F5 Networks, the runaway leader in Application Delivery Controllers (ADC), this morning announced it was acquiring Israeli based Traffix Systems, maker of Diameter signaling products. F5 dipped into its war chest of cash and paid a handsome but not exorbitant figure of $130 million for Traffix.
F5, known more as an enterprise solution provider, has been working to strengthen its telecom position over the past couple of years. Based on conversations with F5 and telcos, I know F5 has been searching for what else it could do in the telco space other than provide high performance ADCs. There have been many rumored areas that F5 would move into including deep packet inspection (DPI), hence the rumors of F5 buying Allot or Procera, video optimizations and even Session Border Controllers (SBC).
In my opinion, this is a great move for F5 for more than just the math puns you can make from the purchase. As hot as the SBC space is, the barrier to entry is just too high for many would-be players. Acme Packet is the F5 of that market, and any acquisition of an SBC vendor would result in F5 having an inferior product to a dominant market leader in an already hot market. The result would be F5 having to pay a huge premium to acquire a vendor that was in Acme’s rear view mirror. The DPI space is interesting as well, but the market is already in its growth phase, so, although F5 could have acquired DPI market leader Allot, the price tag would have been very high, maybe too high.
Diameter on the other hand, is small right now but has huge potential. Diameter is the agreed upon standard for the signaling protocol for 4G environments. 4G service providers use Diameter as a way of understanding who users are, if they are permitted to roam, should they be authorized to run on a specific networks, etc. In fact, any time a user does anything on a 4G network there is an exchange of Diameter information.
The main functions that Traffix provides to support Diameter are:
Diameter Gateways provide interoperability between Diameter-enabled IMS or LTE equipment with legacy infrastructure that use protocols such as RADIUS, HTTP, COBRA, LDAP, etc. You can think of the Diameter gateways as being the "Rosetta Stone" of telecom environments allowing telcos to bridge hieroglyphics (3G / Legacy) with more current protocols such as demotic and Greek (IMS/LTE).
Diameter load balancers provide telcos the infrastructure to scale Diameter-enabled network infrastructure. Load balancers also provide high availability and guarantee service assurance. Load balancing is, of course, where F5 cut its teeth in the telco space and is what the company does best. In fact, F5 does this better than anyone today. This is the most natural attack vector for F5 to penetrate the Diameter market and something they should be able to dominate.
Diameter routers "route" Diameter traffic (I know that seems obvious) between various networks or network segments. This minimizes the amount of custom configuration needed to have two Diameter enabled networks together. This plays a similar role with Diameter information as the session border controller does with sessions. This would make it a more natural market for someone like Acme Packet who should be able to leverage its natural strength to gain entry into this market.
Diameter products like the ones in the Traffix portfolio are important today to support the 4G islands we have now and will become critical as 4G expands and roaming agreements need to be established. Additionally, Diameter is key to the telcos being able to establish scalable voice over LTE (VoLTE) services. For someone like Verizon, who can’t do simultaneous voice and data on its 3G network nor can it really participate in international roaming, VoLTE is the key to establishing a competitive edge. Whatever the entry point, I fully expect the demand for Diameter products to escalate rapidly over the next few years. Demand will be light over the next 12 months or so but come 2013 we should see this market become a "rising" tide that benefits the companies with some experience in this space, and F5 should definitely benefit from this.
F5's acquisition history is checkered to say the least, with some successes and some misses but this one appears to be one of the better ones. The market opportunity is certainly there and Traffix is one of the oldest, more established vendors in the space. So the market opportunity is there and F5 now has the product and a couple of natural entry points. Given its history of strong execution, this might be its best acquisition since Magnifier.
This acquisition also has some interesting competitive dynamics between Acme Packet and F5, who are partners today, and I'm sure will stay that way for the near term, but will compete in this space. They both execute well so it should be fun to watch as the market heats up.
