Zeus: A Takeover Target?

LAS VEGAS -- Interop -- After Juniper Networks Inc. (Nasdaq: JNPR) decided to cough up nearly half a billion dollars to acquire Peribit Networks Inc. and Redline Networks Inc., there is now growing speculation about who could be next on the traffic management hitlist.

U.K. startup Zeus Technology is starting to attract attention, and analysts believe the firm could make good acquisition fodder as other vendors look to follow Juniper's lead.

Redline and Zeus are similar companies,” says R. Lynn Nye, president of analyst firm APM Advisors, citing Zeus’s ability to package up application traffic right next to users’ servers. Both firms improve HTTP compression and offload a lot of the TCP compression from the servers, he adds.

Nye, who describes these technologies as “application front ends,” believes that the next vendor to step into this space is likely to be Cisco Systems Inc. (Nasdaq: CSCO). “Cisco needs to address this issue, whether they buy a company or develop" the technology, he says. “It’s a hole in their portfolio.”

Zeus started life selling Web server software back in the Nineties. At one stage, it was held up as a shining example of a successful startup, although it failed to achieve an "exit" in terms of getting acquired or staging an IPO.Nowadays, it's the firm’s Zeus Extensible Traffic Manager (ZXTM) software that has got analysts intrigued. ZXTM offers traffic management, application acceleration, XML processing, security, and SSL offload features (see Zeus Expands ZXTM Family).

Michael Azoff, senior research analyst at Butler Group, also believes that Zeus has got a good technology story. “The major selling point for Zeus is that they approach traffic management from the high end of the TCP/IP stack because of their background in Web servers,” he says.

Azoff believes that a vendor such as Hewlett-Packard Co. (NYSE: HPQ) could potentially snap up Zeus. “HP is very strong in the IT services management side with OpenView but they have got gaps with application performance,” he says. “They are on the lookout for good technology.”

Steve Palmer, Zeus's vice president of marketing, who was in Las Vegas for the Interop tradeshow this week, told NDCF that the Cambridge, U.K.-based vendor is currently focused on building its business. “We’re just busy trying to grow our revenue,” he said, adding that Zeus is focused on developing more partnerships around the globe. “There’s no ongoing discussions,” he added, with regard to any M&A activity.

However, the whole application traffic management space is still in its infancy, as far as most of the big hitters are concerned. “What’s unique is that the area is fairly early-stage,” says Azoff. “It’s only now that the vendors in this area are addressing individual applications in the network traffic.”But the major vendors could be looking at a potential goldmine. Earlier this week at Interop, Juniper CEO Scott Kriens described this part of the market as being worth “billions and billions of dollars” over the next few years (see Juniper's Kriens Stuck On Traffic).

As well as offering software, Zeus works with partners to deliver ZXTM within appliances. They include reseller Pyramid Computer in Germany and Sun Microsystems Inc. (Nasdaq: SUNW) in the U.K.

Although he was unwilling to give too much away, Palmer confirmed that the company is planning a new release of its ZXTM technology later this year, which will involve standards-based Application Programming Interfaces (APIs).

Earlier this year Zeus clinched an additional $6 million in funding to add to the $17.7 million it had already received from institutional investors (see Zeus Scores $6M).

Palmer says that the firm does not anticipate going out for additional funding. “We’re forecast to break even in the early part of 2006,” he adds.HP declined to comment for this story and Cisco was unavailable for comment.

— James Rogers, Site Editor, Next-Gen Data Center Forum