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October 16, 1999
M D Riti in Bangalore
A Silicon Valley start-up with headquarters in Hyderabad and funding from venture capital in the US? Two years ago, four young men, three in the US and a sibling in India, decided to set up shop together and design and sell network service products.
Euclid Network Solutions Inc does not share the dream of many start-ups today, which is to make just one great product and get acquired by a conglomerate.
Euclid Inc is the brainchild of six engineers. It began with a project plan from Andra Delip Kumar, founder president and CEO of Euclid India Limited. Andra is a B Tech in electrical engineering from IIT Kharagpur and worked for six years in business development and marketing solutions for companies like Odin Computers and Philips.
Andra communicated his thoughts and ideas to his elder brother Sateesh, now 31 and vice-president, strategic marketing, Euclid. Sateesh has been technical marketing director at SiCore Systems Inc, a venture capital funded Internetworking start-up company in the US.
Sateesh, who has held several key engineering positions in the networking industry, also has many patents pending in the fast ethernet technology area.
The brothers then got together with Dr V P Shenoy, now 42, a founding member of the Gigabit Ethernet Alliance and principal member of the ATM Forum since 1992.
They also teamed up with Rao Cherukuri, now 36, co-founder and director of Ramp Networks, market leader in Internet access devices for the small and mid-size businesses and SOHO markets.
Rao has over 13 years of Silicon Valley experience in the networking industry, has several key patents pending in networking (VPN and access) technologies, and had also invested in several start-up companies in India and the US.
Rao is now chairman of Euclid Inc. Shenoy is president and CEO.
Rao, Shenoy and Sateesh together pooled in their savings and invested $100,000 in a new firm that they called Euclid India Limited with Delip, 26, as founder CEO, and two of his friends, Manoj Tiwari and Rajesh, who quit well-paid jobs as key players.
After a while, they also got venture capital funding from RCTC.
"People have a misconception that dollars come free," says Sateesh. "We wanted to take money in India to show that we were credible players in the Indian market. The atmosphere was very different then. Today, there are many start-ups getting off the ground. Eighteen months ago, when we launched ours, there were hardly any."
Sateesh says: "When these three young men together started Euclid India, we discussed their business plans with them for three months through Internet chat rooms like Rediff's, and then funded them. "We gave them the strategic directions, they executed them."
They began by making a "productivised" service that carries the trademarked name of Netwise, for the networking industry and selling it in India. The company describes itself as a new model network services provider that delivers multi-vendor multi-technologies based network solutions and services for Internet service providers to create market leadership and breakthrough positions.
At this point they got venture capital funding to the tune of $5 million from two American venture capitalists.
One of them is Redwood Ventures, the firm owned by Indian businessmen in the US, which funded firms like Cerent that was recently bought by Cisco for $6.7 billion.
The other venture capital firm, they now reveal, is on the verge of closure and they are hence reluctant to name it.
"Ours is an employee owned Silicon Valley start-up," says Sateesh. "We are an e-business architect. Earlier, businesses were using networks as a communication tool. Today, they use them as strategic assets. They have moved from linking employees to each other to linking customers, employees and partners.
"To use network as a strategic asset to enhance productivity and profitability, they have to rely on robust network infrastructure and Euclid builds this for them.
"Most people want to focus on their core business rather than on running their networks. They would like to rely on partners to provide them robust networks to run their applications with the right quality of service.
"Out there in the market, there are too many companies with different technologies and applications. There is no clear winner amongst them yet.
"The user is confused by the plethora of options. Someone must understand the customer's business and map the features of technology into his business applications.
"This is what we do with an innovative approach, through our product Netwise, which tries to run networks wisely," Sateesh says.
Rao's main interest has been in working for start-ups and on developing new products. Ramp, the company he founded, went public two months ago.
Flowise Networks got $30 million as venture capital funding. The American partners realised that networking is going to be a great business opportunity and decided to get into it right away. Now, they feel that they have got an early start and are all set to capture the Asian market in this area.
"Start-ups mostly are launched by people who have fire in their bellies and want to be entrepreneurs, who have certain visions and are hungry to do something," says Rao.
He says: "They invariably bring in seasoned people who polish it and really build business out of it. This is how we are divided up and are confident of succeeding. Our goal is to go IPO in the US in two years."
Netwise is a suite of services spread into different technology areas. There are three key important things: high-speed access, security and certain conversions. It's all collaborative marketing rather than mass marketing or direct marketing.
"You have to synthesise information and present it in the right format to the customer and take him as a partner in growing their business," says Sateesh.
"Netwise is developed to handle technologies in all these areas, like Netwise Access for DSL and cable modem, high-speed broadband technologies in the last mile, Netwise Security for VPNs and firewalls and Netwise Conversions in voiceover IP type areas."
Netwise is primarily tuned for vertical technology areas. Looking at the lifecycle of a complete network, you have the plan, followed by the design, then the operation and the optimisation. Netwise covers all these in the lifecycle of the network.
Claims Rao: "It helps us to be scalable, makes us non-linear, is process-driven rather than people-driven, and enables us to grow fast. And that is what is interesting to our investors. This is the reason why they have put money into the company."
Their Hyderabad headquarters will comprise three centres: a development centre, to develop their product Netwise further; a competence centre to train only Euclid engineers in these technologies and a call centre to help global customers find solutions.
Today, the field of network services itself is, as Euclid puts it, "very hot". Lucent bought INS for $4 billion and Cisco put a billion dollars in KPMG.
Earlier, when technologies were developed, they were only deployed at a later point in time because it had to be cost attractive and also had to be mature.
All this has changed with the evolution of e-business as they have to embrace the technology immediately.
And all the traditional systems integrators and network services companies are not geared to be able to do that. Their models are built to be able to deploy technologies after some time.
"Euclid is designed to reduce this gap between technology development and deployment," says Sateesh. "As we are in Silicon Valley, we are a part of this early lifecycle technology development trends, we drive these relationships and we build solutions around that."
"We want to become the DEL of the middle market," says Rao. "This segment cannot afford services. They can only afford solutions. They do not have huge IT budgets, face enormous competition and cannot take risks of long project execution time. Application lifecycles have become very short. So they need partners who could really help them in deploying this very quickly, so that they can bring down the cost and enable them to compete. We want to be like DEL, which does not design motherboards, monitors, memories or even hard drives. They just quickly put together configurations, test them, sell them and service them. We at Euclid would put together, for example, a voice over packet with a Celsius PBX or somebody else's voice enabled router. About 80 per cent of this would be generic and pre prototyped, and also tested for availability, reliability, manageability and scalability. That greatly reduces the risk on the customer as well as the project execution time because it becomes more template driven than people-driven. It enables them to get on to the market much faster and also improves our own productivity. This is the unique difference of Euclid's product as against Lucent's Netcare or IBM's global services."
Adds Sateesh: "We are e-business infrastructure builders. We go through telcos and ISPs, wherever externalisation takes over. But there are a lot of businesses still that are going to retain infrastructure in-house and we reach them through equipment vendors, wherever they sell their boxes and products."
All the big Indian infotech firms including Wipro, TCS and Infosys say that they cannot make and sell products globally because the right marketing infrastructure is simply too expensive.
However, small firms like Euclid, Nashsoft and the makers of the popular Tally accounting software have managed to sell their products successfully the world over by using networks of distributors and vendors. Why are the big names so reluctant to try this approach?
"If Wipro had existed in the US, at least six small product companies would have spawned off it by now," says Sateesh.
"I think they have realised this now, and you see an I Think being spawned by Wipro now. It's true that you need dollars to do your marketing, but more than that, you need to understand the market, which most Indian companies don't. All your architecture and specifications need to be written by sitting where your products are going to be used. You have to be part of those forums. This maturity comes over a period."
There are very few infotech companies making products even for the Indian market today, even though the problems of high marketing or infrastructure costs do not apply here. "Most find services an attractive business because its very low risk," says Sateesh.
"If you look at Amazon or Yahoo, for example, they may have huge market capitalisation, but they have built on that market capitalisation, which companies like Wipro simply have not done. When they went public and got good capitalisation, they could have invested some of that money into developing products, both for the Indian and global markets. Now, everyone is now thinking of either developing products or simply buying some good product companies. Even buying product companies is not a bad idea because this might help you enhance your market share and service your customer better.
"The main problem why all of Indian IT is geared to services and not products though is that they are not participating in trends that happen out there in the US. All networking technologies are defined and developed there. One has to be part of that to synthesise that information, write product architectures and create a marketing strategy. Indian companies rely on customers to give them all the inputs, define everything and finally own that IP. So your value comes down significantly. At Euclid, whatever products we develop, we are going to own the IPs and we will define ways of selling it through the right channels."
Adds Rao: "The market should follow you closely, only then can you succeed. If you are behind, you lose it. If you are far ahead, you have to wait for it to happen, and you might not have the investment to sustain yourself for that long. You must also know what size of market you intend to cater to. The Indian market, for example, is small compared to the global market, and if you intend a product to cater to India, then you cannot expect global volumes of sales from it. In India, people tend to concentrate more on time and material projects because they are easier to do and we have the resources to do that."
A major strength of Euclid is that all its co-founders have several years of developing products in networking. Rao developed voice over DSL and Shenoy has developed India's first gigabit ethernet product. Sateesh has several pending patents in this area. So they understand technology very well. Secondly, they know their channels very well. They have sold into them. The concept of productivised services, which is a second-generation technique, is quite powerful in itself. However, as all start-ups know, ideas are cheap and execution takes a lot of time.
The protocols, players, standards and approaches are quite complex in networking. Euclid's main weakness at the moment is that it suffers from a shortage of trained or experienced staff in these areas.
"We can't get them even if we are willing to pay a premium for them," says Rao. "We have to train such people, work within our channels and complete our commitments in a timely fashion."
As of now, all the major players are focussing on the applications of e-business, and not on its infrastructure. And this is what provides Euclid a major niche and business opportunity. In an environment where all businesses have to become e-businesses shortly, with networks between partners, suppliers and employees, IT and network infrastructure has to be productive and profitable. As of now, no company is placing much emphasis on the setting up of this kind of infrastructure.
Telcos have a huge pipe, but they have no platforms within those pipes on which services can be sold. This is why there is now a trend of mergers like the MCI-Sprint merger for $120 billion. Again, heterogeneous equipment is going to be deployed in networks. This provides a further opportunity to companies like Euclid, which can help such firms articulate their technology before the customer.
It is the companies like IBM Global Services and other big system integrators that Euclid perceives as the biggest threat to them.
These companies either develop such strategies on their own or simply buy over firms like Euclid that have developed these strategies.
Does Euclid really want to evolve into a significant player in the networking products and services niche? Or are its co-founders just those that want to develop one or two good products that will help them attract a big buyer?
There are reputedly three to four dollar-millionaires in Bangalore because the start-up Armedia, which has about 80 per cent of its workforce in Bangalore, was bought over recently.
Similarly, Sabeer Bhatia bought Arzoo from India. T S Rajesh's Gray Cell is now poised to take off and do very well shortly.
Does Euclid see itself as a Gray Cell or as an Armedia?
"I think we have much bigger prospects in growing into a big player ourselves and selling our own products across the entire globe," says Sateesh. "This is why we are looking at the Asia market in a big way."
Adds Rao: "We want to be the number one in our field and go IPO, not sell ourselves out!"
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