Aruba, Colubris, Starent, Airvana, BelAir, Proxim…watching the wireless networking infrastructure startups… (WRKoss)

Interesting discussion on startups in “Wireless networking infrastructure market” — iain — full post follows —

Aruba, Colubris, Starent, Airvana, BelAir, Proxim…watching the wireless networking infrastructure startups…: “

Below I
listed the description or mission from six wireless networking infrastructure
companies, without their names in the description. ‘

  • XXXX is a global provider of optimized WLAN switching solutions for enterprises and service providers, delivering highly-scalable, flexible solutions for wireless voice, data and video networking.
  • XXXX is a global pioneer in developing and supplying scalable broadband wireless networking systems for enterprises, governments, and service providers. From Wi-Fi to wireless Gigabit Ethernet – our WLAN, mesh, point-to-multipoint, and point-to-point products…
  • XXXX delivers an enterprise mobility solution that enables secure access to data, voice and video applications across wireless and wireline enterprise networks. Our solution… allows end-users to seamlessly roam to different locations within an enterprise campus or office building while maintaining secure and consistent access to all of their network resources.
  • XXXX wireless mesh solutions are built on a unique architecture that integrates wireless access with wireless backhaul in an innovative dual- or multi-radio mesh to provide a high-capacity Muni Wi-Fi network. XXXX single-radio nodes also integrate seamlessly into the network, offering a low-cost solution for data services coverage.
  • Our mission is to enhance service creation by delivering intelligent infrastructure solutions that evolve mobile and emerging operator networks to all-IP providing end-to-end high-speed data, voice, and multimedia services. XXXX solutions enable high-speed data, enhanced voice, and multimedia services through an integrated, high-performance network architecture. Our technology delivers a new level of flexibility in the mobile network that empowers the subscriber by giving them control of services they want to receive.
  • XXXX products are designed to support the implementation of an IP-RAN architecture. This architecture delivers carrier-grade mobility, scalability and reliability, is optimized for mobile broadband multimedia service deployment and reduces capital and operational costs in comparison to proprietary protocol-based
    ‘ alternatives. Networks based on XXXX technology are supporting a wide range of mobile broadband information, communication and entertainment applications and millions of subscribers throughout the world.

Not all
of these companies compete with each other. Some have developed solutions from an enterprise specific perspective
while others have developed solutions for wireless service providers. They are all playing in the market for
wireless infrastructure driven primarily by the growth of the wireless data
market. See my 11.20.06 post on
mobile ARPU trends.
I would assume
that over time, each of these companies will find that their target markets are
increasingly overlapping as the wireless ecosystem continues to evolve. The objective of this post is to speculate
whether a large systems company can be built in the wireless networking
infrastructure market. At present, this
market has a few large incumbents, several well established late stage startups
(noted in the title) and early stage companies are being funded quarterly. What will the market look like for these
companies in 2009?

Recent Events Point the Way

The
recent S-1
filing by Aruba Netwoeks provides
for some interesting insight into the market for wireless networking
infrastructure companies. The Aruba S-1
filing might be the first of several S-1 filings and there are a number of data
points in the S-1 that help understand the evolution of the market. I expect to see Airvana in 2007 and possibly
Starent and BelAir.’

Here is
an interesting quote from the Aruba S-1 ‘Currently,
we compete with a number of large and well established public companies,
including Cisco Systems, primarily through its Wireless Networking Business
Unit, and Symbol Technologies (which recently announced that it will be
acquired by Motorola), as well as smaller private companies and new market
entrants, any of which could reduce our market share, require us to lower our
prices, or both.”
[See Aruba S-1 Page 9].’ To frame this warning, some history
is required.

When
Cisco went public they listed companies such as Digital, 3Com and IBM as
competitors and there were other well financed, late stage private companies
such as Wellfleet, Proteon, CrossComm, ACC and Retix – but there was not a
large multinational corporation that believed that networking was their mission
as a corporation. In the early hub and
then router days, enterprise accounts were the Greenfield opportunities
and battlefield
where the IP war for hubs, bridges, routers and switches was won. In
those days, when you went to enterprise
account such as a bank to sell them routers, there was an IBM account
team or a
DEC team that was well established, but these guys could not spell the
word router. They were too busy with maintenance contracts
on FEPs and selling more 360 mainframes, workstations, PCs and
AS/400s. The old mainframe guys never saw the router/IP
competitors coming. When they finally
woke up to the threat, the war was lost. Cisco was able to build a big
systems company in a market in which there
were competitors – but the competitors were smaller and primarily early
to late
stage startups. There was no large, well
entranced competitor that existed to block Cisco from acquiring
enterprise
router market share. ‘

When the
hub players began to see the threat posed by the switching startups (e.g.
Kalpana, Crescendo, Grand Junction, and Granite Systems), Cisco also realized that a significant network paradigm
evolution from hubs to switches was going to occur. Remember, Cisco formed after Cabletron and
Synoptics had started the hub wars. Cisco
went out and bought up a bunch of switching players, speculating that this was
there chance to grab the hub/switch market. Routers and switches were going to be Cisco’s core market. Today, there are several other players in the
switching market, but Cisco owns 80% market share and the rest of the players
compete for 20% of the market. Why did
this happen? I would submit it happened
because (1) Cisco realized the market overlap between routers and switches, (2)
there were no large incumbents for Cisco to fight for control of the
router/switch market and, (3) Cisco makes mission #1 protecting their core
market share.

When
Juniper Networks formed their business plan, they assumed that a large number
of alternative or new entrant service providers would be forded in the late
1990s. These new entrants would be well
funded and would need to procure routers to build networks. Cisco had a dominant share of the enterprise
router market, but the new entrant service provider market for routers would be
a Greenfield.’ If Juniper built a service provider centric
router and the market emerged as they assumed, there would be an opportunity to
build a big company by capturing market share for routers that was not owned by
an incumbent supplier. Their hypothesis
proved to be correct. ‘

Another
data point from the Aruba S-1 concerns revenues and margins. Both of these metrics seem to be trending in
a very positive direction. Revenues look
to exceed $150M in the current fiscal year and margins are in the low 60s. With performance like this, Aruba has earned a public listing.

Aruba_s1


Dynamics that will affect the
Wireless Networking Infrastructure Suppliers
:

There are
two large suppliers in the wireless networking market: Cisco and Motorola.’ Ericsson, UT Starcom and Nokia might be considered
competitors too, but Cisco is the real threat in this market. The question I would ask is: if two, three or four of these startups go
public, what will make the wireless networking infrastructure market look
different from the Ethernet switching market of today?
Will we find ourselves in 2009 with Cisco and
five dwarfs in the wireless infrastructure market? This is how we find ourselves in 2006 in
regard to the Ethernet switching market. When the Cisco team is done assembling their VOD Ecosystem, will they
focus on building a Wireless Networking EcoSystem? The challenge that the late stage wireless startups
need to think about, is how to convince end-users (i.e. enterprise or service
provider) to procure from alternative suppliers. How do they attract market share and how can
they protect it from the Cisco machine. If
it has not happened already, I know that Cisco sales team will be instructed to
link the wireless markets with their overall networking portfolio. What I mean by that is they will tell service
providers to buy Cisco and tell enterprise to buy Cisco and link the buying
decisions as one united market. I would
do it today if I was Cisco. The smaller
players need to thinking about how they change and/or protect the decision
making loop
in their target accounts. To do this, requires capital and talented people and for late stage
startups, capital is raised in the public markets.’ ‘

As I
posted a few weeks ago, Cisco has been pushing down the price for private
company acquisitions. See my 11.16.06
post on Cisco
M&A trands
.’ The companies
mentioned to start this post are all well established late stage startups (note
Proxim has already been acquired) and might be out of Cisco’s target. Cisco seems to targeting companies at a lower
price range or large public companies every few years that have a dominant
market share position.

All late
stage startups need a winning M&A event or a significant cash infusion from
the public equity markets to maintain their competitive drive. Late stage companies all share one important
challenge to overcome. They need to get
big quickly because large companies are hard to kill. It will be very interesting to watch the
strategies that the wireless networking startups employ to get big. ‘

Key to
the opening descriptions: Colubris, Proxim, Aruba, BelAir, Starent, Airvana


As
always, thoughts and comments welcome, whether private or public.’

/wrk

(Via Technology and Geopolitics.)

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