Consolidation in the Wide Area Optimization and Services Market

Delivering applications to remote and branch offices over a wide area network is slow, expensive and complex. The Enterprise Strategy Group (ESG) estimates that as much as 75% of the data on a corporate network resides outside the corporate data center, where it is often unprotected and where IT staff is in short supply.

Vendors in the networking, storage, systems and software markets have all realized that fixing the remote IT problem is a huge opportunity.   Regardless of the name of the technology (WAFS, WAAS, WADS, WAN acceleration, WAN optimization,..), the stakes are high and the market is hot - more than $1B in revenue, double digit growth and close to $1B in M&A activity over the last two years:  Cisco acquired Actona ($82M ) and FineGround ($78M), Juniper acquired Perabit ($337M) and Redline($132M), Citrix acquired Netscaler ($300M) and Brocade made a strategic investment in Tacit($7.5M).  Systems, software, storage and networking companies including HP, IBM, Microsoft and Network Appliance have aligned with startups and are bringing products to market.  Remote backup is an adjacent market that is also red hot.  Companies providing accelerated and centralized backup and recovery for remote users include Asigra, Avamar, Signiant and FilesX.

There is a long list of startups that have not yet been acquired in this category - and a similarly long list of potential acquirers. Like a game of musical chairs, the list of potential acquirers is longer than the list of companies that can be acquired.  I’m not sure who’s going to be left standing, but it seems clear that bidding wars are likely in 2006.  My picks for the most likely to be bought in the near future are Tacit, Riverbed and Packateer.