Riverbed vs. Aryaka or Riverbed vs. the Cloud

Riverbed has 2500 employees, generated $261M of revenue last quarter, is on a run-rate to surpass $1B in revenue in 2013, and yet only has a market cap of $2.79B (as of today). What gives? On top of that, Riverbed’s product portfolio is diverse with each line having a large addressable market share.

My guess – the cloud is having an impact on their business and their struggling to find a way to counter it. Riverbed is deeply embedded in the large enterprise space. However, that segment is now exhausted. New revenues must be found somewhere. No better option than to go downstream to the mid-market.

The mid-market is very different from the enterprise. Mid-market is extremely price sensitive. Plus, there are many cloud acceleration options that are cheaper, easier to deploy and offer better reporting on in-flight WAN traffic. The partnership between Riverbed and Akamai probably benefited Akamai more than Riverbed.

Here is an idea for Riverbed. Do something dramatically different. Invest $10M to $20M in a startup built for the sole purpose of countering Aryaka and other cloud competitors. Build a mini-Akamai. The startup would run independently, offer stock options to the staff, but also run on Riverbed software (not hardware). The new startup would be like a hybrid CDN similar to Aryaka. Feature-wise, it would either extend Riverbed hardware functionality into the cloud or it would offer its own services separately from Riverbed. Either way, Riverbed captures the spend.

The $10M to $20M would pay servers, POP’s at the major peering exchanges, routers, storage arrays, carrier bandwidth, caching software, engineers, marketing and sales staff. Hardware prices have dropped significantly – building a mini- hybrid CDN can be done for a few million. The worse-case scenario if it startup fails – Riverbed loses $10M to $20M. Not much for a billion dollar company. The best-case scenario, the startup goes public and their market cap is valued at 2x to 3x of Riverbeds.