Monthly Archives: April 2008

Sequoia Looks for New Growth Away from VC

I am somewhat surprised that I haven’t seen more commentary on Sequoia Capital’s apparent decision to diversify away from its venture-capital heritage with an endowment-type fund that would see the company raise and manage a much larger pool of capital than heretofore.

Of course, as Rebecca Buckman of the Wall Street Journal points out, Sequoia presumably would generate more revenue and profit from having more assets under management. More to the point, by shape shifting into a diversified asset manager, Sequoia would be jumping out of the fetid, stagnant VC pool, a foul swamp that once was a raging river of swashbuckling adventure.

In recent years , however — ever since the burst bubble of 2000 and 2001, actually — the VC business model seems irrevocably broken. The evidence is there for all to see, as Buckman notes:

Sequoia’s move would represent a notable shift in direction for a venture-capital firm at the top of its game. The firm, now led by partners Michael Moritz and Doug Leone, has aggressively invested in Internet companies over the past few years, some of which have gone on to become hits. The firm has also created so-called growth funds for larger investments and planted flags overseas, introducing funds in China, India and Israel.

Lately, however, it has gotten tougher to make money in venture capital. For one thing, the lackluster stock market has made it hard for start-ups to go public, and some firms have been forced to pump money for longer periods into their portfolio companies.

There are risks inherent in Sequoia’s mid-life reinvention. In assuming the form of an asset manager, Sequoia could be perceived as a competitor to many of its current investors, who might shun it. That would mean Sequoia would have to tap new investors at the same time it is trying to raise funds of unprecedented size.

There’s no question that the torpid IPO market, as well as the general dearth of big-ticket exits for private companies in which Sequoia and other VC firms have invested, played a significant role in convincing Sequoia that the risks of this move were outweighed by the potential rewards.

Reading the Entrails of Blue Coat’s Packeteer Acquisition

Om Malik was fed some reasonably good information the other night when he was told — and then told us — that WAN-optimization specialist Packeteer was on the cusp of being acquired by Blue Coat Systems or Nortel Networks. It turned out that the former indeed was the acquirer, with the deal announced this morning.

Blue Coat Systems said it will acquire Packeteer Inc. for about $268 million in cash, including issuance of $80 million in convertible notes to Francisco Partners II LP and to an affiliate of Elliott Associates LP.

The latter Elliott recently took an acquisitive run at Packeteer, a company in which it already had a 9.8-percent ownership stake, when it bid $5.50 per share or about $200.8 million. Obviously Packeteer declined that offer, apparently for good reason. Today’s bid values Packeteer at $7.10 per share, a premium of 15 percent on the company’s closing price Friday afternoon.

Om is right to categorize this acquisition as a consolidation play by Blue  Coat, which is fighting a neck-and-neck battle against Cisco Systems and Riverbed in the WAN-optimization space. My contacts tell me Cisco is using its marketing and sales might to win share against its smaller rivals, putting Riverbed’s independence at question in the process. Caught in a bind, Blue Coat needed to find a way into more accounts while enhancing and extending its product portfolio. Packeteer, a company known for reasonably strong technology but relatively poor business execution, delivers on both requirements.

It probably still won’t stop Cisco from racking up a dominant market position, but Blue Coat felt it had to to something to fend off the seemingly inevitable.

Now the question is, what or who is next? Om’s source said Nortel was kicking Packeteer’s tires, but Nortel either failed to take action or lost out on the bidding. Nortel isn’t exactly in a position of strength at the moment, and I can’t imagine it paying $1 billion or more for Riverbed. It just doesn’t seem within the realm of immediate probability. Nortel might take out a smaller player, but . . . why? What would that get them? Does Nortel want to be an also-ran vendor in yet another market?

Juniper might take a run at Riverbed. It can afford to take the plunge and would benefit almost immediately from the deal.

Cisco is rolling right now in WAN optimization and can stand pat.

Return of F5 Acquisition Rumors

Yes, rumors about a potentially imminent acquisition of F5 Networks have returned, back for an encore performance.

Treat these rumors with healthy skepticism, folks. This is not the first time, nor the fifth or sixth, that an acquisition of F5 has been rumored. Thus far, F5 remains an independent company, so it’s probably unwise to gainsay the historical trend.

That said, let it be written that Cisco and IBM are variously reputed to be taking a run at the company this time around.

Symantec’s Thompson Holds Forth on DLP, Cisco, McAfee, Microsoft

Symantec chairman and CEO John Thompson granted an interview earlier this week to InfoWorld. I found a few of his comments noteworthy.

Let’s look at them, one by one.

Network World: Cisco just announced a partnership with EMC’s RSA division to make use of the data-loss prevention technology based on Tablus, a company RSA acquired last year. Any comment on that?

John Thompson: It’s a little bit ironic. Cisco had a wonderful and profitable relationship with [data-loss prevention vendor] Vontu before we bought them. Cisco was a Vontu reseller. It shows Cisco would rather work with anyone other than Symantec. Cisco has a philosophical point of view that if you compete with me, you can’t partner with me.

That’s not true. Cisco has a complicated relationship with Microsoft, for example, in which the two companies both cooperate and compete against each other in various markets. Increasingly, Cisco’s relationship with Microsoft is a competitive one, but there remain areas where Cisco is more than willing to partner with the software giant. That’s because Cisco, in certain markets, cannot afford not to partner with Microsoft. There is no alternative, and the relationship is purely one of practical necessity.

As for Symantec, Cisco obviously does not feel the same need. Put simply, Cisco doesn’t need to cooperate with Symantec in the DLP space.

NW: What’s Symantec doing with Vontu, which it acquired last December?

JT: The DLP technology Vontu brings to a company specifically makes policy-based decisions about information flowing over a network, an area important to highly regulated financial services, health care providers, or the merger and acquisition transactions at a company. The Vontu acquisition was important for us since we will now integrate that policy engine into the storage and network tier in what Symantec researchers internally are calling Project Huggie.

Project Huggie? Do the researchers at Symantec say that with a straight face? I can’t even force myself to type it again, though I realize it is an important mashup of Veritas and Vontu technologies, the fruits of Symantec’s two most important recent acquisitions.

NW: What do you think of McAfee, often viewed as your rival?

JT: It’s a nice little company and they do a nice job. The industry needs competition. But we don’t see their portfolio as competing directly with ours. We help customers manage their infrastructures better.

Could Thompson have been more condescending toward Symantec’s smaller rival? Answer: No.

NW: What about Microsoft’s entry into anti-virus about two years ago?

JT: It’s been much ado about nothing. Their results have been fairly abysmal, although Microsoft has done a lot to make Vista a secure operating system. Customers like the concept of diversity. Products like McAfee, Sophos, Panda, and more serve as part of the ecosystem.

I don’t know whether I agree that Microsoft’s results have been abysmal in data security, but I concede that the company should have performed much better than it has done. Data security on and for the Windows enterprise environment is an area where Microsoft can and should dominate. The company must execute better. Secretly, Thompson is thanking the heavens that Microsoft has failed to get its act together.

DLP Vendors Try to Lower Customer Expectations

It’s interesting to see how the major vendors of data-loss prevention (DLP) security offerings are trying to lower customer expectations relating to the capabilities and business value of their products.

Aggressive marketing, particularly for data-security products, is a double-edged sword. Hyperbolic marketing can help vendors attract customers, but those customers become disaffected when they discover that the products they bought, often at great cost, are not a panacea that prevents all instances of abuse or loss of sensitive information.

DLP vendors, such as Symantec, are trying to recast the discourse with customers, arguing that preventing the accidental or intentional loss of 80 percent to 90 percent of sensitive data is better than stopping none. That assertion is true, of course, but it would have been better for all involved if the vendors had been more realistic in marketing their wares at the outset.

It’s Official: Vista is the New Coke of Operating Systems

Even Microsoft CEO Steve Ballmer seems to concede that Windows Vista is an incomplete product that has fallen well short of the mark as a major extension of the hegemonic operating-system franchise. 

Yes, Vista is the New Coke of operating systems.

What’s particularly discouraging for Microsoft, not to mention its legions of customers, is that it took the Redmond behemoth five years to develop this failed product. If Vista is the New Coke of operating systems, perhaps Microsoft is becoming the Guns N’ Roses of operating-system vendors, taking longer and longer to deliver less and less (though Vista, like Axl Rose’s ego, is pretty bloated).

Welcome to the jungle, indeed.

Better Late than Never, Dell Refreshes Laptop Line

Earlier this week Computerworld ran an article about Dell’s refresh of its laptop PC offerings.

It’s about bloody time. Dell was asleep at the switch in the laptop and notebook market for too long. HP and others stole a market-share march on the Round Rock, Texas-based PC purveyor in the mobile PC space, establishing leadership positions that Dell finally is contesting.

Along with the belated product refresh, Dell is aggressively overhauling its channel to better sell laptop and notebook models. Customers like to touch and feel notebooks before buying them. Recognizing this reality — again, belatedly — Dell has shifted away from its web-based direct approach and its kiosk sales to a channel-based emphasis on retail sales.

After giving its rivals a generous head start, Dell is trying to close the gap in the fast-growing mobile-PC market. The desktop market is stagnant, and Dell stuck with it too long. While moving in the right direction, Dell still needs to improve its product design and overall level of product innovation, which lags most of its notebook competitors.

Dell clearly is taking things one step at a time.