Selling NetCache

I thought that our sale of the NetCache business last week might raise questions for people. How does an executive team go about selling part of their company? Why would they do this? What are the big issues?

We originally got into web caching during the Internet boom times of the late nineties. Back then, analysts projected that web caching would become a multi-billion dollar market. Also, we thought there were good technical synergies between web caching and storage. In both cases, you've got an appliance with lots of disks holding data that users access over the network. Finally, we believed that there would be a convergence between web caching and traditional storage. In the early dot-com days, people believed that everything would converge with the web.

Pretty much nothing turned out the way we expected. So much excess network capacity was installed at the end of the dot-com boom that caching to save bandwidth became less important. From a technology perspective, caching became more like network security than storage—preventing viruses from coming in, and preventing employees from looking at "inappropriate" sites. Web access protocols remained distinct from data access protocols. Instead of converging with storage, web caches were purchased and managed by the networking team, as part of the networking infrastructure. This made it hard for the sales force, which had to meet and sell to a whole new set of people who were not involved with storage at all. Finally, the caching market stayed relatively small—hundreds of millions rather than billions. None of these issues make web caching a bad business, but it never fit as well as we had hoped with NetApp's core business of storage and data management.

Exiting the business was tricky. Here are some of the key issues that we had to address:

1. How do we avoid hurting our customers?
   This was especially important because many of our NetCache customers were also big storage and data management customers. It's one thing to annoy customers in a market that you plan to abandon, but it's another thing to annoy customers that you hope to keep selling to.
2. How do we avoid damaging our Bangalore development site?
   NetCache was the first major project that we moved to India. We moved essentially all development and support for NetCache there. We were worried that selling or shutting down NetCache would tear the site apart, and force us to rebuild from scratch.
3. How do we avoid damaging our business model?
   How do we avoid hurting our revenue growth if we stop selling NetCache?

We are protecting our customers by arranging for Blue Coat to "acquire the assets of the NetCache business". As part of this deal, we "entered into a transition services agreement to continue product availability and support for NetCache customers."

Time solved the other two problems. Our Bangalore development site grew quickly, and added many new projects, but NetCache stayed about the same size, so at this point, NetCache is a relatively small portion of the overall site. Likewise, our overall revenue kept growing—now about triple what it was after the dot-com crash—but NetCache revenue did not. At this point, the NetCache revenue is a small enough portion of our overall revenue that the sale won't have a significant impact on our financials.

In summary, we've known for a while that NetCache wasn't as good of a fit with our core business as we had originally hoped, but there were lots of other issues we had to solve before we could get out of the business.