Cisco's loss is Palo Alto Networks' gain

NEW YORK, USA: When Cisco Systems Inc decided years ago to drop a network-security project known internally as "Apollo," little did it know it had paved the way for a startup to blossom into a formidable competitor.

That company, Palo Alto Networks, is one of the leaders today in the multibillion-dollar market for corporate Internet firewalls. Founded in 2005, Palo Alto Networks debuts next week in an initial public offering that could value the firm at more than $2 billion.

Cisco and other deep-pocketed vendors may have misjudged how Internet use would balloon with the takeoff of social media, and with it, the need for sophisticated tools to safeguard private data and monitor suspicious activity, analysts say.

Enter self-taught programmer and Palo Alto Networks founder Nir Zuk, whose penchant for pursuing new technologies culminates in 2012's most anticipated market debut since Facebook Inc's IPO in May.

"We anticipate this will be one of the hottest tech IPOs of the year," said ISI group analyst Brian Marshall.

The company coined the term "next generation firewall" (NGFW) to describe its products, which among other things, lets companies tightly control access to Internet applications for specific users. An employee could connect with Facebook, for example, but not play games.

Essentially, NGFW converges multiple security functions such as firewall, intrusion prevention systems and secure Web gateways on a single platform, Lazard Capital Markets said in a note earlier this week.

"Overall, customers get for the first time, a view of the applications and data entering and leaving their networks, such as attachments and zip files," Lazard said.

Palo Alto Networks grew in direct proportion to social networking sites like Facebook, web-based tools like Google Inc's Gmail and the use of Skype for communications.

Its technology made it easier to monitor and secure traffic from social networking platforms than with traditional firewalls offered by Cisco, Check Point Software Technologies and Juniper Networks.

"Juniper is rarely considered by customers looking for an NGFW," research outfit Gartner, which refers to Palo Alto as a "disruptive influence," said in a report.

DROPPED BALL

Palo Alto Networks' success story illustrates how Cisco and Juniper dropped the ball, allowing an upstart to succeed on their turf.

Cisco opted to scrap "Apollo" - which a former employee who worked on the project said would have been a "Palo Alto killer" - in favor of other traditional security features. Network security is now considered among its chief weaknesses, Gartner said.

Around that time, Juniper executives were turning deaf ears to the entreaties of then-chief security technologist Nir Zuk.

Zuk, who taught himself to write computer programs when he was 16, founded Palo Alto Networks after being frustrated by what he called a lack of innovation at Juniper Networks.