Another good article from techweb : "Putting the.com in 3Com -- Benhamou discusses recapturing the momentum"
September 13, 1999, Issue: 1522
T.C. Doyle
With a VAR following matched by few others, an award-winning product portfolio
and one of the most experienced management teams in Silicon Valley, one would
think 3Com Corp. could position itself as the definitive leader in Internet
infrastructure technology. But that's not the case. In fact, 3Com has struggled to
live up to its promise in network hardware, while rivals Cisco Systems Inc. and
Nortel Networks have made gains. Winning in this market, apparently, takes more
than merely having .com in your name.
Still, more than a few 3Com executives and employees have suggested to
chairman and CEO Eric Benhamou that the easiest way for 3Com to increase the
value of its stock price-which has remained in the mid-$20s this summer after
slipping last December from a 52-week high of $52 per share-is to simply drop a
dot between the "3" and "Com" in the company's name.
But Benhamou knows better. The 12-year 3Com veteran, who has served as CEO
since 1990, understands winning on Wall Street requires a little luck, a lot of savvy
about today's fickle markets and a whole lot of technology.
In an exclusive interview with VARBusiness executive editor/news T.C. Doyle and
executive editor/industry Cassimir Medford, Benhamou outlined his goals for the
remainder of 1999. Among other things, he wants to launch a new branding
campaign, position 3Com as the undisputed leader in LAN telephony and establish
3Com as a strategic supplier of intelligence-edge products to the carrier
community.
If he's successful, he'll help 3Com reclaim the momentum it lost earlier this year,
before its stock lost nearly half its value in a matter of months.
Some wonder if Benhamou is up to the challenge. They forget that he's grown the
company from $617 million in sales to $5.4 billion in just six years, and that 3Com
ranks among the nation's 300 largest Fortune 500 companies. And it's as profitable
as it has ever been.
Furthermore, Benhamou points out, 3Com is already a leader in e-business.
Indeed, 50 percent of its sales are conducted via electronic means today, and soon
that number will be 80 percent.
If the company's fall marketing campaign is as successful as he hopes, people will
soon see 3Com in a different light.
VARBUSINESS Q&A
VARBusiness: We've been following the emerging ASP (application service
provider) market quite closely and have come to the conclusion that the 3Coms of
the world stand to benefit handsomely from the trend. But one question keeps
popping up: Does the ASP phenomenon restrict your market to hundreds of
thousands of ASPs instead of millions of small companies?
Benhamou: We don't think it constricts our market. In fact, it gives us new
partnership opportunities.
We think anyone who is into e-services-to use the HP phrase, which is kind of a
generic phrase-needs a very strong e-network partner. We think we are natural
partners because we have a clear focus on network infrastructures.
We welcome [the ASP phenomenon], because it will likely result in tighter
solutions and probably more satisfied customers overall.
VB: Does it change your revenue model if the fledgling ASPs out there who do not
want to take ownership of products set the tone for the ASP industry going
forward?
Benhamou: I wouldn't call it a change to the revenue model. It may change who
has title to the equipment. But it does not change the nature of the equipment itself.
It does not change the architecture approach, nor does it change the need for us to
have strong partnerships with ASP-type companies. It is possible, and even likely,
that there will be an outsourcing trend for at least some portions of services where
the equipment plays an integral role. To the degree that this happens, obviously,
we may have to focus our marketing and support programs in a slightly different
direction. But it would not change what our engineers have to do and think about
all day.
VB: So how does this all affect VARs?
Benhamou: In my view, the successful VARs will be the ones that focus less on
the provisioning of the CPU equipment on the enterprise customer premise, [and
more] on the total integration of the solution with the application and with the
service. For example, many of our VARs who have sold data-oriented networking
equipment in the past should really develop skills to sell voice equipment, especially
IP telephony equipment. It turns out that there is really a lot of service opportunity
for them. A small business that is considering upgrading from a classical
circuit-switch PBX to a LAN-based telephony system expects to buy service from
that VAR. It's just part and parcel to the model for voice services. The key thing is
VARs have to be willing to move; they cannot be stuck in the model of the early
1990s.
VB: You've said you could play the role of the "auditor of the network." How do
you become that auditor?
Benhamou: It turns out that as part of a consulting service portfolio, we can
provide a security audit. We can walk into a customer, tell them this is where they
might have some security exposure in the way they deploy the equipment, or the
way they manage it, etc. We can do that in a very holistic fashion, and we can tell
them, "By the way, you seem to be using this particular type of service. You'd be
much better off if you used this other type of service given your usage." So this
offering puts us in the third-party role. We audit without having an a priori agenda
as far as a particular type of equipment we want the customer to buy. We've
actually done this successfully in large enterprises, and we've been able to derive
more standardized service products that apply to small businesses as well.
VB: Sun, Oracle, IBM and a handful of others have made gains with their
e-business and e-services marketing campaigns. Less so with Microsoft and,
arguably, less so with you guys. Do you have any plans to rethink your branding
and imaging so you can demonstrate that 3Com really is the e-business company
responsible for the underlying infrastructure that supports much of the new
economy today?
Benhamou: We're the company that supplies e-networks to support e-services.
We're investing a great deal of marketing dollars in the continuing extension of the
brand. Today, we know we are already the most well-known networking brand
from the point of view of aided and nonaided awareness. But we'd like to have the
images associated with the brand be more closely tied to the e-applications and
e-services customers want to deploy.
VB: Do we in the press make too much of the e-business thing-not so much the
underlying business opportunity, which we all agree is real, but rather in terms of
how it's presented? You're wearing an e-tie now, and you have to hop on an
e-airplane, etc. Is there too much emphasis on branding and not enough accurate
information that cuts to the chase of what this e-phenomenon is all about?
Benhamou: I'm sure the letter "e" gets abused a bit. I'm glad my first name starts
with an "e". I can now start thinking about branding it [laughs]. But the
fundamental trend behind e-services is completely valid and we support it fully.
We are trying not to abuse the term. The way we try to inject a bit of sanity there
is to remind people that not everything can be virtual. It's great to think of service
providers as completely virtual companies, but they only exist because you have
facilities-based carriers there. Without that, there wouldn't be anything. However,
some of our employees and executives have suggested that we drop a little dot in
the middle of our name and call ourselves "3.Com." That might be the easiest way
to increase our P/E ratio.
VB: So what are your thoughts on valuations? Is Wall Street nuts? Do you
sometimes get frustrated that the valuations for some with modest contributions
are great while others don't seem to get much credit for the value they provide?
Benhamou: Sometimes I get a little frustrated when smart people behave in a
gullible fashion and buy all that. But I think during a period of time-a few months,
a couple of years-the fundamental laws of economics will prevail in that
companies' evaluations will be primarily a reflection of their return on invested
capital. That is how we drive our business. We look to optimize on two
dimensions: growth and return on invested capital. We try to move all of our
segments around an envelope that sets the trade-offs between the two.
Historically, those metrics have always worked. The reason they have always
worked is because there are sound economic principles behind them. So, some of
the very high-market capitalization that you see associated with virtual companies
are predicated on two things: either phenomenally rich earnings streams in the
future or the creation of a brand, which is really a high barrier to entry that is
recognized by billions of people. If any of those things are not true, then market
caps will get readjusted in a hurry.
VB: So what's in store for your brand?
Benhamou: It's interesting to see how, in the world of the Internet, portals have
been emerging for two, three years. But now you are seeing people go one or two
steps beyond that. Initially, people going through the network at random would go
to the Yahoos and the Microsofts and the Netscapes to be able to find the right
engines. Now they are going deeper than that, to the center of expertise for a given
area.
When it comes to networking and connectivity, they are coming to 3Com. We find
ourselves having to live up to this challenge by providing more relevant
information, services and products than any other site in the world. I don't believe
that there is room for two or three. It's just like when I think of books, I tend to
go directly to Amazon.com. I would expect that VARs in the networking industry
will tend to come visit 3Com before they go visit anyone else. In fact, traffic
analysis of Web visits proves that. That gives us the impetus to create a very
compelling site. We have new service offerings and will, in the next few weeks,
take that to another level. You'll want to check back.
VB: Between now and the end of the year, what would you like to accomplish
most?
Benhamou: Probably three or four things come to mind. One, we are taking all of
our e-business activities to a whole new level, and we intend to roll this out in a
major way between now and the end of the calendar year. The second most
important thing for us would be to establish 3Com as the undisputed leader in LAN
telephony, particularly for small businesses, which are driving the telephony
industry. That is a key goal. The third one would be to establish us as a very
strategic supplier into the carrier community for intelligence-edge products. That's
not to say that core products aren't intelligent, but they are going to be less
strategic, in our view, in the future because their role will be relegated to
transporting bits.
The strategic place to be in the carrier network, from my perspective, is at the
edge. That's where the services are defined, provisioned. It's where policies get
enforced and where users interact with a service. That is where we are placing all
our attention. We'd like to emerge in the next few weeks-literally-as a major
strategic provider to the carrier community. That will not happen if we simply
proclaim it. It will happen if enough very large, respected customers say it. We've
already had the beginning of this campaign, for example, last week when Sprint
announced the relationship we have. We built basically the whole Sprint PCS
access infrastructure.
We use our platform to provide all the PCS data services. We've announced an
aspect of our relationship with Motorola and expect that there will be many other
very important announcements in the area of wireless. Finally, there will be
announcements regarding voice over IP deployments with large carriers. So the
combination of those three things should move us to a top tier in the supplier-net
community.
"http://www.techweb.com/se/directlink.cgi?VAR19990913S0024
Mang |
