Madge Gets Into WLAN Groove

U.K.-based Madge Ltd. has been talking up its credentials to compete in the enterprise wireless LAN market, despite a late market entry and a rather chequered company history.

Now, Dear Reader, we know what you’re thinking. “Why does the world need yet another 802.11 equipment player? Especially one named 'Madge'?”

But Madge believes she can make it in this newish market [ed. note: stop me if you think you've heard this one before].

Founded in the 1980s, Madge is best known as the only remaining supporter of Token Ring networking technology. Championed primarily at the time by IBM Corp. (NYSE: IBM), Token Ring was designed to bring many of the qualities of Sonet rings to the local area network (LAN). It could automatically detect and isolate failures, support priority traffic, ensure fairness of access, and provide capability to carry synchronous traffic. Because of Token Ring’s robustness, it became a favorite for banks and enterprises. At the same time, however, a rival technology -- known to the kids as "Ethernet" -- began to evolve. It was relatively cheap and soon gained critical mass (see Lessons From the LAN).

By the mid 90s, Ethernet had won the battle of LAN technologies, and Madge Networks -- as it was then known -- was forced to diversify into two new markets and cull its 1,200-strong headcount. In 1999, it set up MadgeWeb, an ill-fated venture that managed to grab a slice of the application service provider (ASP) market until the dotcom bubble burst in the first half of 2000.

The company’s other attempt to break into new territory resulted in the creation of Red-M Communications Ltd., a startup focused on the wireless LAN intrusion detection system (IDS) space (see Red-M Reneges on IPO). Madge retained control of Red-M until 2002, when VC investors bought a majority stake in the company.

In April 2003 the CEO of Madge, Martin Malina, led a management buyout of the company and turned its attention to the burgeoning enterprise 802.11 equipment market. Today the company employs about 40 people and has to date raised a paltry £2 million (US$3.6 million) in VC investment (see Madge Raises £2M).

Not that CEO Malina seems concerned by the lack of serious funding. He claims that the company has “ongoing revenues from the Token Ring market” and touts the likes of Bank of America, Credit Agricole, and JP Morgan Chase as customers. Indeed, 70 percent of the vendor’s current revenue is generated from its Token Ring business.

The remaining 30 percent is derived from Madge’s efforts in the enterprise 802.11 space. The company has so far launched a portfolio of wireless LAN gateways, access points, and IDSs that it claims are considerably cheaper than rival offerings (see Madge Beefs Up, Madge Releases Dual-Radio AP, and Madge Licenses Red-M Tech).

In April this year, Madge launched its Enterprise Access Server 100 product, which it tagged as “the first complete sub-$1000 WLAN solution” aimed at the small to medium-sized business (SMB) market (see Madge Unveils Kit). The EAS 100 is intended to secure and manage about 100 users on up to five access points.

Adopting a channel-only sales strategy, Madge lists more than 50 worldwide customers. Moving forward, Malina expects its revenue split between Token Ring and 802.11 technology to change “very, very, quickly.” He also claims to be unfazed by a recent spate of vendor dropouts such as Airflow, Legra, and ReefEdge, as well as competition from more established startups Aruba Wireless Networks, Bluesocket Inc., and Trapeze Networks Inc..

“We’re trying to exploit the history of the company in the Token Ring space. We know how to produce products for the channel. So we have an advantage in accessing the market compared to startups. Secondly, from both an engineering and manufacturing point of view, we have a lot of experience inhouse in terms of designing products for volume manufacturing. We tried to apply that as hard as we could in development of the wireless products... We have an existing brand with expertise in local area networking.”

Despite Malina’s inevitable optimism, it is clear that Madge faces an uphill struggle to gain serious market share in the enterprise wireless LAN equipment space. To judge from Synergy Research Group Inc.'s latest quarterly vendor report, Madge appears not to have shifted enough sales to make it worthy of an individual listing, and is instead included in the "Others" category, which makes up 17 percent of North American enterprise market sales. The lowest individually named vendors were Enterasys Networks Inc. (NYSE: ETS) and Hewlett-Packard Co. (NYSE: HPQ), both controlling 0.8 percent of the market.

— Justin Springham, Senior Editor, Europe, Unstrung

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