F5 Networks: The Next Billion Dollar Tech Company?

As applications converge with networking, most pundits are focused on the looming showdown between Cisco Systems (CSCO) and Microsoft (MSFT). But there are plenty of subplots worth following in the networked applications industry. One of them involves Microsoft veteran Steve Hale, who is quietly working to build the networking industry’s next $1 billion company.

Hale joined F5 Networks (FFIV) as VP of channel sales in July. In short, that means he oversees all of the technology consultants, integrators and technology partners that recommend and sell F5's products in North America.

Instead of selling hardware boxes, F5 specializes in application-centric networking. “This isn’t just a hardware story,” said Hale, during a meeting with me in Manhattan last week. “There’s a very strong software and development platform story here.”

No, F5 isn’t in the application business. Rather, the networking company focuses on making third-party applications — Microsoft Exchange Server, SharePoint, unified communications, etc. — perform better over a network.

That messaging is connecting with customers. For its fiscal year 2007, revenue rose 33 percent to $525.7 million. Backed by a growing partner ecosystem, Hale hopes to play a key role in building F5 into a $1 billion company (annual revenues) over the next few years.

But will the economy cooperate? Jefferies & Co. last week downgraded F5 shares to “hold” from “buy” based on concerns over the economy. In particular, the firm said F5’s heavy reliance on North American sales and financial services customers could be a drag on earnings.

Instead of reading economic reports from his desk, Hale is maintaining close contact with partners int he field. A few days after landing at F5 this past summer, he hosted the company's annual partner conference. Then, he made some subtle changes within his organization — deemphasizing “channel sales” and promoting the term “partner.” His updated title (now VP, North America Partner Organization) now reflects those changes.

How will Hale engage partners over the next few months? F5 is “betting the business on partner capacity,” he said. “Training is the lifeblood of any partner ecosystem, so you’ll see us double down on training.” After all, the more people you have trained to sell and support your products, the more evangelists you have out in front of customers. F5 announced a first step toward that training initiative in October 2007.

More recently, F5 has expanded its product portfolio to enhance the performance of Microsoft Office Communications Server, Oracle and SAP applications.

Don’t Forget Virtualization

Next up, Hale plans to help F5 partners push deeper into the virtualization market. Toward that end, F5 acquired Acopia Networks in August 2007. More details about the virtualization effort will surely surface at F5’s annual partner conference, scheduled for July 28-30 in New Orleans.

Last year’s event attracted roughly 300 partners. This year, Hale hopes to push that number closer to 400. Rather than pitch products endlessly at the event, Hale hopes to put partners center stage at the event — allowing them to share best practices and case studies with each other.

Dealing with Cisco

With its focus on application performance, F5 Networks has a compelling story to share with partners and customers. After all, even Cisco CEO John Chambers spends much of his time evangelizing networks as the platform for next-generation applications. But that’s both a blessing and a burden: The unified communications shouting match between Cisco and Microsoft threatens to drown out other voices in the networking industry.

Still, Hale has faced some of these challenges before. While at Microsoft, he had to help the software giant make the challenging leap from desktop applications into server environments. Despite entrenched competition from Oracle and other big software companies, Hale ultimately helped Microsoft build enterprise-class relationships with Accenture, Electronic Data Systems [EDS] and other influential systems integrators.

Now, Hale is hoping to deliver an encore at F5 networks. Partners appear willing to cooperate. The bigger question is whether the economy will cooperate.

Disclosure: none

Comments

[Ed Hume]

I never knew there was a "looming showdown between Cisco Systems (CSCO) and Microsoft (MSFT)"

When did MSFT get into the router business?