King of the Road
Scott Kriens of Juniper Networks makes the gear that keeps Internet traffic flowing--and he sees nothing but clear highway ahead.
By Om Malik

(Business 2.0) – Eight years ago Juniper Networks was a scrappy startup. Today its routers--the machines that serve as the Internet's electronic postal service--are becoming standard in global phone networks. That's thanks in large part to the steady leadership of CEO Scott Kriens, who guided the company through telecom's perfect storm with a steady hand. While Juniper's revenue fell by two-thirds during the bust, the company has since recovered and is on track to do $1 billion in sales for the first time.

Kriens helped Juniper weather the collapse of the telecom market by staying focused on the core business of supplying routers to phone companies for their biggest networks. Through quiet diplomacy, he's persuaded onetime adversaries like Ericsson, Lucent, Nortel, and Siemens to become allies, reselling Juniper's hardware.

Routing terabytes of data is a neat trick. But now Kriens wants to show that Juniper can offer more than just plumbing supplies. He acquired NetScreen, a security-hardware maker, in a $4 billion megadeal to expand Juniper's product lines beyond phone-company gear. What's next for Juniper, as broadband goes global? As Kriens puts it, "The planet is the market." Here he gives us his views on the coming resurgence in telecom.

Routers are practically invisible to most of us, yet you've said they're increasingly important to our lives. Why?

Today we have different devices--laptops, cell phones, iPods--that deliver messages, music, and video to us. When you push a button on a device, there has to be an intelligence that delivers the experience we expect. If it's music, we expect high quality. If it's video, we expect a high-quality image. All of the intelligence that we take for granted--that's the realm of what Juniper Networks does.

For all that, you need a router?

Yes. But it's more than a router; it's the entire infrastructure of an intelligent network.

And you've been selling a lot of that infrastructure. You had a surprisingly strong second quarter, and you told Wall Street to expect sales to rise 50 percent this quarter. Should we take that as a sign the telecom market has come back?

The telecommunications industry is going to experience a very selective recovery. It is not going to be an across-the-board improvement for all of the participants. There are going to be winners and losers, and only the companies that are in the right place at the right time with the right product are going to enjoy the benefits of any upturn. And that's true of both the technology and equipment providers as well as the service providers.

Winners and losers--such as?

The new generation of services--online music and games and video services for consumers--are where the upturn will be. Securing people and transactions is another area. The areas that will struggle are the legacy services--traditional voice, for example.

So data is the primary driver?

Yes. Soon electronics will have no value until they are connected to each other. All of us will depend on connectivity: home stereos to music libraries, businesses to consumers, and each of us to one another.

How will this help you sell more gear?

Whether it's a consumer getting a broadband connection, a corporate user building a private network, or a service provider building a public network, all of these networks will need security and a link to the Internet. We feel confident that our growth engine will continue to operate because we can create demand for what we offer in each of these three markets.

How much bandwidth do people really need, though?

Look at computers over the last 30 years. The more computing power we provided, the more ways people found to use it. Networking is subject to exactly the same phenomenon. The absolute number of users today still represents a very small percentage of the total population of available users.

But isn't the real question what people do once they get online?

With the cell phone, if all you're doing is messaging, then you're not sending very much information. But there will be 500 million cell phones sold this year alone, the majority of which will have a camera or a browser or both. And when those 500 million devices start sending images, the traffic volumes will have changed by orders of magnitude on that same network.

All these tiny snapshots sent via cell phone end up having a huge impact on network traffic?

Yes. And those increases in demand are generated by users without a second thought. They simply push the button and expect each message to be delivered.

So we're all going to want more bandwidth. Funny how none of the fiber guys--the network operators--are able to make money. Why is that?

It's not unlike the railroads in the 1870s. In the space of 10 or 15 years, there were thousands of miles of track laid, far more than could possibly be consumed. No one made any money because the track itself didn't have value. It was only subsequent to the deployment of the track that we saw value in freight that showed up in hours instead of days. Things that were not even possible before the track was laid became possible after the fact. With optical fiber today, it's the same dynamic.

How long before we catch up with existing capacity?

For capacity, let's use another analogy--capacity is like roads today. Certainly, throughout the day there are times when the roads are nearly empty. But capacity has to be measured at the bottlenecks. And so in terms of total capacity, the amount of bandwidth is enormous. Capacity at any one point is actually somewhat limited, and that's why intelligence is necessary to do the routing, to try to balance the load.

What else do you see coming in the telecom universe?

The primary challenge in telecom today is how quickly one can replace declining revenue in voice services with increasing revenue in next-generation services.

Like what?

It's broadband connectivity; it's on-demand services for music and video; it's voice being integrated and delivered across the same device that you use as your PDA, for example; it's the camera in that cell phone; it's all of those.

You bet big on NetScreen, spending $4 billion in stock--a quarter of your company--to acquire it. What made this tiny security-hardware maker so important?

The strategy is delivering this intelligent infrastructure in a highly secure fashion. Now, as an element within the Juniper portfolio, NetScreen assures our customers that when they do business with Juniper they get the most secure network infrastructure possible.

Why is that important?

Juniper as a company runs all its business online. My desk has almost nothing on it; we handle almost no paper. Since we all depend on the network to telecommute, to manage our business, to talk to our employees and customers, and put our credit card information on it, the primary requirement is an experience we can trust. NetScreen is fundamental to that.

With this deal, you turned your business model on its head. You used to rely on the likes of Siemens and Ericsson to resell your equipment. Now you have to manage a whole new sales channel. Why not stay focused on your core router market?

We certainly could have stayed in the core, waiting for the traffic to be generated, but we saw the opportunity to accelerate the arrival of this whole network experience.

So what will you buy next?

I think companies often get confused and think of acquisitions as a strategy. That's a reason many acquisitions fail. An acquisition is a supporting tactical decision within a larger strategy, not the other way around. The total market for the portfolio we have is in the range of $8 billion to $10 billion a year. We see considerable headroom in the market that we participate in today.

Are you worried, with the IPO market heating up, that the best acquisitions might be off the market soon?

It's going to be increasingly difficult for startups to figure out how to sell their products. The advantage we have lies in being a company with the horsepower to take ideas to market. I think that will be more attractive, not less, as time goes on.

How do you view competition from Chinese vendors like Huawei?

I think it would be a huge mistake to dismiss competitors in China or elsewhere for any reason. The planet is the market, and there are too many smart people in the world today for us to be provincial.

Aren't you worried about a price war?

If you went out and bought a bulletproof vest, you probably wouldn't be shopping for the cheapest one--you'd be shopping for the best one. Cheap security is an expensive mistake.

What did you learn from the telecom bust?

The primary lessons I took away from the downturn were the importance of setting a strategy that one believes in and then executing that strategy fiercely.

Postbubble, what's your forecast for Juniper?

It's sunny here in a partly cloudy industry.