Stock Talk TMF Interview With CacheFlow, Inc.
President and CEO Brian NeSmith

With Brian Graney (TMF Panic)
July 06, 2000

Based in Sunnyvale, California, CacheFlow Inc. (Nasdaq: CFLO) provides online content acceleration and management appliances and systems. We talked with President and CEO Brian NeSmith shortly after the company announced an expanded strategic alliance with Akamai Technologies (Nasdaq: AKAM) and asked him about CacheFlow's position within the caching industry and its growth prospects.

TMF: Building off last week's press release about your expanded relationship with Akamai, in many ways it would be easy for investors new to CacheFlow to view a company like Akamai as a potential competitor rather than a business partner. Yet, you believe that the two companies' technologies are complementary. Can you maybe expand on that?

NeSmith: Sure. A real short version is that Akamai is a service company, so they sell services to people wanting to host content and they provide acceleration and scalability that permits that capability. What we do, in the context of Akamai, is actually sit right in front of the website, sitting between the source servers and the Akamai network, and do a couple of things. We customize the content so it moves into the Akamai network in an easier and simpler manner, in a way that's more managed on the Akamai network. What we also do is provide a big improvement in the overall scalability of the website. So, to some extent, you could argue that the two are somewhat competitive. But, in actual practice, we find it to be much more complementary.

There's no argument that Akamai provides caching functionality for a specific set of content, but CacheFlow sells solutions. For an enterprise customer, they want to go to the entire Internet. And, Akamai's not accelerating the entire Internet; they're only accelerating the specific content that their customers are paying for. So, time and again, we generally look to be complementary as opposed to competitive. I think this announcement, that Akamai is going to be selling our products to front-end their network, is a very good example of where we're complementary.

The content management space in the Internet infrastructure market is still a small market looking to grow to be very big. So there's a lot of opportunity.
TMF: Do you think there are any other misperceptions about your company or the caching business in general that investors aren't quite getting yet?

NeSmith: The market's still very new, so I think most of it is more a general lack of understanding of how the different pieces fit together. You have software solutions, you have caching appliances, and you have people selling software solutions wrapped up with caching appliances. So, there is some confusion.

We do find a number of our competitors calling their product an "appliance" because they know the buying market and customers want to buy appliances because they like the idea of simplicity and performance that an appliance brings. But, there are a lot of misnamed products that are really software solutions running on PC hardware with a graphical user interface wrapped around it -- and they're calling them appliances. There's a lot of confusion around that. I think there's some confusion about service-oriented companies versus product-oriented companies. We, in general, look at a company like Akamai or another company selling services as a potential customer more than being a competitor.

TMF: Why should investors be more interested in caching rather than other opportunities in infrastructure networking, such as routing or switching?

NeSmith: Looking across the broad Internet infrastructure space, I think the investment opportunity looks good, in general, for just about any company with a good product in any part of the Internet infrastructure space.

Why would you choose content management solutions in the context of the Internet infrastructure market? One reason is that I think it's a very small market today. It's looking to grow to be very large in the future, so there's lots of upside opportunity for someone wanting to invest in a market that is going to grow very fast.

That being said, it's really hard for me to make a call -- the routing/switching market, or the content management market, or the fibre optic transmission market -- as far as which will grow faster. They all will grow relatively fast. But, clearly, the content management space in the Internet infrastructure market is still a small market looking to grow to be very big. So, there's a lot of opportunity in that regard.

TMF: As the market grows, do you think that caching is large enough to stand on its own, or do you think caching software and hardware will eventually be consolidated into more multipurpose networking equipment?

NeSmith: CacheFlow's perspective is that the market is very rich. The caching end by itself probably has a little bit of a narrow definition. But, managing content between the servers and the browsers, as a broader definition, is a very rich market. There's lots of possibility. CacheFlow plans to remain focused in that space and, with that focus, really take a dominant position in the overall network content management space. Caching is a technology within that space, but we do view it as rife with opportunity and lots of room for expansion and growth. And, for the foreseeable future -- the next couple of years -- we see ourselves focusing on that space and planning to remain so.

TMF: What about the enterprise and service provider spaces? What are some of the challenges of serving both of those spaces at the same time? Is one market more attractive than the other?

NeSmith: We find those markets equally attractive. Sometimes the channels you need -- to build and work to service those segments -- tend to be different. We find, in the large service providers, that a direct channel is required. In the smaller service providers and the smaller enterprises, we would normally want an indirect channel to get greater coverage.

There are also some technology differences. The motivations for a service provider versus an enterprise to deploy our technology sometimes differ. A good example -- an enterprise typically deploys caching appliances partly for acceleration and better response time and more scalability, but it's also as much about control. They may want to control what their users can see. They may want to put filtering in to block particular sites. You don't see that control requirement nearly as dominant in the service provider segment, so there's the difference.

We still see a lot of overlap. Therefore, we get a lot of leverage by selling to both sides -- both ISPs and enterprises. We also understand that although a lot of the requirements in one space are higher priority than in another space, in time those requirements move back and forth across the different spaces. So, we do see some synergy and feel we get a lot of strength by delivering features in one area that ultimately will become applicable to the other side of the industry.

TMF: What are your customers asking for today from their equipment? Where are their biggest needs?

NeSmith: In the very short term, customers mainly are looking for products that work. There are a lot of very immature products on the market, and there are a lot of issues associated with making those products work effectively. So, that tends to be the biggest driver -- will your product go in, will it plug into my directory structure, into my authentication structure, and just work. That may seem like a trivial statement, but it's not. A lot of our competitors' products have lots of issues to get through.

Beyond that, we're starting to see an increasing demand for streaming [media] support. Supporting Microsoft, Real, and Apple QuickTime streaming is becoming a bigger deal. There, customers are looking for more management and more billing and reporting capabilities, especially in the service provider context.

There's a hurdle for any new entry into the market. We're through that hurdle.

TMF: Is it really that simple? The firms that can get products that work out the door faster are going to be the eventual long-term winners in the caching sector?

NeSmith: I think that is the dominant factor in the near term. At the surface, the idea that you can store content locally versus having to go across the network to get it looks simple. But, in practice, the browser and the server expect to talk to each other directly. When you insert a caching device between them, there's lots of room for misinterpretation about how those devices are going to work.

Two years ago, CacheFlow would go into a network and, probably in half of those customer installations, we had to fix our product or modify our product to make it work effectively. We've reduced that to where now there are probably only 5-10% of those situations -- where we find things don't work the way someone expects them. Any new company moving into this market is going find itself going through these same issues, because they don't want to divide these protocols with a device sitting between the browser and the server.

There's a hurdle for any new entry into the market. They have to go through the initial pain of figuring out how their product breaks existing networks. CacheFlow's already gone through that pain. We're through that hurdle. Any new entry into the market is going to have to live through that, and that takes several years.

TMF: Your products are all about making better use of the Internet. What are some of the key ways that you use the Internet in running the day-to-day operations of your business?

NeSmith: At CacheFlow, we have two dimensions. One is we use our website and post all sorts of information about how to use our products -- how people should train on it, how to get company information, how to get support, how to get services. Just about every aspect of our company is available through the Internet.

We're also investing very heavily in an extranet capability for our distributors, buyers, and customers to get support, and to order products and get updates on the products through the Web. So, we use it both from an internal and an external standpoint to allow both our customers and our employees to get better information, better access, and more timely access.

TMF: Here's a question I've always had about Internet infrastructure. Let's say you're an outside investor looking at this sector. If you had an infrastructure company with great technology and average management, and a firm with average technology and great management, which would you prefer as an investor?

NeSmith: That's always a good question. I think it depends on the timeframe you're looking to invest. If your timeframe is very immediate, the technology tends to outweigh the management issue. But, if you're going out to a year, a year-and-a-half timeframe, I think better management tends to deliver superior technology. So, superior management wins in the longer term.

TMF: Personally, how do you think investors can successfully identify superior management?

NeSmith: I think you look for a couple of things. Obviously, generally you look for consistency -- that people meet or exceed expectations. I think you look for how the customers respond to the product. Do you see increasing momentum? A lot of it is just very much the fundamentals -- are they managing the aspects of their business, are they building support, are they managing their DSOs, are they managing their inventory turns?

It's those sorts of things. I think lots of surprises there tend to be negative factors. A big part of it, too, is obviously just getting a read on the senior executives, and their positioning, and how they're putting the company up to the general market. So it's those things. I don't think it's anything more complicated than that.

TMF: Thank you very much for taking the time to talk to us.

NeSmith: Thank you.

Related Links:

  • Press Release: Akamai and CacheFlow Strengthen Strategic Alliance
  • CacheFlow website
  • CacheFlow discussion board