Khosla: Optical Market's Still Huge
Khosla, a venture capital partner at Kleiner Perkins Caufield & Byers, predicts carnage for most of the optical networking startups in existence today. But he still has a rosy outlook on the overall communications market, predicting that true growth hasn’t even started yet and that some companies will have market capitalizations that exceed the current market cap for the entire industry.
Khosla played to a packed house when he delivered the opening address at the CIBC World Markets metro optical networking conference held at the Ritz-Carlton hotel here Wednesday.
Khosla's major concern is the overcrowding of startups in the market, and the general similarity of their business plans.
“It’s hard to tell what’s really going on with some of these companies,” said Khosla, who expects 95 percent of all current networking startups to fail. "There will be more losers than winners."
The rosy part of the picture is that the winners will be divvying up a much larger pie. Enterprise customers, he noted, aren’t slowing down on bandwidth purchases; and even though the capital markets are constraining spending by carriers, Khosla feels that in order to provide better services (and secure more revenues) those carriers will eventually need to buy the equipment that can deliver those features.
“I would argue that we haven’t yet reached the real need for networking,” said Khosla, who's projecting that future rewards may be bigger than anything accomplished to date.
"I suspect we will see the first trillion-dollar market cap come out of this sector."
Of course, for investors (and customers), the trick is picking the companies that will win. And because Khosla has shown he knows how to do that, his advice was hastily scribbled down by many in attendance.
“The basics [for picking winners] has to be fundamentals,” he said, recommending a search for “deep technology or technologists” who can give a company a technological edge. Investors should also look for companies that deliver a “large economic advantage” to their customers, and should be patient if the technological risk involved means the product takes longer to build.
After his speech, Khosla told Light Reading that what really matters in a startup are the people, since business plans always change.
"Some people try to assume they understand the market, and I always say that I don’t. Fundamentally, I bet on people, since no business plan is ever right. What you need are people who can adapt to change. Some can and some can’t."
-- Paul Kapustka, Editor at Large, Light Reading http://www.lightreading.com