Terabit start-ups challenge
Cisco
By Ben Heskett
Staff Writer, CNET NEWS.COM
August 14, 1998, 5:10 a.m. PT
news analysis It is fair to say that data
communications giant Cisco Systems provided the
technology that built the Net as we know it. Now a
new generation of high-end networking equipment
start-ups want to renovate it.
Aspirants to Cisco's
claim to the data
networking throne have
come and gone, but this
latest crop of upstarts
are responding to a
single issue--the growth
demands of the
congested Net, a
massive multibillion
dollar opportunity that
could leave room for
more than just the
800-pound gorilla of
networking.
Two premises pervade
the strategies of
start-ups like Juniper
Networks, Pluris, and Avici Systems, among
others. First, service providers require more
bandwidth and speedier equipment to keep up with
the explosion of the Net and the demands it has
placed on their infrastructure. These same
companies also need more sophisticated methods
to allocate bandwidth and provision service so they
can, in turn, differentiate themselves to customers in
a crowded market for data and voice-based
network connections.
Some Cisco competitors have created a niche with
Net access providers, such as Ascend
Communications--a company that has chipped
away at Cisco's dominance by providing access
equipment. But no one has approached Cisco in
delivering core high-end routing devices that send
Net-based traffic to its destination. These routers
serve as the "backbone," or brains of the network
for most ISPs, such as UUNet Technologies.
This fresh group of start-ups share a few things: a
common enemy in Cisco, rosters of all-star talent
from established networking companies, and a
belief that starting from scratch gives them an
inherent technology advantage as networks grow to
terabit speeds.
"It's a very busy market area--it's going to be very
competitive," said John Armstrong, analyst with
market researcher Dataquest. "It's the new
companies that are coming out with the different
approach."
The clearest evidence that many believe these
terabit-speed start-ups--and this type of
technology--have a chance to compete with Cisco
is the gaggle of venture capitalists (VC) and Cisco
rivals who have latched on to these nascent firms:
Littleton, Massachusetts-based Argon
Networks, for example, garnered $34 million from
various venture firms in two rounds of financing.
Silicon Valley entrant Juniper has collected $62
million in funding from both VCs and companies
such as 3Com and IBM, among the rivals salivating
at the opportunity to create more competition for
Cisco.
Avici, another Boston area player, received $16
million in a first round of venture funding that closed
last July. That windfall was supplemented by an
equity investment from Northern Telecom--which
purchased a 20 percent stake in the company
worth approximately $39 million--and a second
round of venture financing worth $17 million,
bringing the grand total in the firm's coffers to nearly
$72 million.
NetCore Systems, another aspirant, has raised
nearly $14 million in two rounds of VC funding.
What else do all the above companies have in
common? None are currently shipping products,
despite the wads of cash being thrown at them.
The promises emanating from these terabit-speed
devices recall the predelivery hype surrounding
gigabit-speed Ethernet equipment, another giant
market opportunity that was accompanied by a
start-up glut that continues to sort itself out.
"The hype on this is as great or greater than during
any technology cycle I've seen," said Craig
Johnson, principal analyst with the Pita Group.
And the list of entrants hasn't come close to
completion. Others like Nexabit Networks, Torrent
Networking Technologies, and NEO Networks are
also gunning for ISP network build-out dollars.
And still others remain cloaked in secrecy, unwilling
to divulge their particular bent on the market.
To the degree that Cisco is the acknowledged
kingpin, the ongoing investments are an indication
of what it takes to develop a product that can
conceivably poach a portion of Cisco's high-end
routing business, the cash cow that catapulted the
networking giant to its current position.
"We have to convince every single customer to buy
something without a Cisco label on it," admitted
Hank Zannini, cofounder and vice president of
business development at Avici. "It's kind of like the
IBM days--you can't get fired for buying Cisco
products."
It also indicates a prevalent view among service
providers--they would love to have a more
competitive market from which to choose
equipment from. "We're always looking at ways to
enhance our technology, whether it comes from a
start-up or an incumbent," said Doug Hickey,
president of Frontier GlobalCenter, the data arm of
Frontier Communications.
Noted another start-up: "The ISP community is
very eager to see alternatives to Cisco emerge. The
biggest competitive advantage we have to Cisco is
we aren't them," said Gordon Saussy, vice
president of marketing at Torrent, a rare new entry
which has devices currently shipping in some
slower configurations.
Frontier GlobalConnect announced plans to install
high-end Cisco routers as it builds out its data
network earlier this week. Cisco itself has also
announced plans to meld ATM-based technology
with IP-optimized hardware to cut off new entrants
at the pass. Attempts to reach a Cisco
spokesperson were unsuccessful.
The strategies of the majority of the start-up firms
appear remarkably similar: assimilate into separate
voice and data networks built on voice switches
from the likes of Nortel and Lucent Technologies
and Cisco data equipment, then slowly meld those
layouts via upgrades to this faster technology. Due
to this approach, it will likely take some time before
any of these firms will see revenue results, given the
long test processes and sales cycles associated with
high-end equipment and software.
Juniper, for one, teased the market in June with the
announcement that its Junos network operating
system had been tested by prominent service
providers since the start of the year. Most say their
total packages of equipment and software will hit
the market by the end of this year or the first half of
next year.
What Cisco has previously accomplished with the
software that runs on its routers, these firms want to
provide in silicon, with specialized chips known as
application specific integrated circuits (ASIC) that
can speed data at faster rates. Some start-ups are
promising terabit-per-second speeds.
In addition, these firms hope to add
industrial-strength features and flexibility, with some
combining high-speed and intelligent asynchronous
transfer mode technology with speedy routing for
IP, the dominant form of transmission on the Net.
All entrants also admit to the requirement that their
complex software must run in conjunction with
Cisco's as well, a realization that if you're going to
play in an ISP's infrastructure, you're going to have
to interoperate with the entrenched competitor.
Some of this software includes behind-the-scenes
functions that allow ISPs to offer varying degrees of
service quality and bandwidth allocation to
customers and on-the-fly updating to ISP
administrators, among other features.
"You've got to get both parts [hardware and
software] fundamentally right," noted Joe
Furgerson, director of marketing for Juniper.
Like the evolution of gigabit-speed Ethernet
market, most pundits project a scenario in which
several terabit-routing players get snapped up--one
after another--with others remaining independent,
hoping a public stock offering can legitimize their
technology.
"I would expect these guys to get sucked into the
Lucents and the Nortels," noted Dataquest's
Armstrong. "I'd be very surprised if these little guys
survive independently."
Regardless of the likely outcomes for these aspiring
Cisco killers, this latest series of players arrive at a
moment when the networking industry is in
ever-increasing flux. The result is a landscape
where previous assumptions about market strength
are rapidly falling by the wayside, as telecom and
data continue to blend into a single "packetized"
network.
Cisco, Nortel, and Lucent are all huge and yearn to
dominate this market with a confidence that comes
with their current positions and cash flows, but with
every technology shift comes the opportunity for
new entrants to make waves: "The data networking
world has only just begun," mused Chris Baldwin,
vice president of marketing for Argon.
Regards
Neil |
