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Monday, April 19, 1999

Parallel Universe
Inktomi has built its reputation as a powerhouse behind the Web search firms with its redundant, 'neutral' system.
By CHARLES PILLER, Times Staff Writer

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SAN FRANCISCO--The World Wide Web--that infinitely interconnected constellation of computers--has no center. But something close to it lives in a nondescript low-rise office building in Santa Clara, Calif.
     Inside a 20-foot-square wire cage surrounded by guards and security cameras sit rows of floor-to-ceiling racks holding about 200 workstation computers that power one of the Web's most widely used technologies: search services provided by Inktomi Corp.
     Inktomi (pronounced INK-tuh-me), named after the Lakota Indian legend about a crafty spider that defeats larger enemies with cunning, toils in relative obscurity while powering many of the most popular destinations on the Web. Yahoo, CNet, America Online's ICQ chat service, GeoCities and HotBot have made the 300-employee San Mateo, Calif.-based company's search, or traffic acceleration technology, critical to most Web surfers' experience.
     Eric Brewer, co-founder and chief scientist, recently stood in that cage and laughed in wonder, loud enough to be heard above the steady whir of hundreds of cooling fans. "If you told me that we'd be doing this three years ago," he said, "I don't know if I would have believed it."
     It does seem hard to fathom. Each day the computer cluster--one of four run by Inktomi--fields tens of millions of queries from Web users. For each query, Inktomi's search engine scours every word on more than 110 million Web pages and responds with a list of results in a quarter of a second or less.
     In a mere three years, Brewer's company has become a top provider of Internet management technology and one of the market's hottest stocks since going public at $18 a share last summer. It closed down 69 cents Friday at $118.50 on Nasdaq, for a market valuation of about $5.8 billion.
     In the process, Brewer and co-founder Paul Gauthier have joined the ranks of Silicon Valley's overnight super-rich. Not bad for a company yet to earn its first nickel in profit.
     "They've got something that's real, a product that people use. It's a value proposition today. That's why their stock holds up, regardless of revenues," which are rapidly growing but still modest, said analyst Jim Balderston of Zona Research in Redwood City, Calif.
     Inktomi's search engine provides the underlying technology that major Web sites customize and brand. Because the company doesn't operate a "destination" site--as do search engine developers AltaVista and Excite--it doesn't compete against potential customers and can position itself as a technological Switzerland in the portal wars.
     Inktomi spreads its search database over a network of inexpensive, off-the-shelf Sun Microsystems workstations. As the Internet grows, Inktomi "scales" its capacity by adding computers. Rivals use larger computers that boast great processing power but scale less flexibly.
     The redundancy and shared load among scores of machines operating in parallel fosters high reliability, according to analysts.
     "We've literally had machines burst into flames and nobody knew about it on the Internet," Brewer said.
     The network of workstations derives from Brewer's PhD thesis and found its first practical Internet test in 1995 when Brewer, a professor at UC Berkeley, teamed with Gauthier, his star pupil. They created a search engine that exploited the parallel-computing design and posted it on the university's computer system to see if it would work.
     They immediately realized that they were on to a potential breakthrough technology and quickly formed Inktomi. Gauthier, 26, took a leave from his doctoral program to run the company's technology team day to day.
     Brewer, at 32 the graybeard of the firm, divides his time between Inktomi and his university duties. Keeping a foot in academia offers a long view that pushes Inktomi beyond daily adjustments and quarterly deals. That academic bent, analysts say, has also attracted top-flight talent.
     Each of Inktomi's clusters--100 machines with 200 central microprocessors--is among the largest examples of parallel computing in the world. The system is designed to expand easily to 500 machines with 1,000 processors, and new clusters will be added as the Internet's growth demands, Brewer said. "Our view is that this is the mega-server and it has to support the entire world."
     The inevitability of growing demand helps convince analysts that Inktomi will also grow rapidly.
     A large portion of that corporate growth may come from Inktomi's second product--its Traffic Server--which duplicates, or "caches," frequently requested subsets of the Web in locations subject to the highest demand. This is akin to adding scores of traffic lanes in a congested section of freeway during rush hour. The system refreshes the duplicated Web sites frequently to accommodate changes by their authors. That enables users of AOL, @Home Network and PSINet, among other Inktomi customers, to get a radically faster surfing experience.
     Inktomi's third product, the Shopping Server e-commerce engine, provides feature and price comparisons for thousands of merchants and millions of items and offers Web links to the sellers. Even before its official release this spring, Shopping Server has been adopted by Disney's Go Network, Snap, CNNfn, Fox Sports Online, GeoCities, LookSmart and ZDNet. Each of the companies will pay Inktomi a commission from every purchase.
     Despite rapid acceptance, Inktomi faces growing competition on all fronts. Microsoft, formerly a top search customer, recently replaced Inktomi with AltaVista. Although the change was not a repudiation of Inktomi's technology--it came as part of an alliance with Compaq Computer, AltaVista's owner--it still represented a major setback.
     A bigger threat may be new "popularity engines" from upstart Direct Hit and others. Those tools analyze millions of Web searches, then display the most popular choices first.
     Until recently, searches came in two forms: the brute-force method of examining every word on millions of Web pages (used by Inktomi and others) and the painstaking process of human editors categorizing a much smaller number of sites one by one (offered by Mining Co., LookSmart and Yahoo's directories).
     Popularity engines represent a third path that can provide more comprehensive results than human editors can compile, combined with an intelligent limitation on the total number of sites returned for a query. The process works best when the number of relevant sites delivered by an Inktomi-type technology becomes overwhelming--increasingly typical as the size of the Web spirals upward.
     Direct Hit has scored some big victories, gaining ZDNet, AOL's ICQ, LookSmart and HotBot as customers.
     HotBot, Inktomi's first customer and a key to credibility in the company's early days, is not abandoning Inktomi but combining it with Direct Hit to meet user needs more effectively, said Andrew de Vries, HotBot's marketing director. For queries about broad categories of information--about half of all searches--HotBot displays 10 Direct Hit results, followed by Inktomi's exhaustive list. All other searches go straight to Inktomi.
     The Internet caching market presents more intense competition, with Novell, Cisco Systems and IBM, plus newcomers InfoLibria, Network Appliance and CacheFlow, fighting for advantage.
     James Staten, a network analyst with San Jose-based Dataquest, says some competing technologies provide better performance, but agrees with other analysts that Inktomi's approach, which, like its search engine, is based on the network-of-workstations concept, offers superior "scalability."
     "Even small sites are very concerned about scalability, because one of the most frightening things about the Internet is that you can literally grow your business by orders of magnitude overnight," said Kris Tuttle, an analyst with investment banker SoundView Technology Group in Stamford, Conn. Companies are buying Inktomi's Traffic Server, Tuttle said, "as an insurance policy."
     Adding to this momentum, Inktomi's Shopping Engine operates on the theory that any large site can offer comparison shopping without building or buying its own engine, as Amazon.com, Excite and others have done. Inktomi again exploits a "universal arms merchant" model, as Chief Executive David Peterschmidt terms it--providing technology without becoming a direct e-commerce competitor.
     So far only Redmond, Wash.-based Infospace has announced a similar approach; its ActiveShopper product will be launched next month--offering several million products from 2,500 merchants and shopping catalogs, the company says.
     Because of this combination of technology assets and partnerships, it is hard to find any market watcher who is not bullish on Inktomi. In one of many plaudits, Fortune ASAP magazine recently named Inktomi the 10th-most dynamic software company--just ahead of Microsoft--by virtue of its technology, personnel, alliances and market prospects.
     So why doesn't a corporate giant gobble it up? Or why didn't one do so last fall when it was valued at closer to $2 billion?
     Few traditional companies can absorb a multibillion-dollar business that's losing money, said Barry Parr, an analyst with International Data Corp. in Framingham, Mass.
     And Inktomi's broad product line may even vaccinate it against a takeover by an acquisitive Internet powerhouse. Cisco, for example, might covet Inktomi's Traffic Server, but the company's stratospheric value is based on the synergy of all three products, none of which is worth anything close to $5.8 billion alone.
     That valuation also depends on the perception of Inktomi as a neutral party by potential customers--a perception that could quickly evaporate if it were acquired by an Internet or telecom behemoth.
     Last year, for example, Inktomi lured a huge catch--Yahoo's search service--away from AltaVista. Unlike AltaVista, Inktomi does not compete with Yahoo--one key factor in the decision, said Ellen Siminoff, Yahoo's vice president for strategic planning.
     That neutrality has helped Inktomi forge relationships that pay unseen dividends: corporate intelligence that translates into a technology advantage.
     Said Brewer: "We get to see the secret stuff at Yahoo and the others that nobody else gets to see."
     Charles Piller can be reached at charles.piller@latimes.com.
* * *

     Inktomi's Web

     Fortune ASAP magazine recently named Inktomi the 10th-most dynamic software company--just ahead of Microsoft--by virtue of its technology, personnel, alliances and market prospects. Like other Internet firms, Inktomi's stock has skyrocketed since it went public last summer, even though it has yet to make a profit. A look at the company and its stock price:

     At a Glance

     Headquarters: San Mateo, Calif.
     About its name: Inktomi (pronounced "INK-tuh-me") is derived from a Lakota Indian legend about a spider known for its ability to defeat larger adversaries through wit.
     Chief executive: David C. Peterschmidt
     Employees: 300
     Main products:
     Search engine that provides the underlying technology that major Web sites customize and brand.
     Traffic Server, which duplicates frequently requested subsets of the Web in locations subject to the highest demand.
     Shopping Server e-commerce engine, which provides feature and price comparisons for thousands of merchants and millions of items.
     Fiscal 1998 revenue: $20.4 million
     Fiscal 1998 earnings: -$22.3 million

     Stock price

     Weekly closes and latest:
     Friday: $118.50
     Sources: Bloomberg News, company reports

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