In a move that will reverberate in the strategy think tanks of the other Big 5 Enterprise Systems and Network Management vendors (HP, IBM, BMC and latest entrant EMC) – CA announced the acquisition of privately held NetQoS. NetQoS’s technology provides CA the smarts to detect individual application level traffic, diagnostic and response data based on deep packet inpection (DPI) technology. It also provides a strong NetFlow reporting solution that will most likely replace the weaker capability that CA acquired as part of its Concord Communications acquistion in 2005. Similarly it will also beef up CA’s VoIP management offerings - along with the experienced development team that NetQoS had picked up enmasse from a NetIQ restructuring some years back.

Overall this is a strategic acquisition and the right move for CA. Enterprise customers today demand an application-centric network management approach – that ties infrastructure investments and decision making back to application performance. It’s no longer enough to know that the network is saturated or that a device is overloaded, without the context of understanding which individual applications, between which sites, between which users is responsible for that. Moreover, end user experience management based on response times for an application is a key metric to assure the delivery of enterprise class services. NetQoS’s technology provides that critical view into in-depth application usage and response times between sites complementing CA’s other capabilities and service management story.

In fact, CA has powerful capabilities based on its previous Wily and Concord / Aprisma acquisitions to monitor, report and diagnose application and infrastructure issues and speed time to resolution. Its NetQoS acquistion will provide operations staff with even more insight helping them quickly troubleshoot or eliminate the network as a root cause of application slowness. NetQoS’s relationship and technology integration with Cisco especially in the Wide Area Application Services (WAAS) area will also be beneficial to CA. Of course, Cisco has its own designs in the space and that could be a separate discussion in itself.

The one area that will be interesting to watch will be how CA uses the NetQoS acquisition to beef up its offering to Service Providers. Certainly NetQoS data would be useful in cloud management and automation as CA notes in its  Press Release. But NetQoS has primarily been an enterprise customer focused company and the scalability of its technology to handle service provider data volumes and applications (like IPTV) may not be optimal.  That said,  there is precedence in Service Provider focused management vendor InfoVista acquiring probe technology (via its Accellent acquisition) and shaping that to sell primarily into its established  CSP client base.

With all the strategic sense it makes for NetQoS however, it is surprising that the company agreed to a deal at $200M in cash. With phenomenal growth over the last 5 years and we believe much of that profitable, NetQoS definitely seemed to have more potential – including IPO aspirations in the future. Is this a case of the economy souring up the prospects for NetQoS that they agreed to a sale at close to 4X valuation based on revenue? Although the fact that they will operate as a separate entity reporting to Ajei Gopal, CA’s EVP for Products, for the time being, may mean that the executives and employees will have access to earnout based bonuses outside of CA’s corporate structure. And with $21 M in funding over three rounds their investors have something to toast about in an otherwise dreary exit environment.

More about the repercussions of this acquistion on the other large management vendors in a later post.

 - Ronnie