Despite some time-constrained, desultory, and ultimately fruitless investigations by your intrepid correspondent, I was unable to determine whether Riverbed Technology’s just-announced acquisitions of virtual application delivery controller (vADC) specialist Zeus Technology and Web-content optimization vendor Aptimize Limited were conditioned by its having most of its available cash outside the USA.
Looks Good on Paper
Don’t misunderstand. I’m not saying these were bad acquisitions. In fact, on paper, these buys look relatively good. Much depends, as it always does, on execution — on how well Riverbed integrates, assimilates, and monetizes its new properties — but strategically there’s not much to dislike about these moves.
Still, it’s interesting that Riverbed bought two companies half a world apart from one another, and another half world away from Riverbed itself. The company’s executives must have racked up prodigious air miles during their due diligence.
There’s nothing wrong with that, of course. The airline industry could use the support. More to the point, these acquisitions could come together to fulfill a strategic vision that will see Riverbed deliver integrated WAN optimization, Web-app optimization, and application traffic management for virtualized and cloud customers worldwide. Riverbed calls the concept “asymmetric optimization” — just one box is required, sitting in a data center — and it believes it can become more than a lucrative niche.
The bigger of the two acquisitions involved UK-based Zeus Technology. Riverbed will pay $110 million upfront for Zeus, and perhaps another $30 million in performance-based bonuses. Zeus, which took a long and winding road toward its ultimate raison d’être in application delivery and load balancing, is highly regarded by knowledgeable market watchers and a growing stable of customers, Rackspace among them.
Zeus Takes Riverbed Into New Battle
Zeus’ virtual traffic manager, which runs on all the major hypervisors, has been installed by about 15,000 customers worldwide. The company apparently generated $15 million in revenue this year, and Riverbed, perhaps underpromising so that it can overdeliver, projects that Zeus’ offerings will account for about $20 million in revenue during their first year under Riverbed’s expanding corporate tent.
In my view, though, the Zeus acquisition isn’t only the bigger of the two, but it’s also more fraught with risk. Yes, it makes sense, presuming the aforementioned plan comes together without a hitch, but it also takes Riverbed into intensive competition with ADC kingpin F5 Networks.
Until now, Riverbed has stayed clear of F5’s core market, which it leads with considerable aplomb. Now Riverbed, already fighting a tough battle against a number of WAN-optimization players, must go up against a strong leader in the ADC space. How well can it fight on two major fronts simultaneously? Part of the answer, I suspect, hinges on how quickly customers begin to perceive the two fronts (or is it three?) as one. If or when that happens, Riverbed’s three-pronged value proposition — WAN optimization, Web-app optimization, and application delivery — will give it the edge it craves.
Mind you, F5 won’t be standing still. It will be interesting to see how this battle plays out in customer accounts.
Kiwis on the Move
The other Riverbed acquisition, of New Zealand-based Aptimize, looks a safer bet. According to reports, Riverbed paid less than $20 million for Aptimize, but the acquired company’s backers could collect more than $30 million if an “earn-out clause” in the deal is fulfilled.
Aptimize’s Website Accelerator, according to Riverbed, “reorders, merges and resizes content, essentially transforming it in real time . . . to deliver the application up to four times faster.” It’s closer conceptually and practically to what Riverbed does today than is the Zeus technology, making it easier to integrate, package, and sell to the company’s existing customers.
While the Zeus team will remain in England, the Aptimize team, comprising co-founder Edward Robinson and ten engineers, will relocate from New Zealand to the Bay Area.
As an aside, though not to investors, Riverbed stock plunged vertiginously on the markets today after the high-flying company, whose shares had soared during the past year, missed its revenue number, disappointing punters and analysts who tend to be unforgiving about such things.
Twilight in the Valley of the Nerds 