Old news at this point, but still important:
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." |
