Fast Times At Riverbed: Ten Years In, Can It Maintain Momentum?

Riverbed Technology's outright dominance of the WAN optimization space has been an admirable channel success story -- one in which it has outboxed everyone from Cisco to Blue Coat to attain roughly 50 percent market share and made WAN optimization a profitable practice area for partners, which touch 95 percent of its $726 million in annual revenue.

There's no question that Riverbed's timing has been spot on. The increasing demands placed on the network by virtualization and cloud computing have pushed Riverbed out of niche technology status and into a market that, according to research firm Gartner, will grow tenfold over the next five years.

As Riverbed celebrates 10 years as a company this month, its solution providers are hoping it can pull off another neat trick: transition ably through its most ambitious portfolio upgrade without sacrificing any of its channel goodwill or getting too far ahead of itself. And with so many updates coming so fast -- from the application delivery products it developed from recent acquisitions to the potentially game-changing edge virtual server infrastructure product Granite -- it's clear Riverbed will be tested during its transition from WAN optimization vendor to, as its top executives now describe it, a "performance company."

[Related: Riverbed Granite: Centralized Data Served Fast To The Edge ]

" 'Performance' is the magic word," Eric Wolford, Riverbed executive vice president of marketing and business development, said in a recent interview with CRN. "Everything Riverbed is doing is centered on delivering performance to our customers for a wide variety of workloads. The more the world is globalized, the more performance is needed. The more data centers are virtualized and consolidated, the more performance is needed."

The past year's bumper crop of Riverbed updates include everything from the virtualized version of packet analysis tool Cascade Shark -- a product line that was integrated with its Steelhead appliances in the fall -- to the lower-end Steelhead models it introduced earlier in May.

On top of those, it has bolstered partnerships with the likes of Akamai (a jointly developed SaaS acceleration offering) and VMware (using Riverbed WAN optimization with VMware vCloud Connector to accelerate how virtual machines move between clouds). Riverbed also made a string of acquisitions, first of Zeus and Aptimize last summer for ADC and Web content optimization products and, more recently, of assets from fellow WAN optimization player Expand Networks.

All of those moves have left Riverbed with a multipronged approach to tackling enterprise performance needs, Wolford said. Its product buckets include Steelhead, which is its WAN optimization appliances; Cascade, which covers network monitoring; Stingray, which is Web content optimization and application delivery wares developed from the Zeus and Aptimize products; and Whitewater, which is cloud storage.

NEXT: Is Granite Riverbed's Biggest Play So Far?

Riverbed's biggest recent move, however, may be the February release of Granite, a new product family that consolidates edge applications, servers and storage to the data center while making data available to remote workers with comparable speed and performance as if that data were local. According to Riverbed, Granite could cut the cost of managing distributed environments by as much as 50 percent over a three-year period.

"Riverbed's sold Steelheads for a long time, and 77 percent of our customers who have Steelheads deployed have servers sitting next to those Steelheads," Wolford said. "So why is WAN optimization not enabling more consolidation? One of our engineers said, 'I have an idea. We can overcome all of those problems if we solve the problem at a lower level in the stack.' So with Granite we're doing at the storage layer what we did at the app layer."

What analysts, partners and competitors will be watching is whether Riverbed can grow in all of those technology buckets Wolford described. But it has assured itself of at least one thing as it celebrates a decade of doing business: an ever-broadening base of top data center-focused solution providers that have opted in to Riverbed as a strategic, practice-defining partner.

"They did a great job maturing over the years," said David Hekimian, CTO of Trace 3, an Irvine, Calif.-based solution provider. "The future's looking pretty bright for them, and when you're talking about getting involved in performance platforms and understanding what user requirements are for applications, you're looking at a growth area. We hope Riverbed continues to lean on companies that have the right skill sets [in those areas]."

"They got early on that the big change in the industry is moving from isolated, customer-centric data centers and the way you traditionally provision IT to a more distributed, shared model of basically cloud-type services," said Tim Vogel, CTO of Xtium, a Valley Forge, Pa.-based cloud infrastructure service provider that is one of the few non-telecoms in Riverbed's service provider program. "We've seen such a change in the environment where, for customers, applications aren't living locally so the ability to not only accelerate them but provide other services around that connectivity, and visibility into the traffic, is a big deal."

Substantial growth for Riverbed also has meant learning to deal with channel conflict. Several solution providers told CRN this spring that Riverbed responded to complaints that it was offering more favorable pricing to telecom service provider partners. Riverbed told partners at a recent executive exchange that it would put service providers and reseller and integrator partners back on a level playing field, those solution providers said.

"They have enough partners now where they could favor the telcos and cut out the little guys that do a lot of the heavy lifting on customers and were there for Riverbed years ago," said the chief executive of a top East Coast solution provider, who asked his name not be used. "So far, they've said they're not going to let that happen. We'll see if that sticks as more of their products touch cloud and more service providers want a piece of that."

"It's the type of [conflict] that also shows how they've grown," Trace 3's Hekimian said. "They are telling all of their partners, 'You need to follow the rules' now, and that's good."

NEXT: Riverbed Rivals Pounce On Possible Partner Discord

Any reports of discord among Riverbed channel partners -- inevitable, given the company's dominance of its core market -- are quickly seized upon by smaller rivals looking for any excuse to pounce. A range of upstart competitors, from Silver Peak Systems to Circadence and Aryaka, has taken aim at Riverbed's WAN optimization base with aggressive channel recruitment campaigns.

But the other, more frequent charge against Riverbed is that it's gotten ambitious about market expansion to the point of distraction and even confusion. The company's first-quarter earnings, reported in mid-April, were enough to give industry watchers pause. Riverbed saw a decline in quarterly profit and also saw revenue that, while up from a year earlier, missed analyst consensus estimates by as much as $3 million. In addition, it offered a weak second-quarter forecast that was well below what Wall Street was expecting: earnings per share of 21 cents to 22 cents on revenue of $193 million to $197 million, compared to Street projections of 24 cents per share on $202 million.

Most financial and technology analysts see Riverbed's first-quarter setback as temporary, however, and related to what Jayson Noland, senior analyst with Robert W. Baird & Co., described as "disruption caused by a complicated product refresh."

"Per checks, we concur with the company that some purchase decisions were pushed out of Q1 as buyers deliberated between three unique Steelhead platforms," Noland wrote in an April 20 note to clients. "We also believe management is asking a lot of its sales force given a plethora of new adjacent products."

That Riverbed's product expansion is necessary doesn't make it any less of a challenge, other analysts said.

"Clearly, Riverbed is going through a painful transition in the field as it broadens its product suite beyond its core WAN optimization market opportunity in hopes of finding its next leg of growth," said Daniel Ives, senior analyst with FBR Capital Markets. "While this is a necessary step and a strategy we ultimately believe will bear fruit during [second-half 2012/2013], it will be a bumpy road during this transition and we fully expect many investors to hit the sell button … given the uncertainty surrounding the story."

Is so much product expansion necessary? Longtime Riverbed solution providers told CRN that yes, Riverbed has to branch out to maintain its market lead and grow its top and bottom lines. WAN optimization appliances aimed at enterprise branch-office locations will only sustain the company and its channel for so long.

"The branch office is less central now, at least compared to what CIOs think about when they want to deliver applications more efficiently to mobile users," said the top sales executive at a West Coast-based Riverbed partner, who asked that his name not be used. "What we're looking at now is a more holistic approach with the application and one not tied to a symmetrical solution where there are just boxes on either side of a circuit. The symmetrical solution doesn't totally address a lot of the newer shifts in the market."

NEXT: Getting Partners To Sell The Performance Platform

Solution providers see Granite, in particular, as one of Riverbed's most forward-thinking solution sets.

Trace 3, which worked with Riverbed on Granite's development, said Granite is appealing in particular to large customers with hundreds of locations that are looking to consolidate their data center but keep operating costs in line while doing so, and to enterprises with mobile and virtual desktop users that necessitate frequent movement of virtual workloads.

"The appeal of Granite is to walk into a large enterprise location, and put it in, and start running everything else they have in there out of the rack, but keep the compute near the user the whole time," Trace 3's Hekimian explained. "You're offering Riverbed WAN op and Riverbed storage optimization, and also taking away a lot of the major operational cost of backups -- it's not being done in the remote site, it's being done in the data center. Plus, if you have an outage at the remote site, they're VMs that are in use, so I can reboot them all at the data center. Granite's pretty revolutionary."

Riverbed won't de-emphasize its WAN optimization bread-and-butter, but it is looking to incentivize partners to sell the entire performance platform, from cloud storage to application delivery. The potential in that total addressable market is measured in the tens of billions, said Carolyn Crandall, Riverbed's vice president of worldwide marketing.

"It's no longer just about bandwidth and latency," Crandall said. "Partners have to think of these as business conversations and not just go in tactically. There are many upsell and cross-sell opportunities."

"It's giving the partner community different stories to tell," said Randy Schirman, senior vice president of worldwide channels. "It's giving them new audiences, such as customers that need SaaS application solutions, and the partners that can say, 'We can make all of your SaaS applications better. ' In many cases, we're in the early stages of a lot of this with the partners."

Along with the technology updates, Riverbed has spent much of the past year expanding its Riverbed Partner Network program. In March, Riverbed added a new specialization to RPN focused on how to build partner competency across the whole Riverbed portfolio, from WAN optimization to cloud backup and recovery solutions, including training. Business planning tools, an updated MDF portal, a new partner portal and other resources were added as well.

Crandall and Schirman emphasized that Riverbed's goal is to grow all of its types of partners, but that the branch-office-driven WAN optimization market where many Riverbed partners still make most of their money is far from tapped out.

"A question we get often is, 'Isn't it done?' " Crandall said. "But if you look at the number of branch offices out there, and that if every time you consolidated a branch office you could be putting in a Steelhead, then that market is only 15 [percent] to 20 percent penetrated. So do we have enough partners? We're not intending to open the floodgates, but the answer can't be yes."

NEXT: Going Beyond The Point Product Discussion

Riverbed's Crandall and Schirman also agreed that the company's move into other markets puts it in closer competition with other fast-growing, channel-savvy vendors such as F5 Networks, which dominates application delivery controllers.

"There definitely is an overlap," Crandall said. "We bought Zeus, and I think there were a lot of people asking, 'What is your intent and direction there?' But that whole market is big and the virtual piece of it is growing at a very fast rate."

"Our intent is not to move into the ADC space," added Schirman. "Our intent is to move into a virtualized performance type of portfolio with our own products, with an eye toward getting into cloud technology and offering more of an overall virtualization strategy vs. more big iron hardware."

As Riverbed looks at additional ways to leverage software within its product lines, its partners will be able to provide customers with programmable infrastructure that can cover any type of workload performance needs, Crandall said.

"That brings the conversation so far beyond a point product discussion and makes it a competitive business discussion," she said.

"I don't know if anyone else has caught up yet," said Xtium's Vogel. "It's not about selling hardware anymore. Riverbed kind of hits on that now, and they're coming up with a good product portfolio that solves the whole distance of the problem and fits it all together."