Back in 2017, when François Locoh-Donou became CEO of Seattle-based F5 Networks, many people in tech assumed that most applications would ultimately run in the public cloud, shifting away from data centers and on-premises hardware.
Four years and one pandemic later, things aren’t turning out to be so simple.
Yes, many apps are moving to the public cloud, but many companies are using multiple public clouds. And companies are keeping more apps than expected on-premises, requiring more hardware capacity due to increased demand.
“They have gone through the romance of, ‘Yeah, maybe all my apps can go in the public cloud,’ and they finished that romance,” Locoh-Donou said in a recent interview. “They’ve come back to the pragmatic reality of knowing which apps make economic sense for the public clouds, and which apps do not.”
As the pandemic increases usage of digital tools, companies are aiming to create more dynamic experiences for app users, requiring more flexibility.
“So what we’re seeing is not the convergence of applications to a single location, a public cloud, but rather the distribution of applications to multiple locations: public cloud, private cloud, the edge and on-premises,” Locoh-Donou said.
F5, which makes technology for delivering and securing applications, saw these trends play out in its results for its recently completed fiscal year.
- Hardware revenue grew by 12% to $748 million for the 12 months ended Sept. 30. This is F5’s legacy business, and prior to the pandemic, the company would have expected this revenue to be declining at this point, Locoh-Donou said.
- Software revenue grew by 37% to $2.6 billion for the fiscal year, reflecting F5’s efforts to expand its business beyond its traditional networking hardware in recent years, through acquisitions and organic growth.
- The company says it now has more than 600 businesses as Software as a Service and managed services customers, a number it hasn’t disclosed before.
That’s out of a total customer base of 18,000 to 20,000 customers, so it’s still “a very low penetration,” but it’s notable for a company that’s still known for its hardware, Locoh-Donou said.
As part of its expansion beyond its traditional hardware business, F5 has made a series of major acquisitions during Locoh-Donou’s tenure, spending more than $2 billion to absorb a variety of cloud and security software ventures in the last three years.
The company announced a $670 million deal for Nginx, the company behind the widely-used web and application server technology, in March 2019; and completed its $1 billion purchase of Shape Security in January 2020. It acquired cloud computing company Volterra for $500 million in January of this year. More recently, it bought Boston-based cloud monitoring company Threat Stack for $68 million.
F5 has a total of 6,461 employees, including more than 1,400 in the Seattle area.
A year ago, activist investor Elliott Management — known for pressuring EMC and others to put themselves up for sale in the past — took a stake in F5. According to a Wall Street Journal report at the time, Elliott took a hard line with F5, privately “suggesting it may have overpaid without a clear integration strategy.”
Locoh-Donou and F5 stayed the course, and the company’s shares are up more than 60% in the past year.