(B) Following is the part I of a case study that I wrote, and which illustrates how successful products are the result of learning products that previously failed in the marketplace. This case study is the story of Giles, a product manager at two Silicon Valley start-ups during the 2000 Internet and Telecom Bubble. The lessons here are not about the technology but how just be keeping his eyes opened and using his common sense, Giles was able to drive a successful product having learned before from a failed product.

When the Internet is in need of a lot of bandwidth

The early and under-hyped success of the Internet in the mid-90s led to huge investments in network equipment. Existing players such as Cisco Systems, Bay Networks, and 3Com were growing fast, and venture capitalists were aggressively investing in networking start-ups. Juniper Networks went public in 1999 at a valuation of $1.6 billion, and Cisco Systems acquired Cerent, an optical start-up for $6.9 billion, the highest price ever paid for a private technology company at that time.

In that context, Giles joined Iris Networks in 1999. Iris had a very seasoned team of executives and was funded by top venture firms from Sand Hill Road. Iris’s products were targeted the Competitive Local Exchange Carrier (CLEC) market. As the Internet was growing, existing incumbents such as AT&T, WorldCom, and Sprint were not moving fast enough to build enough Internet core and access bandwidth. The huge demand for new network bandwidth combined with the deregulation of the telecom market offered large opportunities for CLECs to introduce new disruptive services running on new network equipment and architecture.

Developing and launching the “God Box”

CLECs were an ideal target market for an early networking company such as Iris Networks. It was more difficult for a networking start-up to sell to an existing incumbent such as AT&T or WorldCom than to sell to a new CLEC start-up. CLECs were looking to build the same network infrastructure as AT&T and WorldCom but at a much faster pace and in a more cost-effective way. To that end, Iris and many other networking start-ups were building, what the press initially called a “God Box” which was later called a multi-service provisioning platform (MSPP).

Giles joined Iris to be the product manager for Iris’s operating system, system and network management software of its Iris SMX equipment. Iris’s SMX aimed to deliver the first three OSI layers, transport, switching and routing into one equipment. AT&T and WorldCom used to buy SONET transport systems from Nortel Networks, ATM and Frame Relay switches from Lucent, and IP routers from Cisco Networks. But CLEC wanted to build new networks very fast in order to take advantage of the growth of the Internet with new types of equipment that could provide multiple types of services to enterprises and consumers.

To develop his product faster, Giles proposed to acquire for $5 million the source code from an established network management software company Dahlia Management, and the license to use the business rules engine software from another vendor named System Logics. He successfully delivered the first release of his product in nine months with a budget of less than $4 million. What an achievement for Giles!

The burst of the telecom “bubble”

Eighteen months after Giles joined Iris, he heard about a board meeting that did not go well. Investors were complaining about Iris’s margins. Iris’s network equipment was a huge OC-3/OC-12 chassis for access rings and an OC-48 chassis for metro rings that included a SONET ADM, an ATM/Frame Relay switch, and an IP router in the same box. But the cost reduction of aggregating those three equipment functions into one equipment was not achieved. In addition, Iris did not invest enough in the technology to efficiently transport the Internet data traffic over the SONET payload. However, Iris was able to capture a few customers and was valued at a multi-billion valuation for a short period of time.

Unfortunately, with the Internet and the Telecom bubble burst in 2000 and 2001, CLECs fall and so did Iris. The company had multiple laid-offs and went to chapter 11. Giles was among the last five employees to be laid off from the company.

Note 1: The SONET protocol and SONET rings were the telecom network protocol and architecture to provide voice services before the Internet

Note 2: OC-3 provided 155 Mb/s, OC-12 622 Mb/s and OC-48 2.5 Mb/s. OC (Optical Carrier) is the digital signal that was carried over the SONET transport network.

Note 3: The picture above is “Head of Simone in a Green Bonnet with Wavy Brim” from Mary Cassatt and presently displayed at the “Degas, Impressionism, and the Paris Millinery Trade” exhibition at the Legion of Honor.

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