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Family Feud Underscores Maturing WAN Optimization Market

Unions between start-ups and their financial backers are often quite tenuous. This week, the partnership between one vendor and a hedge fund with 10% of its stock illustrated that as well changes occurring in the WAN optimization market.Packeteer was one of the first companies into the WAN optimization market in 1996 and was viewed as industry leader for a while. These products improve the performance of WAN applications and enable mall and medium businesses can decrease their telecommunications costs. As the market matured, Packeteer has found itself being passed by competitors. In 2007, the companys total revenues dropped from $145.1 million in 2006 to $144.5 million. Product revenues fell 11% from $110.1 million in 2006 to $97.8 million in that year, and the network equipment company reported a net loss of $25.6 million. Meanwhile, rival Riverbed Technology Inc. generated $236 million in revenue -- a 126% increase over 2006 -- and a $14.8 million profit in 2007.

After reviewing the numbers, Elliott Associates, a hedge fund firm that owns about 10% of Packeteer, offered to buy the company for about $200 million. Fearing for their jobs, the Packeteer management team went on the offensive and advised shareholders to adopt a poison pill resolution, one that would limit the voting power of any group with 15% or more of its shares. The feud became public with the two sides exchanging derogatory notes via their Web sites. A solution to the spat arose this week when BlueCoat Systems emerged as a white knight and anted up $280 million for Packeteer. Blue Coat is also in the WAN optimization market, focusing on security solutions while Packeteer has traditionally concentrated on improving application performance. The companies now have greater scale, which is needed to get attention in any market where a Behemoth like Cisco roams.

Aside from entertaining small and medium businesses, the brouhaha underscored the changing nature of the WAN optimization market. This industry, which has been a tad slow in ramping up, has now reached a stage where it is widely accepted technology, one that can help small and medium businesses improve the performance and lower the operating cost of their WANs. Analysts pegged the WAN acceleration market at several hundred million dollars in 2007 and expect it to approach the $1 billion mark near the end of the decade. As markets mature, a few clear cut leaders emerge and leave the rest of the pack behind. Packeteer had a rough year in 2007, so the question remains will the merger enable it to rebound in 2008 and remain a viable player in the future.

How much interest does your company in WAN optimization products? What would drive you to look at such a product? What do you view as a reasonable price for these systems?