With this edition of the Meeting of the Minds newsletter, we’re introducing a regular column called The Wave Front. Those of you with electrical engineering or physics degrees will recognize this term signifies the beginning of a new trend – a wave. In the venture world, we’ve often noticed that similar companies cluster together, that is, several companies are started within several months of each other to exploit a new technology or business opportunity. It’s as if there’s a collective subconscious among entrepreneurs where several of them get the same idea at the same time.
This column explores these new waves. We’ll tell you what we’re seeing as we see it happen. And, while we won’t always have the most complete picture – you never do when you’re at the front end of a wave – you will get a “heads up” as to what’s coming your way. Let's now take a look at this month's wave.
Historically, software innovation has followed shortly behind hardware innovations and broad adoption. There are a few excellent examples of this phenomenon. The introduction of the personal computer, for example, powered by Intel processors which led to the rapid growth of Microsoft’s Windows OS and desktop applications. A more recent example is the adoption of networking equipment, coupled by yet again, even faster processors which led to the rapid growth of software to visually navigate inter-networked clients, or the World Wide Web. The sequence of events here led to over five years of blossoming multi-billion dollar markets.
The communications sector seems to present a number of such opportunities. Enterprises have rolled out large Internet Protocol-based networks requiring significant numbers of routers, firewalls and related equipment. Carriers have also been aggressive in upgrading their entire network, from the metro area to the long haul, with packet-based technologies. As a result, relatively young companies such as Juniper Networks, Ciena, Extreme Networks and Foundry, as well as established players like, Cisco, Nortel, and Lucent have generated explosive hardware sales.
This new generation of installed equipment serves as the foundation for a number of next generation services such as Virtual Private Networks (establishing secure tunnels via the Internet between two parties), Quality of Service (prioritizing network traffic based on the urgency of the delivery of information) and virtual local area networks (uniting distributed offices through a singular secure network).
Managed Service Providers and increasingly, large enterprises, are finding it challenging to remotely administer networks that contain thousands of network nodes. Imagine the difficulty of updating a thousand switches, one by one, with a new software release or changing the security settings on a thousand routers in a metropolitan area network. This process is called “provisioning”.
Consider one well known, large service provider that is tasked with the daunting responsibility of managing many thousands of VPN tunnels to securely communicate data between its thousands of retail stores. In the past this was managed by dedicated and costly lines –between each store and headquarters; now it is performed securely over the public Internet. Provisioning software allows a single administrator to propagate changes with a few simple keystrokes, completing tasks that would take many weeks to do manually. A few current private players in this space to watch include Goldwire (www.goldwire.com), Syndesis (www.syndesis.com), and C-Plane (www.c-plane.com). There are also a few next generation managed service providers that are providing such services on an outsourced basis such as Yipes (www.yipes.com) and publicly held Cosine Communications (www.cosine.com).
The savings in IT spending becomes very clear, with smaller staffs required to manage larger networks and fewer costly outages due to human error. Configuring network equipment alone is a big money saver. However, with the emergence of new services, revenue producing services, rapid provisioning becomes even more of an imperative. Thus, we expect communications management platforms to be an attractive emerging segment in the coming years.
