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Nexagent Makes Strategic U-Turn

Light Reading
News Analysis
Light Reading
7/29/2005

When Charlie Muirhead, a.k.a. "the Telecom Toff," was in charge of U.K. startup Orchestream, he switched strategy so many times that Light Reading started a story on its "VPN Push" with the following quote from Lewis Carroll's Alice's Adventures in Wonderland:

"I know who I was when I got up this morning, but I think I must have been changed several times since then." So said Alice to the caterpillar. (See Orchestream Preps VPN Push.)

Much has fallen down the rabbit hole since then. Orchestream stumbled on and eventually got sold (see Orchestream Goes for Peanuts). And Charlie went on to give VPNs an even bigger push, courtesy of a new startup, Nexagent.

Now history is beginning to repeat itself. Muirhead is switching strategy. "If there's one thing you know you'll get wrong with a startup, it's the business plan," he says.

Muirhead set up Nexagent to address the needs of big enterprises wanting VPNs that stretch everywhere. The original idea was to set up peering points and a service operations center that would allow integrators and carriers to stitch together VPNs from multiple carriers (see Nexagent Promises VPN Nirvana).

Muirhead says major network operators liked the concept and technology, but disliked the open-house model, fearing that it would commoditize the VPN market (see Orchestream Goes for Peanuts).

To understand why, it's best to consider an example. Suppose had a corporate customer that wanted a VPN that stretched into a few countries where it didn't already have local partners. Under the existing system, BT would negotiate bilateral terms with each one. Under the Nexagent system, BT would encourage each of the local operators to link their networks to a Nexagent peering point. From BT's point of view, this would merely make it easier for rivals to compete with it in the future; all they would need to do is link to a Nexagent peering point to offer comparable coverage in those countries.

"The carriers wanted to build their own interconnect points with their own interconnect partners -- the same model the telecom industry has always had," says Muirhead. As a result, Nexagent has dropped the idea of operating peering points itself and has become a technology and integration services provider, licensing its interconnect management software and specialized service control hardware.

"We're more like a traditional OSS company, licensing our software," says Muirhead.

A number of operators have embraced the vendor's concept, and have made their networks available for Nexagent-based VPN connections, the latest being Asia Netcom (see Nexagent Opens Gateway to China and Carriers Join Nexagent Program). These operators, basically, are willing and able to connect with any service provider wanting to build a VPN network, using Nexagent's technology.

"Two customers have licensed the technology, and we're helping one to build its grid this year, while the other is still in testing mode and is set to launch next year. Altogether, we're engaging with three very large carriers and three global systems integrators. And we're also talking to carriers about how they can use the software to rationalize their internal network management, too."

Muirhead says that the systems integrators can play an important role in the enterprise VPN market, and that they're interested in Nexagent's technology as a way to manage the networks of companies that outsource their IT and networking capabilities.

Ovum Ltd. analyst Chris Lewis reckons this "could herald a significant threat to the global telecom service providers if some of the big systems integrators take this on. There's a lot of enterprise interest these days in managed services and outsourcing, and a bigger portion of companies are turning to the integrators and taking the telecom services portion to them, too."

And Lewis believes Nexagent's new approach is much more digestible for the industry overall. "Everyone had a problem with the original approach. The carriers saw it as a massive threat, and it didn't give the integrators as much control as they like. This new strategy is much clearer, and a good prospect for integrators with telecom service aspirations."

Now that Nexagent has found a more appealing model, it needs to build a business and give the company's backers, such as Apax Partners, some returns (see VPN Player Collects Cash).

"We're generating revenues now -- we have some multimillion dollar contracts. But we still have enough money from our last funding round to take us to profitability, though some of the existing VC investors have put in more money than they originally committed in order to allow us to accelerate our international growth," says Muirhead.

International growth isn't the only thing on Muirhead's mind these days -- he also has a local dose of celebrity status to deal with, as he was named recently by the British edition of GQ magazine as a "Lead Role Model" for young, up-and-coming gentlemen with massive aspirations and almost zero hope of making it. Muirhead was listed as one of six "Men Who Can," and described as an "Indecently youthful IT phenomenon with a serious startup habit."

Bizarrely, the other five are: Winston Churchill (politics, like, 60 years ago); Steve Jobs (tech/media); Bobby Moore (sport, captain of the England soccer World Cup winning team in 1966); Tom Ford (fashion, Gucci's creative director); and Clive Woodward (rugby coach).

— Ray Le Maistre, International News Editor, Light Reading

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