Resonate Readies IPO
Less than a week after Nortel Networks Corp. (NYSE/TSE: NT) paid a staggering $7.3 billion for load-balancing switch vendor Alteon Websystems Inc. and a month after Cisco Systems Inc. (Nasdaq: CSCO) paid $5.7 billion for ArrowPoint Communications Inc., Resonate Inc., a load-balancing software vendor, is preparing its public offering of stock (see Nortel Buys Alteon for Big Bucks and Cisco Finds A Soft Spot for ArrowPoint). Judging
from the large sums Nortel and Cisco were willing to pay for smart load-balancing technology,
Resonate could be headed for big bucks.
The initial public offering, which is tentatively set for the week of July 31, will sell 3 million shares. Pricing is predicted to be between $15 and $17 a share, according to Wit Capital Corp., one of the underwriters handling the IPO. The lead underwriter is Goldman Sachs (NYSE: GS).
With 25,779,365 shares outstanding, priced at $16 a share, the company could be worth somewhere in the neighborhood of $400 million. Revenues for the first half of 2000 were $8.3 million, but the net loss was $21.9, two and a half times its revenue, according to the compay's S-1 filing with the Securities and Exchange Commission.
Resonate's cornerstone product, Central Dispatch, is load-balancing software that helps ensure high levels of availability and performance for Web servers. Keeping traffic flowing smoothly onto servers is a large issue for e-commerce Web sites.
How does it work? The software sits on Web servers in a cluster. One server is designated as the lead server and when requests come into the server farm, the lead server balances the traffic among the servers so that no one server is overwhelmed with requests.
"Traffic management is complicated, and it doesn't matter if it's a switch or an appliance, they're all doing most of the sophisticated functions in software," says Peter Christy, director and senior analyst at Jupiter Communications Inc.
Judging from the customers listed in the S-1, Resonate must be doing something right. DoubleClick (Nasdaq: DCLK), Charles Schwab (NYSE: SCH), E*Trade (Nasdaq: EGRP), and eBay (Nasdaq: EBAY), all heavily trafficked Internet sites, are listed as among its 300 customers.
But where Resonate falls short with customers is when it comes down to price. Karyn Ulriksen, director of network operations for PublicHost, a Web hosting company, says that Resonate's licensing model, which charges per server, was one of the factors that kept her company from including the product in its tests.
"When we did the financial assessment for the licensing over how much it would cost to support the number of servers we needed with a switch," she says, "the Resonate solution was going to be more expensive."
Resonate realizes that price pressure is a factor, and it says that eventually load-balancing products will become commoditized. The company says it has introduced a number of new products. It has also launched a management service for enterprise customers who want to outsource the monitoring and management of their server farms.
Still, even with these new products, Central Dispatch remains the cornerstone of the company. In the first six months of 2000, it accounted for nearly 64 percent of the company's product revenue, according to the S-1. Resonate also states in the filing that it expects to continue to derive a significant portion of its product revenue over the next two years from the sale of Central Dispatch.
Competitors include Cisco, F5 Networks Inc. (FFIV), Foundry Networks Inc. (Nasdaq: FDRY) and Nortel along with several others.
-- Marguerite Reardon, senior editor, Light Reading, (http://www.lightreading.com)