July 2003

Some Bright Spots In IP Telephony

BY RICH TEHRANI

Where are the bright spots in IP telephony? There are quite a few. I believe we will see some companies do very well in the next six months. These are the companies that are still investing in R&D as well as marketing. Many of the newer companies in this space have managers that are too inexperienced to guide their companies through these tough times. If you are looking to invest in technology, look for at least two of the following items:

� A solid company that has been around for at least five years or is majority owned by a company that has been around for just as long.

� A company at least breaking even or with enough cash to get them through this downturn. In other words, they have real, paying customers.

� A company that puts out frequent press releases about new customer wins as well as making a concerted effort to market their products.

(The last point may seem like a conflict of interest coming from a publication that is 100 percent advertiser supported. Still, for a better understanding of my viewpoint, please read the sidebar entitled Marketing 101.)

I started to think about all of this recently when I came across two companies that are holding their own in this market, one selling to service providers and the other focusing on the enterprise.

MetaSwitch, a company focusing on the service provider market, has done a good job promoting their recent customer win announcements and other positive news. They successfully leverage a unique identity while simultaneously promoting the fact that they are part of Data Connection, a company founded in 1981 employing over 275 people. They are especially proud of the fact that they have continued to hit their financial targets, recording profits in 2002, and are reportedly on track for more of the same this year. The company also maintains a commitment to ongoing investment in new and better technology: Fully 70 percent of the company�s engineering resources are at work on new products. Data Connection maintains a customer list consisting of companies like Cisco, Lucent, Nortel, IBM, Sun, Verizon and other blue-chip names and is privately owned by an employee benefit trust, which is -- in theory at least -- a more advantageous way to structure your company in these times.

MetaSwitch has been making a splash with their VP3500 Next-Generation Class 5 switch, as it is able to support POTS, IP telephony, and voice over ATM with further support for a distributed softswitch and IP Centrex. There is ample support for new services such as unified messaging, conferencing, and call waiting, and a Web interface for subscribers, allowing them to order these and other services.

One customer, Yukon Telephone, is using a VP3500 to provide IP telephony service over satellite, which will result in significant savings for them. Yukon Telephone, the incumbent provider for the rural Alaskan communities of Whittier, Tanana, and Ruby, selected the VP3500 to replace its existing TDM Class 5 Switches following a side-by-side evaluation, conducted by Reeve Engineers in Anchorage, of the VP3500 and switches from several other vendors.

On To The Enterprise

I recently came across a company that caters to the enterprise space and has found its niche in infrastructure management. NetSolve provides IT management solutions offering businesses an alternative to internally managing their infrastructure by enabling businesses to selectively outsource day-to-day infrastructure management, and transition to new technologies and applications. Essentially, as corporate networks get more complex, NetSolve manages your network remotely using proprietary monitoring and management tools.

Conforming to rule #1, the company was founded 14 years ago as a reseller of private line services. Just under 10 years ago, they shifted their focus to managing frame relay connections. AT&T eventually resold the NetSolve service allowing companies to manage their frame relay service. From their network operations center in Texas, they manage 50,000 devices connected to over 1,000 networks for 1,200 customers and do this on a 24x365 basis.

They have recently decided to focus on managing IP telephony networks. They are currently managing 250 Cisco Call managers at 150 sites looking for dropped packets and/or QoS issues. They can aid a company that needs help managing its network and can provide co-managed services as well. NetSolve takes ownership of problems with equipment and can even upgrade software as needed. A Web portal is provided allowing customers to see what is happening in real-time.

Currently the company has decided to focus on Cisco IP telephony solutions and will soon tackle others, including Avaya. Many people perceive NetSolve as a threat to their job security but the reality according to the company is that they give you more control over your network, giving you a window into your network that is virtually impossible to duplicate.

The IP telephony market is full of companies that are poised to do well in the near term as well as over a longer period of time. By keeping tabs on a company's fundamentals, including their cash flow and (paying) customer base, you can see a clearer picture develop when it comes to deciding which companies are solid prospects to buy products from.

[ Return To The July 2003 Table Of Contents ]

Marketing 101

One worthy measure of a company�s commitment to its products or services is to evaluate its investment in marketing. When I was an MIS director my product purchasing decisions took marketing into effect, and looking back, I am happy I did things the way I did. I would never put my job on the line purchasing a product from a company that doesn�t have the foresight to invest in its own products.

I can recall horror stories of several companies that decided to build a PC PBX and compete with Avaya and Nortel. These vendors lined up tens of millions of dollars to produce state-of-the-art products. Conversely, they had marketing budgets that were in the $10,000/year range. Get this: In addition to the investment in R&D, many millions went to buy top of the line office furniture, premium real estate, and limousines. Two years later, these companies had great products, no sales and went belly up.

One Mass.-based company I knew sold high-end enterprise and service provider switches costing $150,000 at a minimum. The VP of marketing would tell me that he was going to start an ad campaign after sales started to take off. All this, while we sat in what appeared to be an oil sheik�s office! Of course, every company should be entitled to nice furniture, if you think you are going to take down Cisco, Avaya, or Nortel because you have the most comfortable leather chairs is crazy. To do that at the expense of customers knowing your name is suicide.

You�d be hard-pressed to get people to make a major purchase from you unless they think you are a solid company and are going to be around for the long haul. If you are making products that compete with Cisco or Lucent, you should be prepared to go toe to toe with them in marketing. I don�t mean you need to run ads on TV during sporting events, I mean you have to take these companies head on using guerilla warfare. If you make the best IP PBX but have limited funds, then focus on a segment of the market such as financial or hotels. Put an ad in every financial or hotel publication you can find. Send out press releases about how well your system is doing in the latest trendy 5-Star hotel in Polynesia. You get the point. Companies have to be comfortable with you before they buy from you� Especially nowadays. Don�t expect to become the industry leader overnight. You can�t. But by building a slow and steady list of happy customers over time you are likely to succeed.