Sorry if this has been posted. This may be one
of the reasons for the continued weakness in isld.
redherring.com
Caching players Akamai and
Cacheflow team up
By R. Scott Raynovich
Redherring.com, March 28, 2000
Tuesday could see the landscape change in the caching
market, thanks to a deal between Akamai (Nasdaq: AKAM)
and Cacheflow (Nasdaq: CFLO).
The two are expected to announce a broad strategic alliance
that is likely to strengthen both companies' positions in the
sector. The meat of the deal: Cacheflow, which makes
hardware that hosts mirrored Web content on corporate
networks, will integrate Akamai's Freeflow software, which
lets content providers distribute their content more rapidly.
In addition, Cacheflow will lend Akamai sales muscle by
packaging its hardware with Freeflow.
Ahead of the news on Monday, Akamai shares lost $6.06
(2.8 percent) to close at $210.75. Cacheflow was up $12.75
(11.67 percent) to close at $122.
The deal was described by company sources in loosely
defined, nonexclusive terms. According to a draft release
obtained by Redherring.com, the companies plan a "major
initiative to integrate their coaching and content distribution
technologies." At any rate, the deal is useful in giving
investors a clue about where two of the major caching
players are headed in a market that has received major
attention on Wall Street.
Caching technology employs software algorithms and
specialized hardware to copy and place Internet content at
strategic network locations in order to improve performance
and minimize bandwidth consumption.
To date, investors have richly rewarded companies in the
caching spaces. Inktomi (Nasdaq: INKT), which sells caching
services in addition to its search technology, is up 540
percent in the last 12 months; the stock is also up 4,718
percent since its IPO in June of 1998. Akamai is up 712
percent from its blockbuster IPO last October, although
shares are trading substantially off their all-time high of
$345.50 per share. Network Appliance (Nasdaq: NTAP),
which sells caching hardware in addition to storage
appliances, rose 686 percent in the last 12 months. And
Digital Island (Nasdaq: ISLD), which competes with Akamai,
is up 660 percent since its $10 IPO on June 29, 1999.
Driving the surge in the stocks of such companies: within the
expansive universe of Internet companies, a significant
number will be willing to pay a premium to enhance the
delivery of Internet content and services.
CACHING UP
Brian NeSmith, Cacheflow's CEO, hopes to parlay his vision of
"pure-play" caching to leapfrog companies such as Inktomi
and Network Appliance, which have been in the caching
hardware market for a longer period of time. Mr. NeSmith
says that because his company is focused exclusively on
caching products, it doesn't have the distractions of search
engines or storage products -- as do Inktomi and Network
Appliance. He predicts that Cacheflow soon will pass both
those companies as the leading vendor of caching hardware.
Alex Benik, an analyst at the Boston-based Yankee Group,
agreed that Cacheflow's strength is in focusing on the
caching market in particular. "They are focused entirely on
caching based on a proprietary OS," said Mr. Benik. "For
Network Appliance, caching is always secondary to them,
compared to the distributed storage and file server. They
use those products to drive the caching."
Mr. Benik projects that caching services such as Akamai's will
be a $1.4 billion market by 2003. Although he hasn't yet
released a projection for the hardware market, he believes it
will be substantially larger than the services segment of
caching. He also said the Akamai/Cacheflow deal may clear
up the confusion between caching services and hardware,
proving it inevitable that the software service and hardware
components will be integrated.
With Akamai sporting a market cap of $30 billion and
Cacheflow sitting closer to $4 billion, the deal is likely to be
perceived as bigger news for Cacheflow shareholders. Mr.
NeSmith believes the deal will give him better penetration
into the so-called "dot-com" market for companies selling
content, commerce, and services over the Internet.
CLEARING THE AIR
For others, including Mr. Benik, the deal represents the
integration of software and hardware technologies that
ultimately will make it easier for customers to add
performance enhancements to their Internet content and
services.
"One reason this deal is real interesting is that this is one of
the leaders in the caching space announcing that it's
reselling Akamai services," says Mr. Benik. "That clears the
air in the positioning of services versus caching hardware --
it points out that they are not really competing, they are
complementary."
The deal between Akamai and Cacheflow is not exclusive. Mr.
NeSmith did not rule out either company cutting deals with
other companies in the business.
When asked if Cacheflow had been discussing such a deal
with Digital Island, whose purchase of caching service
provider Sandpiper made it a closer competitor to Akamai,
Mr. NeSmith declined comment.
"As far as Sandpiper I can't comment on whether or not
discussions have occurred," said Mr. NeSmith. "But I think it's
a good example of other types of companies that Cacheflow
would be interested in."
He also noted that he felt Akamai had "special
characteristics."
"I would be extremely surprised to see Akamai make the
same deal with Inktomi," said Mr. Benik. "Those companies
are moving in the same direction, in terms of being the thin
operating system for distributed applications on the Internet.
Cacheflow's position is more pointed toward the savings
argument -- implement it to save money on bandwidth." |
