The best tech company you've never heard of
Speed of light not fast enough for you? Call Riverbed Technology - they rev up enterprise software better than anyone, reports Fortune's David Kirkpatrick.
NEW YORK (Fortune) -- The Internet will never be fast enough. While under ideal conditions a packet of data travels over the network at the speed of light, it turns out that's too slow to deal with the complexities of modern software.
So one of the hottest areas in networking technology is something called Wide Area Network (WAN) optimization - or making networks even faster. Equipment from Riverbed Technology, whose CEO Jerry Kennelly I spoke with recently, does it well. "People think of the speed of light as an infinite speed," he says, "but it's actually a speed limit."
Network World magazine tested a variety of WAN optimization products a few months ago. Riverbed's scored considerably higher than both established competitors like Cisco and smaller ones like Blue Coat Systems. Zeus Kerravala, who heads global enterprise research at the Yankee Group, calls Riverbed "one of the most interesting tech companies that has come along in quite a while."
Companies of all kinds are centralizing data and applications to reduce the number of servers they operate. But if you're on a PC in New York and have to get a file from a server in San Francisco, get used to twiddling your thumbs. For example, a 1-megabyte Excel file, which would display almost immediately if you called it up from your own hard drive, typically takes about 100 seconds to load cross-country. The problems can become more pronounced if you're doing heavy e-mail remotely.
The reason, according to Kennelly, is that data has to travel back and forth to a hard drive 977 times in a row to get that Excel file to load. But each one of those little trips takes a tenth of a second when it's traveling all the way back and forth across the country.
So here's what Riverbed's technology does: fake out the software so it delivers its information payload in bundles. Rather than 977 trips, the data might be able to take only 10 or 20. That radically increases the perceived speed of the application.
To achieve this Riverbed's engineers had to dissect - or reverse engineer - Microsoft's software. "Thank God for Microsoft," says Kennelly, "because they created Windows, which is so inefficient. That helped create our company."
Riverbed has done the same for a range of other types of applications as well: e-mail, accounting, databases, customer relationship management programs, etc. It sells a box filled with fast processors and its own software. You buy at least two, and put them next to a network router or switch at both ends of the trip. Installing them is almost as simple as just plugging them in and turning them on. They range in price from $3500 to $125,000.
It's apparently worth it. Says Yankee's Keravalla: "Any company I've ever talked to that's done a technical bake-off says Riverbed performs best. Some users see the speed of their applications improve 60-70%." Ralph Barber, the chief technology officer for Holland & Knight, a 2600-employee law firm with offices all over the country, says: "We did a test and were amazed at the impressive performance on e-mail and also on our document management system." Holland & Knight has many operations in Florida, and used Riverbed to centralize its servers in Tampa and Denver, both for efficiency and to insure users can keep using applications even in the event of a hurricane or other disaster.
Walt Disney (Charts, Fortune 500) is a new customer. It's impressed, writes CIO Tony Scott in an email, at how Riverbed can speed up long-distance use of Microsoft applications. Riverbed started shipping products just three years ago but it already has 3,000 customers. The annual revenue run-rate is roughly $300 million, and its market capitalization is about $2 billion. It was one of last year's top tech IPOs.
But Riverbed (Charts) stock is dramatically down - about 50% - in the past month. It's been a terrible few weeks for networking and enterprise technology stocks, especially high-fliers like this one with outsized price-to-earnings ratios.
But there seems little reason to think Riverbed won't continue leading in WAN optimization, even though heavies like Cisco (Charts, Fortune 500), Juniper, Citrix and others are fighting to push it aside. Security analyst Troy Jensen at Piper Jaffray has followed this industry for seven years, and says Riverbed's technology is "without a doubt superior." While he was neutral on the stock when it traded around $50 a share, at a recent price of $29 he calls it "a no-brainer."
Analyst Cobb Sadler at Deutsche Bank Securities, another fan of Riverbed, is enthusiastic about its new all-software optimization product, which can go into a laptop so workers out of the office can get high-speed access to corporate data. "They've got the only product that allows you to do that right now," he says.
And even in the midst of all the networking and tech stock carnage, Riverbed competitor Blue Coat (Charts) reported surprisingly good results on November 20th, suggesting to Jensen, among others, that the WAN optimization market may be resistant to the downturn in enterprise technology spending many now fear.
There are several reasons why this is an almost perfect technology. We're in an era of global business, so operations can be anywhere. Companies want to centralize computing resources. And nobody's willing to wait for anything.