Market woes hit two networking startups

SAN FRANCISCO – An apparent recovery in the market for metropolitan-area network gear came too late to save Coriolis Networks Inc., a startup maker of MSPPs (multi-service provisioning platforms) that closed shop on Jan. 20.

Another boom-era startup, Appian Communications Inc., reportedly had shut down earlier this month but is in transition, according to a top executive.

“The company has not shut down. We have, however, scaled back the operations and have put many things on hold. We are in the process of evaluating certain options that we cannot go into details of at this time,” Anand Parikh, Appian co-founder and vice president of business development and product management, wrote in an e-mail message Friday.

Both were founded in the hot networking market at the turn of the century with the aim of helping service providers offer new kinds of data services over metropolitan networks.

Appian, in Acton, Massachusetts, has been offering a hardware platform for Ethernet services over existing metropolitan SONet/SDH (Synchronous Optical Network/Synchronous Digital Hierarchy) fiber rings along with software that tied into existing management systems. In all, it has received more than $80 million of investment from several venture capital firms.

Coriolis, which attracted funding from some major venture capital companies beginning in 1999, made a “third-generation MSPP” that combined several network components and allowed service providers to carry traditional TDM (time-division multiplexing) traffic as well as new data services such as Ethernet over existing fiber rings, according to Greg Wortman, who was vice president of marketing and product management at Boxborough, Massachusetts-based Coriolis.

“The company had four customers, was doing pretty well and survived the hardest part of the telecom slowdown,” Wortman said. On the downside, it was still struggling to sign up a large U.S. carrier as a customer, he said. The board decided to shut the company down after it was unable to close a deal for fresh funding.

“There’s an expectation from VCs at that stage of a company’s life that there’s a certain level of revenue,” Wortman said. Coriolis’ intellectual property and assets are now owned by a bank consortium that is trying to sell them. Wortman and some other former employees are considering buying the intellectual property and starting a new company with a tighter focus, he said.

General Communication Inc., in Anchorage, Alaska, uses Coriolis products to provide Ethernet services across the Anchorage area and has been happy with their performance, according to David Morris, vice president of corporate relations. The company is already in talks with other companies that have offered to continue support for the Coriolis products, he said.

“We don’t think we’re going to have a negative financial impact, but it will force us to look at platforms of other performers,” Morris said.

Both companies have been offering the three key things service providers want, according to Michael Howard, principal analyst at Infonetics Research Inc., in San Jose, California: a box that can create revenue streams through new services, reduce capital expenditures, and streamline operations to cut ongoing costs.

However, the crash in telecommunications investment starting in 2001 made carriers more wary of startup equipment makers — and gave their current suppliers, such as Nortel Networks Corp. and Cisco Systems Inc., time to put some new service capabilities into modules for existing platforms.

“The marketplace is not only unforgiving these days, it’s really unwelcoming to newcomers,” Howard said.

After a decline in 2002, the multiservice SONet/SDH equipment market grew 24 percent in 2003 to $1.65 billion in worldwide revenue, according to Dell’Oro Group Inc. analyst Jimmy Yu. He forecast 15 percent growth in 2004, to $1.9 billion, calling it a leveling of a still-healthy growth curve. Service providers like the new technology for the flexibility it offers, but more established vendors have had more luck than startups at selling gear, he said.

The shake-out of smaller vendors probably isn’t over yet, but that doesn’t mean it’s hopeless for all startups, Infonetics’ Howard said. Starting about a year from now, he expects service providers to seek out more advanced capabilities that clean-slate startups such as Coriolis and Appian built into their products.