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Riverstone makes an entry into IP VPN market

Riverstone makes an entry into IP VPN market

Riverstone has stepped up efforts in the nascent IP virtual private networking (VPN) market with the integration of advanced multiprotocol label switching (MPLS) software on a box that combines Layer 2 and 3 capabilities along with ATM support.

A recent financial warning means that the VPN market will move from the realm of strategic importance for Riverstone to a potentially significant source of its revenues.

The reason for the more than 30% shortfall in projected revenues, Riverstone explained, is the obvious: carriers aren't buying enough of its equipment. Wall Street's favor has been contingent on Riverstone inking deals with incumbent carriers, and while it seems that the company has not ceded its technology lead over Cisco, the deals appear to be even more distant than before.


The interest in IP VPNs stems from the steady revenues carriers already get from frame relay and ATM VPN services. IP VPNs are, theoretically, cheaper and easier to manage than legacy network VPNs. MPLS is one element in making the management easier. MPLS creates 'tunnels' across networks using what are known as 'label switched paths.' MPLS is a software overlay, commonly defined as Layer 2.5, that creates labels at the head of packets that network elements can read and pass on.

The other driver for the flurry of activity around VPNs is that service providers with IP backbones are in desperate need of services that will wring more revenues out of their infrastructure. Carriers that have installed IP networks are still struggling to make money from them. The cost of simple transport services hasn't fallen fast enough to compensate for the decline in revenues created by excess capacity. Since the market demand for VPNs is clear, and IP equipment can deliver the service at a lower cost as well as simplify management, pretty much every networking equipment maker is looking for a piece of the pie. Cisco has led the market for enterprise IP VPNs with its 7100 routers, and has integrated the MPLS software into its 12000 series, but Layer 2 VPNs built on top of frame relay and ATM legacy networks account for the majority of VPN deployments.


Riverstone's Layer 3 VPN capabilities stem from the inclusion of MPLS RFC 2547bis and its Layer 2 point-to-multipoint tunneling capability from what is known as the Lasserre-vkompella draft. Riverstone is a newcomer to the IP VPN market, since Juniper and Cisco have long offered the software in their routers, but it is the first to incorporate the Lasserre draft. That's probably because Marc Lasserre, for whom the version is named, is an engineer at Riverstone. VPNs set up using the software are also known as BGP/MPLS VPNs because border gateway protocol is used to distribute VPN routing information across a provider's backbone and MPLS is used to forward VPN traffic from one site to another.

Another capability that Riverstone has added to make its mark in VPNs, notes VP of corporate marketing and development Andrew Feldman, is ATM tunneling, which allows service providers to map virtual LANs onto MPLS tunnels. That's an important addition, since it expands Riverstone's addressable market to carriers with existing ATM or frame relay services that don't want to invest in IP infrastructure right now.


Riverstone claims it now has the capabilities in place for VPNs across any network. It is the first company to have hardware-based Lasserre capabilities and standards-based ATM tunneling. Cisco, Juniper and Unisphere haven't yet incorporated that capability, but the question is, how many service providers are looking for the array of features Riverstone has built into its box? Other rivals such as Nortel, using its Shasta IP services node as an entry point, and RedBack, have ambitions for the VPN market. Because Cisco has to sell a switch and a router to deliver the same functionality as a single Riverstone box, Riverstone believes it has enough wiggle room to implement the MPLS software in field programmable gate arrays (FPGAs). FPGAs are expensive, but hardware doesn't run into the same performance problems as software implementations of VPNs. Financial Riverstone said it now expects sales in its first fiscal quarter (to June) to be $30-31 million and the loss per share to come in at $0.11-0.13. That's compared with expectations of about $49 million, and either a slight loss or a break-even quarter. Riverstone attributed the shortfall on a dramatic drop in average sales per customer. The size of the decline -- sales will be down 42% from the previous quarter -- caught observers by surprise. Wall Street's displeasure at being surprised resulted in a one-day 21% decline in Riverstone's share price. With $400 million in the bank from its IPO, Riverstone is hardly in danger of going under, but rumors of an acquisition are growing.

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