Cisco Prowling WAN Optimization?

Now that Juniper Networks Inc. (Nasdaq: JNPR) has coughed up nearly half a billion dollars for WAN optimization player Peribit Networks Inc. and traffic management vendor Redline Networks Inc., the startup world is abuzz with the potential for a response from Cisco Systems Inc. (Nasdaq: CSCO).

WAN optimization and traffic management technology were together seen as something of a niche market, prior to Juniper's deals (see Juniper Takes Two: Peribit & Redline). Now they appear to be the focus of every investment banker between Menlo Park and Manhattan (see Peribit Deal: More to Come).

In fact, according to most sources in the space, one would think it's a foregone conclusion: Many informed onlookers consider it inevitable that Cisco is going to pull the trigger on at least a WAN optimization company -- and possibly a traffic management company as well.

The reasoning? Many technology experts see the application delivery and management space as heating up, and it could pose a challenge for Ciscos current product portfolio (see Zeus: A Takeover Target? ). This conclusion was being expressed by many experts in the space at last week's Interop tradeshow.

For example, Eric Klinker, vice president of engineering at service provider Internap, believes that Cisco doesn't have the right WAN optimization tool, and will likely launch a counterattack to Juniper's $337 million acquisition of Peribit. He sees the most likely candidates as Expand Networks Inc., Packeteer Inc. (Nasdaq: PKTR), and Riverbed Technology Inc., but he considers Riverbed the "thought leader."Klinker, who describes his company as a "Cisco shop," says Cisco hasn't had much success in building it's own WAN optimization technology, which involves heavy computing of algorithms to more efficiently compress bandwidth used by applications. That's what led Internap, a service provider, to buy NetVMG, where Klinker served as CTO.

According to Klinker, Cisco tried to develop WAN optimization functions on a router as part of its Optimized Edge Routing (OER) technology, but it didn't work, because the heavy computing power of WAN optimization needed a separate device.

"You cannot put that function on a router," he says. "It fried the router -- it was not a successful launch at all."

When contacted on Friday, Cisco was unable to locate anyone to address Klinker’s specific concerns about OER. Version 1 of OER, which works in conjunction with Cisco’s IOS software and WAN edge routers, became available last year. The company is still touting OER as a way to help network administrators minimize bandwidth, and the technology aims to distribute packet loads across the network and detect failed data paths at the edge of the WAN. The vendor also offers an OER appliance to host the software application for traffic load distribution and failure detection.

Baruch Deutsch, director of product marketing for Cisco's caching division, sought to downplay any suggestions that the vendor is a WAN laggard. “We have a wealth of products in the WAN optimization space, and we will continue to develop that,” he says.Deutsch pointed to Cisco’s acquisition of Actona last year as evidence of the firm’s commitment to this space, although he was less forthcoming when asked about any future M&A plans (see Cisco Completes Actona Buy). “I am not going to comment on Cisco acquisition plans,” he says.

Meanwhile, the WAN optimization startups are basking in some newfound glory. Ariel Shulman, vice president of business development at startup Expand Networks Inc., says his company has definitely taken notice of the Juniper deal for Peribit.

"It pushed everything one league up, put this WAN optimization thing on the map," says Shulman. “Right now we have stopped evangelizing and started competing in a market that is validated.”

When asked if Cisco needs a WAN optimization tool and would look at buying a company such as Expand, Shulman says, "There is a gap [in their portfolio], I could agree."

Expand now has more than 1,000 customers, according to Shulman. It has raised a total of $40 million, and its last round of $10 million is being used to expand its salesforce.One reason the WAN optimization startups are so excited about Juniper's deal is the valuation. Juniper paid a combined valuation of 12x sales for both Peribit and Redline, according to some recent research reports. To put the deal in perspective for Peribit, the startup had raised about $40 million in venture capital, so the purchase price of $337 million represents a hefty gain for investors.

In addition to putting focus on the WAN optimization space and Peribit, the Juniper deals have also breathed new life into traffic management, where the acquisition game is largely believed to be in play.

"We have long expected Cisco to go into this market," writes Steve Kamman, a CIBC World Markets analyst, in a recent research note. "We also note that this new focus by and competition between Juniper and Cisco will likely impact other, smaller players in the market."

The Layers 4-7 switching, or traffic management market, is similar to WAN optimization in that it focuses on the efficient use of bandwidth consumed by applications. Big players in the market include public companies such as Radware Ltd. (Nasdaq: RDWR) and F5 Networks Inc. (Nasdaq: FFIV), as well as startup NetScaler Inc. and even U.K. newcomer Zeus Technology.

”It has brought the financial analyst community to our front door,” says John Oh, director of corporate communications at NetScaler. “When a public company the size of Juniper makes a move it not just validates the market but it typically causes a domino effect.”Jon Rabinowitz, senior marketing and communications manager at Radware noticed a lot more potential customers coming to his company’s booth at this year’s Interop. “A lot of people are asking questions,” he says. “It has raised the profile of this market once again.”

This is hardly surprising. During the Interop show, Juniper’s CEO, Scott Kriens, identified the potential market for traffic management products as being worth “billions and billions” of dollars over the next few years (see Zeus: A Takeover Target? ).

”There’s a buzz around this space,” says Jeff Barker, director of product management at Packeteer Inc. (Nasdaq: PKTR). “People coming to the booth are not asking ‘What does this do?' They are asking ‘How do I deploy it?’ "

— R. Scott Raynovich, US Editor, Light Reading, and James Rogers, Site Editor, Next-Gen Data Center Forum