Foster City, Calif.-based Inktomi provides search technology for many popular Internet portals, including Yahoo and America Online.
Inktomi said the deal for FastForward, based in San Francisco, will allow it to offer live broadcasting capabilities to its customers.
The company will exchange appoximately 11.9 million shares of its common stock for all outstanding shares of FastForward. Based on Inktomi's closing price yesterday of $111 per share, the deal is worth roughly $1.3 billion, the company said.
Kris Tuttle, an analyst with Wit SoundView, called the deal a good buy and said the move is consistent with Inktomi's strategy to boost its ability to deliver digital radio and TV broadcasting over the Web.
"This (buy) gets them further into the streaming content area," said Tuttle, who rates Inktomi's stock a "buy."
Though streaming media offerings, such as Web videoconferencing, still leave a lot of room for improvement, Tuttle said the market is young and will mature over the next three to five years.
"We're going to get there, but we're not going to get there overnight," he added.
The transaction is expected to close by year's end, Inktomi said. Following the closing, Inktomi will gain all of FastForward's 75 employees, primarily software developers along with a small sales force and some technical marketing personnel. FastForward will operate under the Inktomi name as the Media Division and will be headed by Abhay Parekh, the co-founder and chief executive of FastForward.
Inktomi's last major acquisition came in June, when the company said it would buy Go Network's Ultraseek software division for $344.7 million in a move to offer more specific search software for corporations.
The Go Network is the Internet property of entertainment giant Walt Disney.
In June, Inktomi shares were hit hard after Net giant Yahoo said it would start using start-up search provider Google for its primary search engine. At the time, analysts said that while the announcement might be a blow to Inktomi's pride and stock, the implications for the company's revenues and profitability would be mild.
While Inktomi is well-known for its search technology, it has paid increasing attention to its networking-services division, which is growing at a rapid pace.
Yahoo continues to use Inktomi in its Corporate Yahoo product.
Inktomi shares, which have risen 13 percent since the beginning of the year, closed down $7.44, or about 6 percent, at $111 on the Nasdaq yesterday. The stock has a 12-month high of $241.50 and a 12-month low of $46.88.
Reuters contributed to this report.