Revolutionizing the Internet

Source: Globes, Tel Aviv, IsraelAug.mini storage 27--ConteXtream Ltd. chairman and CEO Nachman Shelef wants to change the Internet. He is not alone. He is one name in a long list of entrepreneurs, investors, employees, and academics for whom the idea of changing how communications equipment works to send information packets at the speed of light, has led them to set out on a new road. The thinking driving this change is that, after more than 40 years of Internet access, "the time has come to rethink everything."Shelef is one of the most prominent Israeli representatives in the hottest field in computers and communications: software defined networking (SDN), which is trying to bring to communications equipment the same revolution undergone by computers and telephony in recent years. The objective is to provide the switches and routers which transmit data on the Internet the same functionalities that Steve Jobs, for example, offered mobile telephones with the iPhone; in other words, to switch from the emphasis on hardware to operating systems and apps, and particularly to usability.A conversation with Shelef offers insights from the eye of the storm. It is at the same time also like being "Inside the Tornado", to borrow the title of a popular book on management practices from the 1990s, which discussed how a new high-tech company should deal with the massive change in the market, surging product demand, and the rapid changes needed in marketing and operations. It is not clear what is overhyped and what reality exists on the ground, nor is it possible to know where ConteXtream will be in a few years, but for now, Shelef provides interesting evidence of how it feels deep inside one of the upheavals hitting the known technology world.A new and promising worldShelef's biography includes a lot of the grey side, the nuts and bolts, of the Internet. His career spans the founding and management of NiceCom, which was sold to 3Com (Nasdaq: COMS) in 1994 (one of Israel's first exits), chairmanship of Atrica, VP business development at 3Com, and being a general partner at Benchmark Capital. At Benchmark, he oversaw investments in communications equipment start-ups TeraChip and Xeround Systems. He left Benchmark in 2006 to co-found ConteXtream with Sharon Barkai."Globes": What is the difference between being an entrepreneur in the communications equipment industry in the early 1990s and today?Shelef: "The market has changed in a great many ways. But people who have been in the sector for decades tell each other that the communications equipment market has become exciting again. There were 20 years in which nothing revolutionary happened in terms of entrepreneurship. The big companies, such as Cisco, Alcatel Lucent, Juniper, Nokia Siemens, 3Com, and HP, dominated, and there was almost no change in technology. This industry is now being overhauled, and there are opportunities like the ones that existed decades ago. Suddenly, it's exciting again. There are now some signs of a new and promising world in which everything is possible."ConteXtream provides software infrastructure on which most of the online communications control and routing is supposed to take place. Until now, similar functionality was an integral part of the hardware which routed information packets, but the new world of communications equipment allows software to assume this task independently of the traditional network equipment. Until 2-3 years ago, transferring such critical core network performance to software that was not part of the standard equipment was unthinkable. Shelef and Barkai had enough experience in the business to know this.Barkai, who previously co-founded Xeround and Sheer Networks, developed the idea underpinning ConteXream: to provide infrastructure for managing communications using software and standard computing technology instead of specialized hardware. "We were terrified at the thought that we had to sell the idea to communications providers, but we said that this was revolutionary enough to be worth a try. Most people we spoke at the telecommunications companies looked at us as if we were crazy. They told us, 'We'll never run our infrastructures on software with standard Intel servers. Not a chance.' Fortunately, we found people who thought otherwise," says Shelef.VC is trying to get back into the fieldThe telecommunications equipment market has been ignored by venture capital for years. It was not easy for Shelek and Barkai, despite their experience and connections. "Part of the reason that venture capital is barely seen in industry is that it was impossible to shift anything," says Shelef. It's very hard to become a big company in the communications equipment industry when giant corporations control it. It was only possible to innovate something small and be acquired. What makes investment attractive is building a company into an industry leader like Cisco or Google."Shelek and Barkai brought their technology to their former boss, 3Com founder and CEO Eric Benhamou, who was excited enough to become a seed investor, and ContraXtreme got underway. Today, says Shelef, venture capitalists realize that the company's technology "can completely change communications infrastructure, which is making them want to invest again in communications. A lot of venture capital funds seeking to return to the sector are talking to me."The attractiveness of SDN for venture capital funds can be seen in a recent survey by Lightspeed Ventures and SDN Central, which found that investment in SDN companies rose from $10 million in early 2009 to $500 million in the first quarter of 2013. ConteXtream has raised $29 million from Benhamou Global Ventures, Gemini Israel Ventures, Norwest Venture Partners, and Sofinnova Ventures, as well as two strategic investors, Comcast Corporation (Nasdaq: CMCSA) and Verizon Communications Inc. (NYSE: VZ), through their investment arms. Shelef says that ConteXtream is profitable, and "will probably not need more investment.""No question there will be disappointment"Although ConteXtream was founded in 2006, it and its peers in the industry only broke through to public awareness in the summer of 2012, whenself storageVMware Inc. (NYSE: VMW) made the first big strategic move, acquiring US company Nicira for $1.2 billion. The big money immediately roused the other companies, potential rivals, and investors. VMware was not the only buyer, and some other computer and communications companies also rushed to buy suitable technologies.In 2012, the SDN space was fertile ground for speculation about mergers and acquisitions. UBS recently said that innovative private companies would be the main targets for acquisitions by computer and communications vendors. It doubted, however, that prices would reach $1 billion.Shelef is unperturbed. "The right thing for shareholders is to build the company's value," he says. "The market is growing very fast. If we become a leader in a big market, our value will be several times higher than it is now."Shelef says that ConteXtream's products are being implemented by communications vendors that provide services to more than 40 million users on ConteXtream infrastructure. "We have many more opportunities than we can handle," he says. "We're now working simultaneously on four installations, and, just from the opportunities we know about, we' could be doing 14-15 installations. It's a real tornado, and we're in the middle of it."ConteXtream currently has tens of millions of dollars in sales.The SDN numbers also imply that some of the enthusiasm is unrealistic. As someone who has gone through one bubble, doesn't this sometimes frighten you?"We feel the hype. Whereas I once had to chase after people to explain what I'm doing, now everyone want to talk to us, initially to learn. I don't think that there is a chance that this will completely disappear, but there is no doubt that as in every hype cycle, expectations at this point are far more aggressive than what will happen. Things won't change overnight, and we'll reach the stage of disappointment. But I think that we'll emerge on the other side, and we'll see a new world.""It's not worthwhile for them"SDN Central estimates that there are currently 225 companies in the SDN sector, compared with none in 2009. It forecasts that the market will grow from $200 million in 2012 to $35 billion in 2018. It is possible to argue over how realistic this forecast is, but even more modest forecasts indicate very fast growth. "If you look at the hype over companies' values, some people say that we're close to a correction in values in this business. There is great deal of hype in Silicon Valley, and not just about SDN," says Shelef.The great concern about the forecasts for SDN is over the veteran equipment vendors and their attempts to avoid the change. All in all, when a giant company like Cisco Systems Inc. (Nasdaq: CSCO) wants to neutralize activity in the market, it has the means to fight. For example, in April, an open code project, called OpenDaylight, was launched by several prominent manufacturers to provide an open infrastructure for SDN. On the other hand, many large computing companies, such as IBM Corporation (NYSE: IBM) and Oracle Corporation (Nasdaq: ORCL), are interested in the opportunities created in the communications market. "There is going to be a very interesting business battle," Shelef believes.Forecasts predict that it will take time before we'll see widespread implementation of the technology. Do you have the stamina to last?"The reason that the big companies haven't trampled us is that all the leading companies have more to lose than to gain if they make an aggressive move on SDN. The leading vendors know what to do, it's simply not worthwhile for them. They cannot be too aggressive, because that will damage their business performance. This gives us an edge, for a certain time."Despite many attempts, Israel has never succeeded in creating an important communications equipment vendor, except for Chomatis and Mellanox Technologies Ltd. (Nasdaq:MLNX; TASE:MLNX). Could that change?"I don't see it that way. Israeli engineers at Cisco have the same impact as Israeli engineers at Intel. There is a lot of influential talent in the field. Besides, Check Point Software Technologies Ltd. (Nasdaq: CHKP) and Comverse Inc. (Nasdaq: CNSI) are both communications companies. There are a lot of opportunities in SDN to build a leading company."Taking the smart part outThe development of the Internet in the 1960s and 1970s did not envision its current use. Its basic protocols were designed to create an alternative communications system, with a limited and controllable range of users. Over time, equipment vendors have had to add many layers to provide more efficient and secure data transmission, which completely changed in the web era. Without these solutions, such as network security or sophisticated allocation of bandwidth, the Internet would be unable to meet the demands now placed on it.The disadvantage is that a huge operational and aesthetic mess has resulted in network cores, vendors try to keep their customers and prevent them from switching to other vendors, and the flexibility of customers -- giant telecommunications and computing companies -- in improving the efficiency of their services requires constantly growing expenditures. SDN makes it possible to make communications equipment -- the huge monolithic cabinets at the heart of communications services providers' computer systems -- programmable and thereby more efficient and cost effective.Technically, SDN separates the designated hardware layer, which handles incoming and outgoing information packets on switches and routers (known as the forwarding plane), from the "smart" part of these systems (the control). Infrastructures, such as those of ConteXtream, sit on standard servers (such as servers based on Intel processors), outside the designated hardware of the communications vendors, and provide an open environment, allowing the development of applications that can be added to the network management capabilities, such as analysis of user data, security, and improved managementCopyright: ___ (c)2013 the Globes (Tel Aviv, Israel) Visit the Globes (Tel Aviv, Israel) at .globes.co.il/serveen/globes/nodeview.asp?fid=942 Distributed by MCT Information Services迷你倉