Enterasys Tries to Fill VPN Product Gap

Cabletron Systems Inc. spinoff Enterasys Networks now has something substantial to offer enterprise VPN customers, thanks to its purchase of startup Indus River Networks Inc. last week.

Enterasys and Indus River executives say the US$170 million stock deal will let the company add advanced site-to-site VPN capabilities to its line of enterprise LAN and WAN equipment.

"Indus River has been working for the last several years building up an extremely scalable [VPN] software solution along with world-class VPN products," says John Rose, Enterasys' chief technology officer. "We're acquiring this technology as a core to our business."

Enterasys has products with limited site-to-site VPN capabilities. Its SmartSwitch Router 600 and SSR 700 products have VPN features, but are based on older VPN technology acquired when Cabletron bought Digital Equipment's network business, Rose says.

"They have good, basic site-to-site VPN technology," Rose says of the current Enterasys VPN-enabled products, "but the technology is about 5 or 6 years old."

Enterasys will work with customers to determine if an upgrade to Indus River-based products is necessary.

Founded in 1996, Indus River received praise for its RiverWorks line of VPN hardware and software. In addition to its technology, the Acton, Mass., start-up brings marketing and technology relationships with WorldCom, UUNET and GRIC, an IP telephony service provider, all of which have boosted the company's reputation in the VPN industry.

Although Indus River has been successful on its own, co-founder and CEO Per Suneby says his company's technology will reach more users as a result of the Enterasys deal.

"Competing in the enterprise networking business is hard for a small start-up like [Indus River]," Suneby says, adding that the customer base and sales channels Enterasys has will be key in boosting Indus River's products. "It was time for us to scale up . . . and Enterasys gives us that scale."

Enterasys will start shipping Indus River VPN products immediately under its own brand name, and plans to introduce new products based on the acquired technology in the next quarter. Enterasys gear with integrated Indus River technology will ship by the beginning of next year, and will include the entire product line of Enterasys' SmartSwitch LAN switches, SSRs and RoamAbout wireless LAN access points.

The Indus River acquisition is the first major business move Enterasys has made since being broken off from Cabletron in February. Cabletron acts as a holding company for Enterasys and provided the stock used to make the Indus River deal, which is expected to close in October. Enterasys is planning a November IPO.

The worldwide market for VPN equipment and software will more than triple from $1.2 billion this year to $3.7 billion in 2004, according to Infonetics Research in San Jose. In a recent Infonetics survey of 225 users planning to deploy VPN technology, 97 percent said they will implement a site-to-site VPN by 2002.

With the VPN boom already under way, however, some analysts see Enterasys as still being a step behind its competitors.

"This deal gives [Enterasys] a product in a space where they really needed it," says Joel Conover, senior analyst with Current Analysis. However, "they're definitely getting into the [VPN] game a little late," he adds, and the deal is "somewhat of a reflexive move to protect existing customers from going with competitors' VPN equipment."

To make a difference in the VPN market, Enterasys must make itself more visible as a maker of VPN concentrator equipment, Conover says. The company must also prove it can efficiently integrate Indus River VPN software with its network equipment lines, he says.

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