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Company Perspectives:
Based in Foster City, California, Inktomi develops and markets network infrastructure software essential for global enterprises and service providers. Inktomi's business is divided into Network Products, comprised of industry leading solutions for network caching, content distribution, media broadcasting, and wireless technologies; and Search Solutions, which include general Web search and related services, and enterprise search. Inktomi's customer and strategic partner base includes companies such as America Online, AT&T, Compaq, Dell, Hewlett-Packard Company, Intel, Merrill Lynch, Microsoft, Nokia, Sun Microsystems and Yahoo!
Inktomi Corporation may not be known to as many Internet users as the popular search engine portals Yahoo! or Google, but its search engine technology powers the search functions at more than 50 widely used Internet portals. From its founding in 1996, the company adopted a strategy of focusing on technology and becoming a leading supplier of Internet infrastructure technology.
Company Origins
Inktomi was founded in February 1996 in Berkeley, California, by Eric Brewer, a professor at the University of California at Berkeley, and Paul Gauthier, one of his graduate students. The two were involved in a government-funded research project involving parallel computing, which joined PCs and workstations together to make them function like a supercomputer. Dave Peterschmidt, a former senior executive at Sybase, Inc., was hired as CEO to run the new company, which was named for a mythical Plains Indian spider known for cunning rather than brute force. Brewer remained Inktomi's chief scientist, and Gauthier was its chief technology officer. In 1997 the company moved to San Mateo, and then later established its corporate headquarters in Foster City.
When Inktomi and HotWired introduced HotBot in 1996, a new search engine for the World Wide Web, it was the only search engine that could search all 50 million pages on the Web. Hotbot was the first application that used Inktomi's Audience 1 software, which could customize web pages and advertisements according to the searcher's type of browser. Hotbot ran on Sun Microsystems' SPARC workstations and was a joint venture of HotWired, a subsidiary of Wired Magazine publisher Wired Ventures, and Inktomi, which developed the search technology at the University of California at Berkeley.
In 1997 Inktomi began beta testing its traffic servers, which intelligently managed network data flow and aimed to eliminate bottlenecks and redundant traffic on the Internet and corporate intranets. The traffic servers were based on network caching technology that created a local repository of requested information by moving it closer to the user and allowing multiple users to access data more quickly than by utilizing the Internet's national backbone. The traffic servers also reduced the amount of traffic over the Internet or corporate intranets, thus freeing up bandwidth. The traffic servers included network caching software that was developed at the University of California at Berkeley and ran on Sun Microsystems workstations, which could scale up to accommodate traffic growth. Key markets for the traffic servers, which were released later in 1997, included Internet service providers (ISPs), network backbone providers, and business enterprises. Inktomi's traffic servers were introduced at a time when the amount of overall redundant traffic over the Internet was estimated at 40 to 80 percent. Other companies introducing network caching products in 1997 in competition with Inktomi included Novell and Cisco Systems.
Toward the end of 1997 Microsoft entered into an agreement with Inktomi to use Inktomi's traffic server and search engine technology in the Microsoft Network (MSN) in 1998. Inktomi's Traffic Server would provide MSN users with access to some 75 million Internet sites. The Traffic Server also would reduce traffic congestion on MSN through extensive caching.
Enhanced Traffic Server and IPO: 1998
By 1998 Inktomi was beginning to diversify its customer base, and the company made plans to go public. For fiscal 1997 ending September 30, Inktomi reported a loss of $8.7 million on revenue of $5.8 million. Wired Digital accounted for approximately 79 percent of Inktomi's total revenue in 1997, with NTT accounting for another 13 percent.
During the first six months of fiscal 1998, Inktomi gained more customers: Wired Digital now accounted for 59 percent of the company's revenue, NTT accounted for 6 percent, and Microsoft accounted for 20 percent. The company gained $14 million in private financing through equity investments from Intel and venture capital firm Oak Investment Partners. In addition, America Online and Digex Inc. became licensees of Inktomi's Traffic Server caching software and would begin using it in their networks in the second half of 1998. The company also entered into technology partnerships with Digital Equipment Corporation (DEC) to port its Traffic Server to DEC's Unix and with Intel to port the software to Windows NT. Initially, Inktomi Traffic Server only ran on the Sun Solaris operating system. By the end of 1998 Inktomi was the leading caching provider with a one-third market share, according to the Internet Research Group.
In May 1998 Inktomi's search engine technology became the preferred search engine at Yahoo!. Inktomi's search engine was able to index 110 million web pages, about half of the web's estimated total. The index was being updated at the rate of about ten million pages per day. By running on Sun Microsystems workstations, Inktomi could scale up its search engine service simply by adding more workstations.
Inktomi's June 1998 initial public offering turned out to be the hottest IPO of the year. The company raised an estimated $36 million on the sale of two million shares. Although the initial offering price was $18, shares opened on the NASDAQ at $30 and closed the day at $36. By July Inktomi's stock was trading at around $90 a share, and it rose to $130 a share in November 1998.
HotBot version 5.0, released in mid-1998, marked a shift from Unix to Windows NT. The new version, which featured a new interface as well as a change in server infrastructure, was designed to increase usability and offer new features. The shift from Unix to Windows gave more control of the interface to the HotBot staff and made HotBot more compatible with Inktomi's next generation of search engine technology. Around this time Inktomi gained @Home Network, a cable modem service provider, as a customer for its search and cache technology. The company also released Traffic Server 2.0 later in the year; among the new features were a streaming media cache, substantial performance improvements, and support for web hosting and a wider range of protocols.
Development of a Shopping Search Engine: 1999
Inktomi began its move into e-commerce software solutions with the acquisition of C2B Technologies in September 1998 for about $90 million in stock. The acquisition would help Inktomi develop shopping search capabilities for customers such as Yahoo!. Rather than developing its own shopping search technology, Inktomi acquired the search technology already developed by C2B Technologies. C2B's shopping agent included a basic product locator that covered 170 merchants in 12 categories, or 460,000 products in all. Merchants covered by the shopping agent included online retailers as well as auction sites, online classified ads, and local merchants. Another part of the C2B engine included product descriptions and ratings from third-party content providers such as Consumer's Digest. The third part of the shopping engine was a shopping assistant, which asked lifestyle questions and helped customers identify their needs. Internet portals such as Snap, the Go Network, and Time Inc. New Media signed up to use the Inktomi shopping engine before it debuted in the spring of 1999, when it had grown to cover 350 merchants.
Inktomi expanded its e-commerce capabilities with the acquisition of ImpulseBuy.Net for $110 million in stock in April 1999. ImpulseBuy provided a database and other tools for merchants to enter their data, additional features that Inktomi could offer to merchants it wanted to sign up to participate in its shopping engine. At the end of 1999 Inktomi announced that its shopping engine would be made available to European Internet portals.
In addition to developing its shopping engine service in 1999, Inktomi upgraded its traffic server and released version 3.0 in mid-1999. The new version added support for two operating systems, Windows NT and Free BSD, in addition to Sun Solaris, Digital Unix, and SGI Irix. Perhaps the most important aspect of Traffic Server 3.0 was a new set of application programming interfaces (APIs) that allowed third-party providers to add value-added services, such as content filtering and automatic reformatting for cell phones and TV set-top boxes. These new APIs were designed to allow the addition of a range of network services and keep up with new developments in network caching technology. With the release of Traffic Server 3.0, Inktomi announced six new Traffic Server partners that would offer a range of new services.
In August 1999 Inktomi raised $300 million through a secondary stock offering. In the next month Inktomi acquired WebSpective Software for $106 million. WebSpective produced content-replication and distribution software, which made it easier to offload and back up data from a web server. It gave enterprise customers more ways to ensure that their sites were available and performing well. WebSpective's technology also helped web-hosting providers and Internet service providers (ISPs) deliver more reliable services. Later in the year Inktomi released two caching software products for corporate IT managers, Traffic Server E5000 for headquarters and Traffic Server E200 for branch offices. These traffic servers enabled IT managers to put content on the edge of their corporate networks, so users could go directly to the data source without taxing the entire network and server infrastructure. The new content-delivery products marked a move into the enterprise market for Inktomi.
Toward the end of 1999 America Online announced that it would drop Excite and replace it with Inktomi's database for its search engine. The company also regained Microsoft as a client for its search engine service; Microsoft had announced earlier in the year that it would switch to Alta Vista to power its MSN search engines, but during the year Alta Vista changed its strategic focus, causing Microsoft to return to Inktomi's technology.
Growth and First Profitable Quarter in 2000
Inktomi reported its first profitable quarter in April 2000 for the quarter ending March 31, 2000. It posted a profit of $1 million on revenue of $47.3 million, compared with revenue of $15.2 million and a loss of $7.4 million for the same quarter in 1999. The company's quarterly profit was equal to about one cent per share.
In the first half of the year Inktomi forged several alliances to signal its entrance into the wireless Internet infrastructure provider market, including deals with AirFlash, Cap Gemini, Portal Software, Hewlett-Packard, Sun Microsystems, Spyglass, and GWcom. Through these alliances Inktomi was able to offer wireless operators a complete platform solution. The company subsequently signed a deal with wireless handset manufacturer Nokia Networks to deliver infrastructure software to wireless network operators.
Later in the year Inktomi signed partnership agreements that would make its content caching and search technology available through a variety of other technology providers. Through an agreement with advertising network DoubleClick, Inktomi was able to offer its portal customers a search service targeting banner ads based on keyword searches. An agreement with Genuity Inc., an Internet infrastructure services company, called for Genuity to develop a content distribution network using Inktomi's traffic server and content delivery suite.
In June 2000 Inktomi boosted its search capabilities with the $344.7 million acquisition of Ultraseek, a subsidiary of Go.com. Ultraseek offered a scalable and customizable search solution for corporate Internet and intranet sites. The acquisition provided Inktomi with an established customer base in the enterprise market as well as additional product and service offerings. Around this time Inktomi was replaced by Google as the search engine powering the Yahoo! Internet portal. In other search engine developments, Inktomi announced that it had created a 500-million-record database called GEN3, which would be made available to its portal customers.
Inktomi's participation in content delivery took another step forward in August 2000 with the formation of Content Bridge, an alliance that initially included Inktomi, America Online, and Adero. Content Bridge was formed as a content distribution network, where producers and hosters of information and e-commerce functions would pay to have their content pushed to the caching servers of large Internet hosting, content delivery, and access providers. Inktomi would supply core network infrastructure technology; Adero would provide operational services, including centralized billing and settlement services; and America Online would deploy Content Bridge technology in its network. Among the first to join the network were Digital Island (content provider), Exodus Communications (hosting services), Genuity (hosting services), Mirror Image Internet (content provider), Madge.web (hosting services), and NetRail (access provider). Following a period of beta testing, the Content Bridge alliance began limited operations in January 2001. Operating partner Adero Inc. backed out at the last minute and sold its interest in the alliance to Inktomi for $23.5 million.
In September 2000 Inktomi announced its largest acquisition to date when it acquired FastForward Networks, a San Francisco-based software developer for Internet broadcasts, for $1.3 billion in stock. FastForward's software platform could support millions of viewers and thousands of simultaneous Internet broadcasts. Its software also could profile online audiences for broadcasters. Following the acquisition, FastForward dropped its name and became Inktomi's media division, with FastForward's cofounder, President, and CEO Abhay Parekh as its head. In 2001 Inktomi's media division offered the Media Distribution Network, a product suite that handled the distribution of streaming media around a network. It complemented Inktomi's Content Delivery Suite, which managed the distribution of static content.
Economic Slowdown Affecting Expansion, Capitalization in 2001
At the beginning of 2001 Inktomi announced its Inktomi Search Everywhere solution, which facilitated searches across previously isolated intranet, extranet, web site, and web search applications. The new search outsourcing solution integrated Inktomi's web, custom, site, and enterprise search products. Later in the year Inktomi announced that it would overhaul its search engine software using enterprise-level XML (Extensible Markup Language). The company also enhanced its web search service to provide more comprehensive search results, including relevance, classification, and ranking capabilities. It added distributed crawling architecture that scanned the Web more frequently, and offered content blending, which combined query results from separate databases.
In other search engine developments Inktomi introduced a pay-for-placement program in May 2001 called Index Connect. Under the program, participants could submit meta information about multimedia and other files, which would enable previously unavailable material such as video clips, audio files, and PDF documents to appear in search results.
Inktomi introduced Traffic Server 4.0 in February 2001. The new version extended the Traffic Server Platform to the Linux operating system for the first time. The new version also featured extra processing power and significantly faster performance.
After draining the company's resources for two years, Inktomi sold its e-commerce division to e-centives, an online direct marketing firm based in Bethesda, Maryland. The division included Inktomi's shopping search engine technology and its customer base.
Inktomi expanded its content distribution services with the acquisition of streaming-media vendor eScene Networks in July 2001. Inktomi's first product from the acquisition was called Inktomi Media Publisher, which allowed businesses to catalog, index, and publish corporate multimedia content.
Like other companies facing a challenging business environment in 2001, Inktomi cut back its workforce and saw its stock plunge to new lows during the year. For fiscal 2001 ending September 30, Inktomi reported a net loss of $296.5 million on revenue of $198.6 million. Much of the firm's net loss was due to one-time charges and amortization. By comparison, the company's pro forma loss for the year was $191.5 million, which excluded results of operations from Inktomi's divested e-commerce division, noncash employee stock compensation, amortization of goodwill and certain one-time charges, the write-down of certain investments, and restructuring costs. The company ended the year with $213.5 million in cash and short-term investments. For the future, CEO David Peterschmidt expected the company to return to profitability in 2002.
Principal Competitors: Akamai Technologies Inc.; AltaVista Company; CacheFlow Inc.; Cisco Systems, Inc.; Google Inc.; Novell Inc.
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