Demand for Speed Drives Web Accelerator Buying Spree

Major network technology vendors are snapping up Web acceleration system startups to build an Internet that is responsive enough to support the latest Web-based applications.

The unceasing demand for a fast and responsive Internet has helped to make those companies that are selling Web application acceleration technology the hottest buyout targets in Silicon Valley, according to industry analysts. Juniper Networks Inc., Cisco Systems Inc. and Citrix Systems Inc. have snapped up four companies specializing in application acceleration in less than six weeks, leaving a paltry handful of surviving independent companies in the field. Analysts say the buying has been caused by a combination of factors specific to the network technology industry, as well as to general business conditions that currently favor corporate buyouts as opposed to initial public stock offerings for high-tech startups. Web application accelerators are software packages that are usually loaded into hardware appliances to boost the speed and responsiveness of Web sites and Web programs. They use caching technology, data compression or TCP traffic optimization—or a combination of the three—to boost network responsiveness. Most of the companies in the field were privately held startups that had been founded in the late 1990s. In general, they have grown steadily, if not spectacularly. F5 Networks Inc., founded in 1996, is currently the largest surviving company in the field. Juniper Networks started the current feeding frenzy in late April when it bought out Peribit Networks Inc. and Redline Networks Inc. for a total of $469 million. Cisco Systems followed late last month when it acquired FineGround Networks Inc., of Campbell, Calif., a producer of performance optimization appliances, for $70 million. The most recent deal, on Thursday, involved Citrix Systemsacquisition of NetScaler Inc., of San Jose, Calif., for $303 million in stock and cash. The development of on-demand hosted applications and SOA (service-oriented architecture) has demonstrated the need for a high-performance Internet that is faster and more responsive, noted Scott Crawford, an analyst with Enterprise Management Associates, a technology industry research firm based in Denver. Click here to read Juniper Networks Chairman Scott Kriens explanation of why Peribit Networks and Redline Networks were important acquisitions for his companys product line. "More enterprise applications are going to be made available as SOAs over the next few years," Crawford said. Citrix, Cisco and Juniper Networks know "it is absolutely important to have a foothold in that space," he said. The companies are acquiring the technology they need so that customers will have access to a highly scalable network that will support the volume of data and transactions these applications will generate, Crawford said. Once Juniper bought two companies at once, a herd mentality" took over, triggering the decisions by the other two companies to make their acquisitions in quick succession, said Peter Christy, an analyst with NetsEdge Research Group, in Los Altos, Calif. Juniper pursued Peribit and Redline because it allowed the company to add new technology to its product line that is of particular interest to enterprise customers, Christy said. The acquisitions help make Juniper more competitive in relation to Cisco in a new technology area where it doesnt have to "battle head-to-head with Cisco on switches and routers," which are rapidly becoming commodity technology, he said. Next page: Building new markets.