Prospectus. The complaint alleged, among other things, that we omitted and/or misstated certain facts concerning the seasonality of our business and the loss of revenue related to certain customers. On March 17, 2008, we and the individual defendants moved to dismiss all of the plaintiffs' claims, a hearing was held on this motion on June 16, 2008. On August 8, 2008, the court granted the motion to dismiss, dismissing plaintiffs' claims under Section 12 with prejudice and granting leave to amend the claims under Sections 11 and 15. Plaintiffs chose not to amend the claims under Sections 11 and 15, and on August 29, 2008, the court entered judgment in favor of us. On September 5, 2008 Plaintiffs filed a notice of appeal, and appellate briefs were filed by the parties in January and February, 2009. We believe that we and the individual defendants have meritorious defenses to the plaintiffs' claims and intend to contest the lawsuit vigorously. We are not able at this time to estimate the range of potential loss nor do we believe that a loss is probable. Therefore, there is no provision for this lawsuit in our financial statements.

We were profitable for the nine months ended September 30, 2009; the largest impact to our profitability was the reversal of our provision for litigation judgment accrual of $65.6 million regarding the patent infringement lawsuit filed by Akamai Technologies, Inc.

Our future results will be affected by many factors identified in the section captioned "Risk Factors," in this quarterly report on Form 10-Q, including our ability to:

• increase our revenue by adding customers and limiting customer cancellations and terminations, as well as increasing the amount of monthly recurring revenue that we derive from our existing customers;

• manage the prices we charge for our services, as well as the costs associated with operating our network in light of increased competition;

• successfully manage our litigation with Akamai and Level 3 to a favorable conclusion;

• prevent disruptions to our services and network due to accidents or intentional attacks; and

• continued ability to deliver a significant portion of our traffic through settlement free peering relationships which significantly reduce our cost of delivery.

As a result, we cannot assure you that we will achieve our expected financial objectives, including positive net income.

Critical Accounting Policies and Estimates

Our management's discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q, which have been prepared by us in accordance with accounting principles generally accepted in the United States for interim periods. These principles require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, cash flow and related disclosure of contingent assets and liabilities. Our estimates include those related to revenue recognition, accounts receivable reserves, income and other taxes, stock-based compensation, equipment and contingent obligations. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected.

During the three month period ended June 30, 2009, we changed the method in which we calculate the reserve for bad debt. Beginning with the quarter ended June 30, 2009, we began calculating the reserve for bad debt using the aging of the accounts receivable method. As of September 30, 2009, there were no other material changes to any of the critical accounting policies as

described in our annual report on Form 10-K dated March 13, 2009. During the quarterly periods between the February 2008 adverse jury verdict in the patent infringement lawsuit filed by Akamai Technologies, Inc. and the Court's April 24, 2009 order, we had accrued for potential damages and interest. Based upon the Court's April 24, 2009 order we have reversed the $65.6 million provision for litigation previously recorded for this lawsuit as we no longer believe that payment of any amounts represented by the litigation provision is probable.

Results of Operations

Revenue



                                         Three months ended September 30,                            Nine months ended September 30,
                                                             Increase        Percent                                       Increase     Percent
                                2009           2008         (Decrease)       Change          2009           2008          (Decrease)    Change
                                          (in thousands)                                               (in thousands)
Revenue                       $  32,530   $        33,116   $      (586 )         (2 )%    $  98,038   $        93,632   $      4,406         5 %

Revenue decreased 2%, or $0.6 million, to $32.5 million for the three months ended September 30, 2009 as compared to $33.1 million for the three months ended September 30, 2008. For the nine months ended September 30, 2009, total revenues increased 5%, or $4.4 million, to $98.0 million as compared to $93.6 million for the nine months ended September 30, 2008. The decrease in revenue for the three month period ended September 30, 2009 as compared to the same period in the prior year was primarily attributable to a decrease in our average unit sales price. The increase in revenue for the nine month period ended September 30, 2009 as compared to the same period in the prior year was primarily attributable to an increase in our recurring CDN service revenue of approximately $3.1 million and an increase in professional services revenue of approximately $1.1 million. The increase in CDN service revenue was primarily attributable to an increase in traffic moving through our network (which was partially off-set by a decrease in average unit sales price) and to a lesser extent in the number of customers under recurring revenue contracts. As of September 30, 2009, we had approximately 1,370 customers under recurring CDN service revenue contracts as compared to approximately 1,300 as of September 30, 2008. During the year ended December 31, 2007, we deferred $3.4 million of custom CDN services revenue from one customer as the amounts were part of a multi-element arrangement. Entering into the multi-element arrangement with this customer changed the way we accounted for revenue earned from this customer during 2007. The revenue from the custom CDN services is being recognized ratably over a 44 month period starting in July 2007. As new service and or license fees are billed it is added to the deferred revenue and amortized over the then remaining contract term. As of September 30, 2009, we had $3.1 million of deferred custom CDN services revenue remaining of which approximately $0.5 million will be recognized during the remainder of 2009, $2.2 million in 2010 and the remainder thereafter.

For the three months ended September 30, 2009 and 2008, approximately 22% and 16%, respectively, of our total revenues were derived from our operations located outside of the United States. For the three months ended September 30, 2009 and 2008, we derived approximately 67% and 76%, respectively of our international revenue from Europe and approximately 33% and 24%, respectively of our international revenue from Asia Pacific. For the nine months ended September 30, 2009 and 2008, approximately 20% and 16%, respectively, of our total revenues were derived from our operations located outside of the United States. For the nine months ended September 30, 2009 and 2008, we derived approximately 71% and 76%, respectively of our international revenue from Europe and approximately 29% and 24%, respectively of our international revenue from Asia Pacific. No single country outside of the United States accounted for 10% or more of revenues during these periods.

Cost of Revenue



                                         Three months ended September 30,                            Nine months ended September 30,
                                                             Increase        Percent                                       Increase     Percent
                                2009           2008         (Decrease)       Change          2009           2008          (Decrease)    Change
                                          (in thousands)                                               (in thousands)
Cost of revenue               $  20,907   $        21,557   $      (650 )         (3 )%    $  63,456   $        61,980   $      1,476         2 %

Cost of revenue includes fees paid to network providers for bandwidth and backbone, and fees paid to data center operators for co-location of our network equipment. Cost of revenue also includes payroll and related costs, depreciation of network equipment used to deliver our CDN services and equity-related compensation for network operations personnel.

Cost of revenue decreased 3%, or $0.7 million, to $20.9 million for the three months ended September 30, 2009 as compared to $21.6 million for the three months ended September 30, 2008. This decrease was primarily due to a decrease in aggregate bandwidth and co-location fees of $0.5 million and lower depreciation expense on network equipment of $0.6 million. These decreases were partially off-set by an increase in payroll and related employee costs of $0.5 million. The decrease in bandwidth and co-location fees is due to a reduction in the cost per megabyte of traffic moving through our network and to a lesser extent the recovery of value added

taxes in our foreign locations. The decrease is depreciation is due to certain network assets being fully depreciated. The increase in payroll and related employee costs is due to increased staff to build and operate our CDN.

For the nine months ended September 30, 2009, cost of revenues increased 2%, or $1.5 million, to $63.4 million as compared to $62.0 million for the nine months ended September 30, 2008. This increase was primarily due to an increase in payroll and related employee costs of $2.0 million associated with increased staff. This increase was partially off-set by decreases in bandwidth and co-location fees of $0.4 million due to a reduction in the cost per megabyte of traffic moving through our network, lower depreciation expense of network equipment of $0.1 million due to certain network assets being fully depreciated and a decrease in royalty expenses of $0.2 million. During the three and nine month periods ended September 30, 2009, we recognized $21,000 and $63,000, respectively, of deferred costs associated with revenue related to the multi-element arrangement entered into during the second quarter of 2007. As of . . .