Milestone Group Quarterly: January 2007
Articles
Face to Face:
Vivek Khuller, CEO and Founder, DiVitas Networks
Milestone: Tell us about DiVitas Networks. You've taken a huge step towards wireline/wireless convergence for the enterprise, how has that happened?
Khuller: I joined a firm called Matrix Partners as an Entrepreneur in Residence. It was in those days that Skype introduced their Apple product. The moment I saw Skype, I saw that anything to do with consumer voice was a done deal. Somebody had just commoditized it to the point where consumer voice was going to be making zero dollars. Skype is probably one of the largest carriers in the world. They claim to have more than 100 million subscribers, more than what any U.S. carrier can claim.
Basically what that told me was that anything to do with consumer communications was not an area that I needed to be focused on. After my EIR expired at Matrix, I joined Clearstone Venture Partners, primarily focused on the enterprise. The key observation that I made there was that the majority of the enterprise workforce was still not mobilized, whether by WiFi or cellular. (The point really hit home after you work with a venture fund, you become a decision maker in terms of how much of your phone bill can be expensed.) The other key observation was that laptop users were already mobile on the information plane.
There was one thing that was there on everyone’s desk and that was a (wired) desk phone. We asked ourselves why is it that that phone has not been mobilized?
Then the question to ask was, “why that is that so?” Basically we came up with three reasons at the end of the day. I interviewed at least 20 people including CIO’s of large corporations, IT managers for small-to-medium sized businesses, resellers and distributors and asked them why they have not adopted mobile voice communication solutions for everybody in the company.
There were three reasons.
Number one was cost. If you compare the price of a desk phone in terms of the device and the service and you compare that to a mobile cellular service, it’s very expensive. The cell phone is 5 to 10 times more expensive than a landline deskphone.
Number two was control. One of the key observations we made was that the majority of the enterprises like to buy a PBX solution in spite of Centrex being available for the longest time. Enterprises have always had the option of outsourcing their voice communication to carriers in the form of Centrex. However, there is no leading indicator that the enterprises have adopted Centrex in a meaningful way. One reason is that, with a PBX, enterprises have control over customization and compliance. For example, in the case of a hotel, the same PBX that is used by a front office sales person is also used by the back office person to manage supply chain and the receptionist to set up guest wake-up alarms. In this case the PBX would be talking to three different apps, controlled and customized by the hotel.
To understand the need for compliance, take the case of traders on Wall Street. Their calls with clients need to be able to be recorded for compliance reasons. Investment banks, that employ the traders do not control cellular phones. Therefore, it is not easy for the banks to enforce this compliance requirement. However, the banks do control the PBX-based desk phone system, which enables them to meet the compliance requirement.
There are many other such examples that show enterprises would like to own one of the primary means of communication rather than outsourcing it to a carrier. That was an extremely important thing for us to learn in terms of what a potential solution should look like in order not to break the existing way of doing business.
The other universal reason we found was complexity. For the enterprise, just to manage one additional device is a pain, it’s costly and complex. Letting people expense cell phones for their office use is the simplest way of staying away from the complexity of giving a device to someone and then being responsible to manage that device. The only times where enterprises have gotten into managing third party mobile devices is in the case of email where companies give out Blackberrys to people, but email penetration is less than 5% for the typical enterprise.
To expect an enterprise to give out mobile phones to all of their employees and then manage those the way they do their PCs today – it adds up to a lot of cost. People really want to minimize the amount of devices they manage and ideally have the same device function in many ways.
These three categories -cost, control and continuity – were what we wrestled with in order to come up with a viable mobile solution that would meet the needs of the enterprise in a way that they would be willing to give a mobile deviceto everyone in the company, regardless of their job function or place in the hierarchy.
Milestone: Many analysts seem to think that growth for wireless carriers will come from the enterprise (as the consumer market is now saturated). How does DiVitas play a role in moving this along?
Khuller: We kept the technology out, we kept the wireless out. We just looked at how people conduct business today and manage their voice communications. What is the decision making process today? With any new solution we come up with, we have to know where people are willing to compromise, and where they are unwilling to compromise. If it becomes an area where they are unwilling to compromise, then your solution is not going to meet their needs because the upside is not going to be greater than the downside.
Milestone: You characterize your mission as the three C’s: "minimizing the cost and loss of control of mobile enterprise communications while maximizing the continuity of disparate networks." With cost savings, you essentially provide the enterprise a means to control the network through Fixed Mobile Convergence. How do you measure the cost advantages to the enterprise with this technology?
Khuller: The enterprise can be segmented into two parts. One is a small minority, which is less than 30%, consisting primarily of senior executives and sales people who are already mobilized using cellular. These are people we call road warriors. Road warriors have been mobilized because enterprises are willing to put up with the downside of lack of control and high cost because these people are obviously worth mobilizing.
But the majority of the enterprise is not mobilized, these are what we call corridor warriors. These are people who, from a CIO’s perspective, are not worth mobilizing. If you look at the true ROI that can only be applied to those who have been already been mobilized through cellular, the justification is quite straightforward. You’ll find in most cases 50-60% of the cellular calls that the road warriors make are either from their home or their office.
Those calls could easily be made over WiFi over an existing fixed line network, so that cost structure can be brought down from a wireless or a cellular cost structure to a fixed line cost structure which is disruptively cheaper. There the ROI plays out very simply. The upside to them is that now all the PBX functionality and third party applications that we are enabling, can be extended back into the cellular.
The key disruption that we bring to the market is that we are able to mobilize the corridor warriors, people who are yet to be mobilized at the cost of the desktop.
Cost is no longer an issue, control is no longer an issue and mobility comes for free. These people can continue to have a cellular plan on their phones just as they do today on a personal basis. Companies do not have to compensate them for their cellular plans, but the two numbers can now co-exist on the same device. At least these people have the option of being able to make and receive calls when they are not at their desk.
Milestone: How do you manage migration to wireless devices? It’s partly because you are addressing the ROI/TCO issues around wireless vs. wired but you are also, more importantly, beginning to make it such for a larger community within an enterprise to adopt wireless?
Khuller: Yes, the question you may want to ask us is why do the corridor warriors need mobility? The business is still getting done. The company is not going out of business because the people are not mobile. The key is that if you see the decision making that we use as consumers when we go to buy a phone for ourselves. Do we ever think twice about buying a corded or cordless phone? No. If we are buying a phone for our personal use at home, we will buy a cordless phone. We want to have the option of mobility. It’s true at work as well.
The fact is that the number of laptop sales has exceeded the number of desktop sales. Almost everyone, including the corridor warriors, is mobile. The probability of finding anyone at their desk, according to research, is less than 30%. If I call you and find you, it’s quite likely I am not going to find you, I am going to leave you a voicemail and you are going to try to reach me back and its lost productivity and lost responsiveness.
If you look at the U.S. economy, if you look at the whole macro picture, we have been able to use technology extremely effectively to increase productivity. That is the core reason why over the last 10 years technology has done so much for us. It’s one of the final frontiers; it’s amazing that if you see the consumer penetration of mobility it is about 70%, but mobile penetration in the enterprise is less than 30%. There is a 40% arbitrage that needs to be closed. It’s like saying that when you enter the four walls of your office you are no longer mobile.
There is a significant opportunity to drive productivity and responsiveness in that market.
Milestone: Telco's thought that providing backroom operations for businesses, as with Centrex, would deliver cost savings, but it turns out that control was as important a driver (with the popularity of PBX, for instance). Does convergence in the enterprise (between voice and data) have to be an either/or proposition between cost and control for the carrier?
Khuller: I don’t think it is an either-or proposition. In the grand scheme of things, what DiVitas is enabling in the market is a way to increase the size of the mobile buy. Right now the mobile buy is sized at 30% and we are enabling it through new technology, such as WiFi, such as dual mode, smart phones and open source applications.
DiVitas is enabling the enterprise CIO to be able able to offer mobility as a solution for a much larger number of users than they can today. Then the carriers have to figure out how to leverage that. For example, if I am able to justify giving mobile phones to the 70% of corridor warriors and they all carry a mobile phone as opposed to having just a phone on their desk we can now be the Trojan Horse for carriers who can up-sell new services or existing services that they cannot penetrate because of their cost structure. The second thing is the server that can sit on the enterprise, it can be remotely managed or even sold by wireless carriers. That can extend the footprint of the carriers from being just outside of the enterprise to the inside of the enterprise.
They can offer more management services, system integration services. It’s just a matter of the carriers recognizing that this is a pretty unique and practical way to solve a problem that has yet to be solved and DiVitas has taken a pretty interesting approach to leveraging destructive technologies to do it.
Milestone: What about for the enterprise? What role does the carrier play in your vision?
Khuller: When we founded the company, we started with a clean slate. We did not come up with a technology and look for a use. We actually tried to identify a pain-point to solve and then asked whether pieces of existing technology can be put together to solve this human problem. The human problem we identified was lack of mobility for the vast majority and expensive mobility for those who are already mobilized.
Now, from a management perspective, how the solution is sold and commercialized, the carriers can play a tremendous role in that. They can sell the solution, they can manage the solution on an ongoing basis and the number of subscribers now that they can address is much larger than they are addressing currently. If you see the mobile penetration for email is less than 5%, mobile voice penetration in the enterprise is less than 30%, it’s a really small penetration. If a company like DiVitas can address the issues for the remaining 70%, it’s a huge issue for carriers to go after.
The wire line carriers have been in this business – remote management and systems integration – for the longest time. You have Verizon’s Enterprise Solutions Group, which is completely focused on systems integration and remote management and outsourced management for large enterprises. The wireless carriers can do the same with a solution such as what we are doing.
Milestone: Are we there at the application level yet when it comes to network integration? What needs to happen (and when) in order to deliver on widespread adoption of Fixed Mobile Convergence and the fully mobile enterprise?
Khuller: It’s very important when we use the term fixed mobile convergence to define it. From our perspective, the term has been only narrowly addressed, or understood, by saying it’s a convergence of an existing fixed network with that of a cellular mobile network. I think it goes way beyond that. On the network side, there are at least three other mobile networks in the process of emerging: one is the enterprise WiFi network, the second one is the public WiFi network, and the third one is what we call a cellular network. Then you have the legacy fixed network that is available. So the mobile network that we are talking about consists of at least three types of mobile networks converged as one. The ability to move from an enterprise WiFi to a public WiFi or to cellular and back and forth is another. The fixed network becomes yet another.
The second aspect of fixed mobile convergence is at the application level…mobilizing currently fixed applications. There is fixed mobile convergence happening at the application layer. Then there are the functionalities of existing fixed devices, for example, the desk phone is a fixed device. A laptop that sits on your desk is a fixed device and taking the functionality of those devices and putting that over a cell phone, over a single device that is mobile is device convergence.
From our perspective, fixed mobile convergence is not just about networks. It starts at applications, mobilizing currently fixed applications to devices, and mobilizing that to networks.
Fixed mobile convergence is affecting the entire value chain, from the application, to the device, to the end user to the network. And applications are going to be key because, at the end of the day, people are going to be asking why is fixed mobile convergence important to me? Why should I care? If we just focus on the network side, people are going to say “so what?” Unless and until there are applications and devices you can truly benefit from, the convergence is of little use.
The way we have architected our solution is to use the device as the means to application integration within the enterprise (under their control) and our client enables applications to be available over any network no matter where you are. We have focused on applications-convergence from the get go, even though it was a new thing when we started.
Milestone: What do you see as industry trends in 2007?
Khuller: So far the fixed mobile convergence has only been understood as a network convergence. That has to do mostly with the fact that wireless carriers need to leverage existing fixed networks to extend their reach. They looked atWiFi as a potential technology that could help them do that in areas where they don’t have coverage. So they only look at it from a coverage perspective and have said, ‘Okay, let’s useWiFi, because WiFi is connected to the Internet so fixed mobile convergence makes some sense. That value proposition was somewhat good for consumers, but the moment you start looking at enterprises, applications become key.
There is a huge difference in how enterprises treat communications versus how consumers treat communications. Consumers talk to each other over a mobile phone, and voice is good enough. In enterprises, voice communication is very closely tied to information. If you are on the phone with a client, you may need to know what stock price the company’s trading at, or what were their last three announcements. Needing to have the information in front of them, ties people to their desks…because that’s where the information part is.
What we found (in enterprises, as opposed to consumers) is that information has a very strong relationship to communications and therefore that has direct impact on the ability to mobilize the app along with the mobilization of voice. You had to think through that right from the get go because it would affect the way that you would architect your solution.
But the US research community is being starved by the current Federal Government. And equally as big, if not a bigger problem, is that the number of students who come up through US universities studying science and technology is falling.
Office assistants are another example. They cannot leave their desk because they don’t want to miss a call that might be coming in for their boss. I have been at venture firms where an assistant could not go out to get lunch or even go to greet somebody because she would miss an important call from one of the partners. If you can now mobilize that basic phone functionality, the assistant can now go make photocopies, he or she can be on the road and a lot more productive than they are today.
Milestone: How about for DiVitas? What’s 2007 look like?
Khuller: In 2007, the DiVitas basic goal is customer focus. We started the company by listening to the market, asking people their needs and then devising the solution appropriately. When we started out, we were the only company and even today we are the only company that has really announced and taken a strong stance on enterprise FMC, as the market likes to call us (even though we think we are more than that). It was a very pioneering approach, there were 5-10 other companies that were funded with an FMC solution. The good news is that the market and the influencers understood and recognized what we were doing.
2007 is going to be about executing for us, bringing to fruition what our vision was and finding a core set of customers who are going to use the product and truly benefit from it. They’ll become the flag bearers for us to get the message out. It is a generic problem that needs to be solved, not just in the United States, but everywhere. The market is large and we will hopefully make money and make our shareholders happy.
Milestone: You have been very successful in fundraising. Any advice for those trying to fund a business these days?
Khuller: Number one, start with being intellectually honest, you have to be really honest with yourself. Look at what you have and ask, ‘is it an aspirin or a vitamin?’ Be honest in the answer. There is nothing wrong with selling vitamins. One should also recognize that aspirin is something they need now and will pay anything for it. The second is how big is the problem? How many people have headaches and how many people need vitamins? That’s very important.
It is okay to start with a small market. And this goes to my third point: how fast is the market going? If you look at the smart phone market, it’s a very small market but is expected to be a very large market in the future. Make sure that you are along that trajectory, you don’t want to be too early, but at the same time you don’t want to be too late.
The fourth point – how you decide to spend the cash - is the least under your control, but it can be somewhat controlled by the amount of money you raise and how you utilize it. If you find along the way that the market is slower than you expected or you make certain assumptions in the market that are not on the money, then you either change direction or you slow down your burn.
I look at startups, they are like sprinters and large companies are the marathoners. They are both athletes but they are different types of athletes. A startup has a lifetime of around 2-4 years, if it goes beyond that, they are tired. They are unable to then get to the critical momentum or what we call escape velocity to then be completely independent. One has to completely recognize that fact and then manage the resources, which is the cash that you have and make sure that you are able to get the wind behind your sails and be successful.
Milestone: What do you wish you knew in 2005 (when you started) that you know now?
Khuller: I always knew hiring people and building a good team is really challenging. Building a team and culture in a company requires a lot of work and dedication. If these things are not done up front, they will never be done. One should have a very clear view of what their goals are when creating a new company or a business.
Is it just to make money? Is it to make money and to build a sustainable company?
If it is the latter, it requires a lot of discipline and a very high bar because then you have to judge people not only on their ability to perform functionally in their job roles, but also in their ability to get along with others and to build a culture which sets the company to be a great company from the get go. Otherwise you end up leading a company that just meets the asset arbitrage which means filling a need for a certain product that is missing in the market. After closing that arbitrage, (i.e. meeting the need for a new product), the company does not have the strength to sustain as an independent entity. The latter requires a lot of discipline and a lot of work and that is a lot harder than I thought it would be.
Vivek Khuller is the CEO and founder of DiVitas Networks. Prior to founding DiVitas, Vivek held the position of Venture Partner at Clearstone Venture Partners, where he incubated DiVitas. Vivek also was Entrepreneur-in-Residence at Matrix Partners. Before Matrix, he worked at Sycamore Networks in business development, leading strategic sales for the tier-1 carrier market and managing software business development worth several million dollars. Vivek worked at Verizon Communications in various roles, including Manager of the Internet Center of Excellence as well as in Network Systems Engineering. At Verizon, Vivek received the Spirit of Excellence Chairman’s award, the company’s highest honor in recognition of his technical leadership. Vivek earned an MBA with Distinction from Harvard Business School, an MS in Electrical Engineering from the University of Maryland at College Park, and a BS with Distinction in Electrical Engineering from Mangalore University, India.
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