Problem solving over the net will be dynamic and immediate. Help desks will be transformed.


Future Trends by Dr. John M. McQuillan

New Ventures Drive the Net

If you want to know where the Net is going, you have to watch the venture-backed startups. The innovation comes from startups across the board–in chips, switches, routers, Web infrastructure, e-commerce software, and even the new generation of service providers. Increasingly, the real breakthroughs in performance, functionality, and business models, come from new ventures, who are defining the future landscape in the network business.

ACQUISITIONS. Consider the prices being paid to acquire networking ventures before they even have any significant revenue. In just the first half of 1999, nine pre-revenue networking ventures were acquired for more than $240 million each, for an aggregate of $3 billion: Argon, Assured Access, Castle, Epigram, Fibex, Lightera, Omnia, Redstone, Shasta. The acquirers include Cisco, Nortel, Siemens, and others.

Before this year, only one pre-revenue networking company had ever been sold for more than $200 million. There has been a big uptick in the market value of network ventures, due in part to traditional vendors realizing they cannot afford to be left behind as the world shifts to IP.

What are some of the hot new areas we are pursuing at McQuillan Ventures?

CHIPS. At the bottom of the food chain are the chip companies. Network processor companies promise to shorten the time to market for vendors of switches, routers, traffic management devices, and Web and telephony equipment. These new chips provide both very high performance, often equivalent to a dozen Pentiums or more, and flexible programmability. Just like Intel creates much of the value in the PC world, these young vendors want to capture more of the value chain in networking.

SMART ROUTERS. The world of routers is changing. A few years ago, Cisco offered a single model at the top of the line, for enterprises and service providers, for all different applications. Now startups have attacked Cisco on all sides, building lower-cost routers for enterprises and Web server farms, smarter routers for the edge where services are created, and faster routers for the core of the net where optical bandwidth is located.

OPTICAL SWITCHING. Optical networking is a huge initiative, with many startups working on the challenge of switching very large amounts of traffic optically. Investors are convinced that this revolution has only begun, and that optical communications will eventually reach everywhere in the network, with multiple colors of light.

The SONET (Synchronous Optical Network) optical rings that are common in today’s metropolitan areas were designed for an era when telephony dominated data traffic, so they use circuit-switching technology. Startups have targeted this market, bringing packet switching to the fiber rings, cutting costs by a factor of 5 or 10.

DSL/CABLE MODEMS. The first mile in the network continues to be an important bottleneck. The major contenders are DSL (Digital Subscriber Line) for the telephone infrastructure, cable modems for the television infrastructure, and wireless and optical for other situations.

VPNs. Investors sense that the Internet can take over most of the functions of today’s private data and voice networks. To succeed, virtual private networking startups must convince corporate customers that their products make the Internet secure, reliable, and predictable. The Net will soon be ready for mission-critical business traffic.

WEB TRAFFIC BUSTERS. The huge amount of e-commerce on the Net is stressing the Web infrastructure. New ventures are offering many different kinds of solutions. Web switches and load balancers manage the traffic flowing to multi-server Web sites. Caches store the most-frequently accessed pages closer to users, to cut down delays and reduce transmission costs. There is a lot more to be done here, to continue to scale the Web as e-commerce grows to be a trillion dollar market.

CONVERGENCE SOLUTIONS. One of the most exciting areas for new ventures is the convergence of the Internet and the public switched telephone network (PSTN). Some startups are working on replacing traditional PSTN switches with modern packet-oriented switches. Another key challenge is transporting voice in packet form-some vendors are doing this across the core of the Net, while others are enabling integrated access on the first mile, the costliest segment.

The pace is picking up. The Net is changing daily. Startups are the change agents.

You can reach McQuillan Ventures at