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Alteon's Sale to Nortel Puts Web Switch Makers in Play

The future could bring a takeout for the likes of F5 and Foundry. A chat with Alteon's Selina Lo.

Selina Lo has been dubbed networking's leading practitioner of "market-tecture": persuading customers they need to buy products that don't exist yet.

Her track record -- she's twice had

Nortel

(NT)

swoop in and offer billions for the companies she's helped build -- has networking investors watching her next move and listening intently for her take on the industry. Meanwhile, companies that compete with Lo's current employer,

Alteon WebSystems

(ATON)

, are jockeying to be the next Web switch maker to be taken over by a networking giant.

Speculation

Lo co-founded

Centillion

, a communications switch maker purchased by

Bay Networks

in 1995. Bay, in turn, was snagged by Nortel for $15 billion. In July, four years after she helped to start Alteon, where she heads marketing and product management, Nortel came calling again, this time with a $7.8 billion

bid.

So it's no surprise, given her knack for picking the hot spots, that investors have been willing to pour money into the edge of the Internet where Lo toils. In fact, now that

Cisco

(CSCO) - Get Report

has

grabbed

ArrowPoint

(ARPT)

and Nortel has picked up Alteon, there has been loads of speculation about which Web switch maker will be next to get swept as

Lucent

(LU)

and

Alcatel

(ALA)

search for partners.

The short list of candidates includes software-intensive gear makers like

F5

(FFIV) - Get Report

,

Radware

TST Recommends

(RDWR) - Get Report

and

Resonate

(RSNT)

, and the hardware heavies, including

Foundry

and

Extreme

(EXTR) - Get Report

.

And it's with great interest that investors looking beyond the overheated sector of the moment search for clues to what Lo may be thinking of next. Oh, sure, Nortel is keen on keeping her, and Lo, making no promises, says Nortel could meet her needs.

"If Nortel provides the environment and succeeds in driving significant changes in the industry, then we'll be happy," says Lo, who is under no commitment to stay. But some observers say her track record and the abundance of incentives in Silicon Valley suggest she's a short-timer.

Lo dropped some hints about where she might focus next, and not surprisingly it's where she's had the most success: The edge of the network, where all the big Internet pipes eventually lead.

Carrying the Mail

As networking folks are apt to do, Lo describes her mission at Alteon in terms of mail delivery. Cisco and others, for example, make routers, the post offices of the Internet, she says. Nortel, Lucent and the like make much of the gear that carries packets across the long-haul pathways, the trucking and cargo-plane fleets of the business. And Lo sees Alteon as the instant courier, the bike messenger of the Internet.

Alteon's Web switches sit between the Internet and the computer systems or servers that warehouse information. Alteon's boxes recognize the addresses and content of the packets they handle and help to direct those packets to the best routes. As content storage moves closer to the user end of the network, Web switches like Alteon's will help identify the closest

Yahoo!

page, for example, to a given user. Obviously, this content-aware distribution is intended to speed up the Net.

The better these Web switches can understand their traffic, the better the traffic can be managed. It sounds terribly simple, but control is the ultimate goal. And that's the principle that leads Lo to her next products.

For example, she says Alteon has a new box due out soon that's dedicated to encrypted content, like credit card transactions. "That encryption box will sit next to the server," said Lo, drawing the server and box diagram on a white board at

TheStreet.com

recently.

Lo says the encryption boxes will save servers 80% of the processing they normally handle. A new magic box that promises some wild network advantage? Market-tecture?

Amusement

"I've been accused of it a lot," says Lo. "People call it 'Selina Lo marketing,' selling something out of nothing." The thought seems to amuse her.

Ken Smith, a money manager for

Munder Funds

, has been an Alteon stakeholder from the beginning. Smith puts those accusations in perspective. "Hey, Cisco has been doing that for a decade, promising a customer a product before they had it and then scrambling to put it together," says Smith with a chortle. "I think they've had a little success with that approach."

So what's ahead for Lo? Speaking hypothetically, she says her next move would target the explosion of bandwidth, or network capacity, at -- where else? -- the edge of the Internet.

"If you look at how the Net has evolved, most of the bandwidth to date has been used for business and data services," says Lo. "There are interesting things happening as greater bandwidth applications reach into media and entertainment."

Lo predicts that Web switching will get so sophisticated and personalized that she could create such services as usage billing. "We could help charge someone who wanted to preview just five minutes of a movie. Or we could drop in some subliminal advertising for a fraction of a second," she says, only half joking.

Now there's classic market-tecture.

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