Intel Is Buying Mashery To Get Deeper Inside The Data Center

Intel, the chip giant, is buying Mashery, a seven-year-old company in San Francisco that specializes in linking together Web-based software and services, a company spokesperson confirmed to ReadWrite.

Mashery's 125 employees are learning of the acquisition through a companywide email sent this morning. Intel expects to offer the "majority" of employees jobs when the deal closes, which is expected to happen in the second quarter. The group will remain in its current location and join Intel's two-year-old Services Division. Terms were not disclosed, but the deal is not material to Intel's financial results.

Big Implications For Intel's Core Business

The implications of the deal are huge: it signals Intel's recognition that the central processing unit is no longer a silicon chip. It is the network.

Mashery, a company ReadWrite has long covered closely, specializes in managing application programming interfaces, or APIs. APIs are the lingua franca of the Internet, the systems through which machines communicate with other machines according to preset rules. For example, Facebook's platform, which websites and apps rely on to add social features, is a set of APIs. Foursquare uses APIs to let other apps access its location database and other features, allowing Instagram and Evernote users to add a place to a photo or a note.

The same techniques that connect consumer apps, it turns out, also work well within large businesses. Comcast, for example, uses Mashery's API management service to allow programmers to access internal systems. That's a far more sensible way to create internal software than the alternative, which involves doing a lot of one-off integrations at considerable time and expense.

Smaller companies often find it difficult to set up systems that grant developers access to these software interfaces. Likewise, enterprises don't generally want to build their own API-management systems. Recently, that has become a bigger and bigger business for Mashery.

Moving Beyond Chips

Intel is in the midst of a shift away from just selling chips to selling software and services. This change, while little-noticed, has been long in the making. Intel bought McAfee for $7.7 billion in 2010, putting it into the security-software business. In 2005, Intel bought a smaller company, Sarvega, which specialized in XML gateways. (XML, or extensible markup language, is a broad descriptor of a file format commonly used in APIs; an XML gateway transports files to make APIs possible.)

Intel first partnered with Mashery in November of 2012, pairing Mashery's API-management tools with its own security offerings. By bringing Mashery in-house, Intel has a more complete and credible offering in cloud-computing infrastructure. (Most cloud-software services communicate with other services via APIs.)

Ideally, Intel might sell the chips inside the servers running the software programs that communicate via these APIs, too. (It has a substantial business selling such chips.) But what's more important is the notion that Intel has a product offering that speaks to innovative startups, not just struggling PC manufacturers.

Mashery has raised a total of $35 million from investors, most recently $10 million last year in a deal that valued the company at $60 million. An experienced startup founder familiar with the terms of the deal says that investors are "happy" with the outcome.

The deal's not expected to be material to Intel's results, but industry norms suggest that Intel likely paid two to three times Mashery's most recent valuation—a range of $120 million to $180 million. (A Mashery spokesperson declined to comment on the company's fundraising or the deal's terms.)