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Palo Alto IPO could spell big trouble for Juniper and Cisco

Application-aware firewall vendor Palo Alto Networks has filed for an IPO that could signal big competitive trouble for Cisco and Juniper Networks.

Though Palo Alto has not yet turned a profit (the company reported a loss last year of $12.5 million), it more than doubled revenue to $119.6 million in 2011 from $48.8 million in 2010.

Many believe that growth came from customers that couldn’t find comparable features in Cisco and Juniper products and jumped ship. Blogger Brad Reese points out that while Palo Alto’s revenues soared +141% in the six months ending January 31, Cisco saw a revenue increase in the same time period of only +7.7%.

If Palo Alto’s gains have been direct losses for Cisco and Juniper, things only stand to get worse if Palo Alto goes public. After all, many large enterprises are hesitant to invest millions in a company that isn’t public and financially stable.

No one is going to spend $20 million on a product from a company that isn’t public,” said one engineer at a multinational consulting firm, who recently made an initial Palo Alto test investment. “When I went to do a first pass [on buying firewalls], it was a half million bucks. It’s a big commitment to change a firewall product. You’re signing on for a long-term relationship with subscription services in addition.”

Even more threatening to Cisco and Juniper is that this engineer – like others – have found Palo Alto technology superior to the competition.

When I told the the other vendor that I wanted IDS, antivirus and content inspection, they looked at me like I had three heads. When I said that to Palo Alto, they said, ‘of course you would do that, why wouldn’t you?’” he said. “If you look at performance statistsics on a box from another vendor, they tell you what the performance is on a per-service basis, but they don’t tell you what happens when you turn all services on. That’s not the case with Palo Alto.”

That’s likely because Palo Alto has created next-generation, application-aware firewalls from the jump — never having to adapt legacy technology to do new tricks. The company was founded in 2005 by Nir Zuk, who had been CTO at NetScreen before it was acquired by Juniper. As some tell it, Zuk went to the Juniper board with the message that firewalls had to become application-aware. Juniper eventually followed that advice, but not soon enough for Zuk, who founded a company based on the idea that next generation firewalls should offer application-level monitoring with transaction detail and constantly updated signatures. Since then, Gartner has dubbed next-generation firewalls as mainstream and Cisco recently announced the launch of an application-aware firewall. Juniper has also announced similar features. It remains to be seen whether the more established vendors can catch up.

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