|
|
|
Getting Big By Thinking Small
INNOVATORS OF THE YEAR
DSL.net hopes to help spark a new revolution by focusing on markets the big boys ignore
|
Business New Haven
1/24/2000
By: Mitchell Young
|
I've been standing on a corner in Winslow, Arizona.
- “Take It Easy,” The Eagles
Toward the close of the 1920s, as the “new” economy was roaring along, fueled by invention - an explosion of internal-combustion engines was rolling across America. The railroad economy with its robber barons and their monopoly transportation system - along with an industrial era they in large part controlled - was slowly but surely being eclipsed.
Henry Ford had a new vision: transportation for the common man. And that vision plus the mass production that made it possible sparked the economy and the imagination of most every man, everywhere.
Profound changes were in the offing. Architect Frank Lloyd Wright, for example, saw in the new mobility the automobile offered a transformation of the American landscape. Wright predicted - and even called for - replacing cities with suburbs, which he viewed as superior environment to keep people in touch with nature.
Henry Luce's new weekly magazine, Time, saw its readership soar as its pages gave voice to the new American experience.
In 1927, promoters of emerging business along a new highway, U.S. Route 66, organized a 90-day marathon automobile caravan from Los Angeles to Chicago. But it wasn't until 28 years later and the conclusion of World War II that the route would really take hold.
Eventually thousands of small businesses would spring up along Route 66, including the gas stations and drive-ins of yore - or what today might be call “auto-commerce sites.”
Federal Reserve Chairman Allen Greenspan was born in 1926 - just in time to grow up during the Great Depression.
Today, standing on a corner in Winslow, Arizona reveals a tattered but still-proud Route 66, the only sight to see a faded vision of a dynamic past and the fleeting image of a “girl in a flatbed Ford.”
...
All progress depends on the unreasonable man.
- George Bernard Shaw
Today in New Haven, a new group of road builders at DSL.net Inc. (NASDAQ: DSLN) have been selected as Business New Haven's 1999 Innovators of the Year.
Under chairman Paul Sun and CEO David Struwas, the company has unveiled a plan to construct a new digital highway across America. The DSL strategy: Provide high speed on-ramps to thousands of small and mid-sized businesses.
The DSL story begins when a young Taiwanese immigrant doing electrical-engineering graduate work at the University of Washington was “recruited” to the Northeast by his soon-to-be bride.
Shortly thereafter, in 1989 Paul Sun, now 39, found himself at TranSwitch Corp., a Connecticut high-tech startup, one of its then-four employees. Now headquartered in Shelton, TranSwitch was founded to design and build complex computer chips for use in advanced telecommunications devices. The company succeeded in placing the thousands of circuits onto its chips but was slow in getting manufacturers to develop the next generation of products that the chips enabled.
Sun grew frustrated with the slow pace of that market acceptance. So he left TranSwitch to create his own high-speed products, founding Avidia Systems in Wallingford in 1995. Of his entrepreneurial motivation, Sun says, “I didn't start Avidia because I wanted to be my own boss. I just wanted to see the technology happen faster.”
At Avidia, Sun developed a set of high-speed communications devices including the equipment that Baby Bell companies would need to implement high-speed communications over existing copper wires, a technology known as DSL, or Digital Subscriber Line.
Using DSL technology, a telecommunications company can send digital information over a typical copper telephone line. By using this digital technology, data-transmission speeds can be radically increased compared to modem technology, DSL technology can reach 1.6MB (more than 26 times the modem speed). But there remains a critical limitation - distance from the user to the central office. The further the user is from the equipment in the central office, the slower and less stable the service. For most current DSL deployments, the distance covered is usually less than two to three miles. Widespread deployment means lots of equipment in lots of central offices.
Seeing this equation, cautious telephone company executives once again frustrated Sun as they, like the equipment makers, were slow to adopt this new technology. The phone companies could already offer high-speed data, albeit for a price, and they were in no hurry to expand the market and cannibalize their own customers by offering lower-priced products.
Sun again had helped to prove out high-speed communications - only to see it moving off the shelf at a snail's pace. In 1997, Avidia Systems was sold for $94 million to California-based Pairgain Technologies (NASDAQ: PAIR) another company that was developing DSL technology.
Where Else – A Garage
When future archaeologists unearth the America of the 20th century, they'll likely be forced to scratch their heads wondering why so many enterprises started in garages. Perhaps it's simply the vision of the open road that inspires entrepreneurs and similar dreamers.
Late in 1997, David Struwas discovered Paul Sun and John Jaser (now DSL.net's vp technology)
in just such a hallowed place: a West Haven garage. It was in this garage that Jaser, a systems integrator, had started a company called FutureCom, where he began experimenting with DSL lines.
By the time Struwas made his way to the West Haven garage he knew he wanted to build a DSL Internet service. A former SNET sales and marketing executive, Struwas had been working for Brooks Fiber Communications. The company was one of the first to offer competitive local telephone service.
Struwas saw that Brooks Fiber grew as it focused on providing local phone service to small and mid-sized companies in second- and third-tier cities, leaving New York, Boston, Chicago to AT&T, MCI, etc. By hewing to this strategy Brooks Fiber had little competition just as telecommunications markets were opening.
The Brooks strategy worked. Brooks eventually was purchased by MCI Worldcom for several billion dollars. But Struwas didn't see his future at MCI, and he began looking at other emerging telecom companies.
By the time Struwas made his pilgrimage to West Haven, he had an idea, if not yet a plan, for a new Internet-access company.
“I looked at the opportunity for the second- and third-tier cities and to go after the small businesses [companies with ten to 20 employees], the businesses that are overlooked by the telephone companies, by the carriers,” he says.
Sun, Struwas and Jaser formed DSL.net in March 1998. If the investment to do this was going to be enough to scare off the telecoms, the young company would have to focus on raising capital. Sun's past successes and Struwas' plan, however, proved attractive.
“We had some seed funding, that gave us the ability to set up physical locations in Stamford and New Haven, to sell customers to make sure we could provide the service,” says Struwas. That funding came from Sun, some former colleagues, a Morgan Stanley broker and, as Struwas puts it, “pieces from everybody - using the credit cards, selling the boat.”
But that wasn't enough for Struwas. “We could have been a nice profitable company serving just Connecticut customers. That's not what we wanted. We wanted to be a national company, and to do that required a lot more capital.”
The company eventually sold their plan to Vantage Point Venture Partners of Stamford, which came through with $3.5 million last January - nine months after the company was first formed.
Hard-Wired to 'Little' America
“We went from the garage to a location in Norwalk, but when we got the funding we looked at our business plan and said, 'We're not going to have enough space in our location,'” recalls Struwas. “So we moved up here [to New Haven] in February 1999. We wanted better space because we were going to build our network control center, and we wanted an area that would have redundancy, fiber in the location.
“As you look south [from Norwalk], it gets very expensive for space,” he says. “This is great space [in the Long Wharf Maritime Center] and we're paying about the same as we were paying for Class B space in Norwalk. This is a great facility - any time SNET moves people out, we take the space.”
By last March, the company had attracted another $10 million from more venture capitalists and then $30 million in May. In July, Staples Inc. invested $3.5 million, and Microsoft added $15 million. In November, DSL.net went public, raising an additional $60 million. Among the IPO investors were their original venture partners as well as Staples, which at that time increased its own stake.
“What Staples and the venture capitalists liked was that we were the first guys to say we're going after this [small business] market in the smaller markets across the U.S. We were the first to say we were going to do this national plan and link all of these smaller cities together with a national backbone,” says Raymond C. Allieri, DSL's senior vice president for sales and marketing.
For its part, Staples hopes to gain more than simply return on its investment: It plans to be literally hard-wired to small and mid-sized businesses all across the county. Likewise, Microsoft is hoping to leverage its investment with a Web site for DSL's customers down the line.
What are second- and third-tier markets? Well, the largest served by DSL.net is Nashville. On the other hand of the spectrum, the company expects to add Milford and Wallingford this year as part of a plan to roll out to more than 400 cities and towns nationwide.
Sun's belief in DSL technology has finally won adherents from companies like Bell Atlantic and SBC (parent of SNET), which have promised widescale deployments. It wasn't flashy new technology but the threat of cable Internet access that appears to be their chief motivator.
Nonetheless, telephone companies, cable companies and now other DSL companies will put DSL.net's technology and plan to the competitive test, just as it's beginning to attain traction. Sales in the last quarter doubled, but were still only about $350,000 as the buildout continues.
Allieri says DSL.net is banking on providing a premium business-class service as its competitive advantage. The company isn't planning on wholesaling its service or entering the consumer market.
“When you mix in consumer traffic with your business traffic, you can't guarantee the throughput,” Allieri says. “There are two components: There is that DSL pipe - that's the loop, and that's what everyone is talking about.
“The other piece is, how do you get the customer from the central office to the Internet? That's the expensive part of the proposition,” he notes. “Then there are private 'peering' relationships. What does that mean to a customer, when you're waiting for your screen to populate [fill]? It populates quickly.”
Sun simply says, “Competition is good. It keeps you from getting bored.”
It's unlikely that a group that went from zero to IPO and a billion-dollar stock market cap in 18 months will get bored any time soon. And one hopes that Allen Greenspan can prevent a repeat of the wipeout of 1929 as companies like DSL.net build out the new economy. If not, expect to see the rest of us in a '57 Chevy, tooling along an Arizona highway.
Either way, that wouldn't be so bad. BNH
|
Go FirstGo PreviousGo
NextGo LastGo
to Index
|
|
