Mind your markets

by Pimm Fox

January 5, 2001 —

Judging from conversations with business analysts and consultants, after the first blush of excitement, the start-up field is often littered with problems, missteps and hard luck. That's not to say some of these companies won't find wide acceptance, but for most would-be entrepreneurs, the chances are slim.

So what do our Emerging Companies need to do to keep the attention of information technology managers and thrive in their markets? Here's what several industry insiders said about three key sectors.

Outsourced Storage

Nishan Systems in San Jose, an Emerging Companies winner, says the best way to securely transmit data between storage devices and networked servers is over existing networks that use standardized IP.

It's a safe approach to be sure, but Mark McDonald, who heads The Center for Process Excellence at Andersen Consulting in Chicago, cautions that Nishan must consider that while acceptance of a new transport protocol, Fibre Channel, may be far down the road, some sectors of the market will wait for it. "You want something with technology legs, something that isn't going to lock you in before you are sure what will work,'' he says.

Yet Nishan claims its storage-over-IP products can deliver service as fast or faster than Fibre Channel technology and eliminate the need for new networks. And with storage over IP, stored data can be accessed from anywhere; Fibre Channel technology is limited to 60 miles. Fibre Channel advocates counter that it has price/performance leadership for storage and networks and supports multiple protocols such as SCSI, TCP/IP, video or raw data.

So a challenge for Nishan is to figure out to what extent the competing standard will win favor, and then how to build in support for new technologies once they become viable and offer the same service levels.

And then there is the specter of EMC Corp. in Hopkinton, Mass. -- the industry's dominant storage provider. According to Julian Chu, an analyst at Cambridge, Mass.-based Internet strategy consulting firm Mainspring, "EMC has high margins and most of its product development is in software -- the replication of data over a wide-area network." Yet there is potentially financial support for Nishan coming from EMC and several reseller partners set to introduce storage-over-IP products. And in September the company bolstered its war chest with a $50 million funding round and strategic investments from industry heavyweights like Sun Microsystems Inc. and Dell Computer Corp.

Internet-Based Apps

2netFX, an Emerging Companies winner, sees broadband over IP-based networks as the way to deliver content to customers faster using multimedia streaming. By focusing on high-quality digital video to desktop PCs, TVs and kiosks, San Jose-based 2netFX sees opportunity in broadband Internet broadcasting, conferencing and corporate and educational training.

But Baskey wonders whether the company "can play the scale game in the business. Scale doesn't matter as much in the [customer relationship management] space as it does in broadband," he says. "People have been talking broadband since 1994, and it was the right business model at the wrong time. To take advantage of the broadband network you have to deliver your service to lots of customers, otherwise it may not be profitable."

Echoing the economy-of-scale dilemma for video stream, Chu says it quickly becomes a commodity service for the lowest price: "The play that wins is a combination of operational excellence for the lowest price along with meeting industry standards." That's what 2netFX says it's in the process of doing.

E-Market Exchanges

In the e-market space, "the exchange is only valuable as more people use it," says Chu, "that's why market penetration is a success factor and a prime driver in the business." With its software, Emeryville, Calif.-based CommerceRoute Inc., an Emerging Companies winner, allows participants to collaboratively share and automate processes over the Internet without placing a burden on IT departments. So while the IT staff may need to facilitate the initial installation and operation, it isn't a daily task.

Travel2Events.com uses CommerceRoute software to integrate fulfillment partners and manage workflow by connecting travel and entertainment providers with publishers and sites to achieve an open support system. CommerceRoute automates data exchange with the fulfillment providers' systems.

"Order fulfillment has proven the Achilles' heel for many e-commerce companies, not in terms of outbound logistics, but more broadly in many areas of supply-chain management," says McDonald. CommerceRoute wants to stay in the spotlight as it helps firms avoid this pitfall.

Regardless of their market, start-ups face an uphill climb. Only a small number achieve success, whether they are bought by larger companies, merged into others or morph into something new.

The winners are those with the lucky -- and calculated -- combination of talent, timing and resources.

Computer World