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The NetSuds™ Report ©
The July 1, 2002 Issue:
Re-sending of this newsletter to any number of colleagues is encouraged provided you also cc: report@netsuds.com. In return, we will invite recipients to subscribe. Any other unauthorized re-distribution is a violation of copyright law.
Subscribe to this report by subscribing to the NetSuds Monthly Report (HTML or Text) at http://www.covc.com/mail.htm You can get the web version of this report at http://www.netsuds.com/report/2002/july.htm
Definition: "com and .com" = Telecom, Datacom, IT or Internet
In this Issue:
1.0
Heard on the Net
2.0 Jobs in the "com and .com" Market
3.0
NetSuds and
MedicalSuds
Calendars
4.0 Tidbits
4.1
NetSuds on Tour -
alwaysBEthere
4.2 Upper Great Plains Technology and Trade Show
4.3 A Fish Story
4.4 Ouch!
5.0 Calendar of Events
6.0 Trouble At Home
7.0 Network Suds New York
Report
8.0 Leasing Space:
The Numbers Are With You
9.0 Wireless VoIP Patented?
10.0 Guest Writers for this Report
1.0 Heard on the Net
1.1 People on the Move:
Please email:
people@netsuds.com to report a change in your job status if you are moving from or to a company in the "com or .com" space.
NetSudser Jim Acker has left Calence and joined Network Applicance as their Regional Channel Manager. You may contact Jim at either 952.851.5537 or acker@netapp.com.
NetSudser Doug Johnson sold his company (HealthNexis L.L.C.) and has joined Virtucom Content Solutions as Director of Sales. Contact Doug at either dtjohnson@virtucomcsi.com or 612-333-4983.
NetSudser John Bortscheller has joined Worldcom as an Account Executive in Golden Valley, part of the Major Accounts team. John says, "Keep up the good work! Netsuds was influential in my job search networking, after the relocation from TX." Contact John at either 763.525.5822 or john.bortscheller@wcom.com.
NetSudser LeAnn Castillo joined Internet security firm VisionShare as VP of Marketing, coming from CNT where she was Senior Director of Worldwide Marketing. Contact LeAnn at either LeAnn.Castillo@VisionShareInc.com or 651.645.3300.
Karen Rogge has joined Juldee as CEO and is based in Silicon Valley. Previously, Karen was VP and GM at Inktomi.
NetSudser Mel Masters has started a new company - www.BayStarGroup.com. Contact Mel at melmasters@ureach.com.
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Digital Lake is Expanding If you have a small networking company you would like to sell or if you have a customer base from your private Windows or Novell consulting practice to sell, please contact David Anderson at 612-986-9461 or danderson@digitallakeinc.com. We are expanding via acquisition in the Metro area. |
1.2 Companies on the Move:
Please email:
start-ups@netsuds.com to report (1) the formation of a new start-up, (2) momentum change at an existing start-up, (3) addition of key hires, or (4) a funding event at a start-up.
Please give details on the above including any information you do not want made public. We are very discrete.
2.0 Jobs in the "com and .com" Market
Please email:
jobs@netsuds.com to report job openings in the "com and .com" Market. In the body of the message, give the name of the company and a URL link to the job postings.
* SSESCO -
http://www.ssesco.com/Careers.html
* Time Warner Telecom -
http://www.twtelecom.com/Default.aspx?pageId=36
*** ObjectFX -
http://www.objectfx.com/joblist.asp
*** ADC -
http://www.adc.com/Careers/index.jsp
3.0 NetSuds and MedicalSuds Calendars
The web calendars for NetSuds and MedicalSuds continue to grow in popularity as more and more people use them for the definitive place to find high-tech events in the Twin Cities. The Calendars are accessed at
http://mailman.netsuds.com/cgi-bin/calweb/calweb.pl
and are free to use. If you want to post your events, there is a charge of $100 but you can post as many events as you like - if they are your own - for 2002. We recently announced the availability of the Press Release calendar to anyone free of charge. For details, see www.prsuds.com.
4.0 Tidbits
4.1
NetSuds on Tour - alwaysBEthere
NetSuds loves on-site tours! Email me if you want to show off your company. I can be reached at
matt@netsuds.com.
I visited alwaysBEthere in mid-June. Sara Christian -
sara@alwaysBEthere.com - and Doug
Carey - doug@alwaysBEthere.com - are
the co-founders of this 21-month-old mobile and wireless services and consulting
company. They were also my hosts. alwaysBEthere (ABT) provides
project management and integration services to companies looking to deploy
mobile and wireless applications. Most of their clients need to take an
existing process or practice and reduce the cost, hasten process delivery
or make the process more reliable. Mobile, wireless solutions offer
economic, efficient alternatives.
One client uses the solution designed by ABT to assist their sales force in ascertaining the availability of inventory in real-time in order to make a sale. Another client uses the ABT solution to schedule field workers' work on a daily and real-time basis.
ABT has found there are seven primary components to creating a solution for their clients. The components are 1) network, 2) devices, 3) software, 4) applications, 5) security, 6) education and 7) support.
The continuing integration of cell phone, PDA and LAN/WAN services has created a great opportunity and challenge for enterprises. ABT's niche is in assisting large and small enterprises to take advantage of these opportunities.
4.2 Upper Great Plains Technology and Trade Show
4.2 A Fish Story
On the fourth day, the venture capitalist approached the fisherman with a plan for his long-term financial success. He told the fisherman that by hiring a few of his friends, teaching them his fishing secrets and working from dawn to dusk he could buy some boats, hire more employees and establish a very successful local fishing company. In a few years, the venture capital firm would fund the company to expand up and down the Mexican coast. Another few years, the firm would invest a second round to expand globally. At that time, the fisherman would be required to move to New York to run the operation and prepare for an IPO. After a few more years of running a public company, the fisherman could retire a very wealthy man.
The fisherman was impressed but asked what he would do after retiring from fishing. The venture capitalist told the fisherman he could then retire to a remote Mexican village, arrive at the beach at 9 am, fish for fun, leave at 11, have lunch in the village with some friends, take a siesta, play with his grand-children, have a leisurely supper with his wife and enjoyed a night out with his amigos at the local cantina.
The fisherman scratched his head and walked away.
4.4 Ouch!
The situation in the carrier market is not quite as bad. We still have 4 RBOCs and a slew of alternate carriers. It also appears that AT&T may be better positioned than most with their extensive cable holdings. "Ma Cable" may have called it correctly by buying the physical local 'loop' to the home. In this case, the loop is coax, not twisted pair copper. Entertainment, phone and Internet service is a huge lever against the RBOCs. Perhaps the only alternative for the RBOCs will be to buy some cable TV companies or, heaven forbid, upgrade their local loop to fiber and start providing entertainment, phone and Internet service.
More on this in a future issue.
5.0 Schedule of Events
You can also try our new online calendar by
clicking
here.
5.1 - Minnesota
7/24 NetSuds BOB
Breakfast - Marriott SW Minnetonka
7/26
MedicalSuds BOB Breakfast
- DoubleTree St. Louis Park
http://www.medicalsuds.com/bob/2002/july/
8/5
MedicalSuds BOB
Breakfast - Marriott SW Minnetonka
http://www.medicalsuds.com/bob/2002/august/
5.2 - Outside Minnesota
7/23
NetSuds Evening Gathering -
Durham, NC
http://www.netsuds.com/rdu/eg/
6.0 Trouble at Home
Defining the interconnectivity of home appliances and who delivers the services to them, by NetSudser Bruce Bahlmann, Director of Technical Market Development at Alopa Networks and owner of the broadband information site www.birds-eye.net. He can be reached at bruce@alopa.com.
The home has always been a safe and profitable refuge for today’s consumer electronics industry. Successful products such as the television (TV), video cassette recorder (VCR), digital versatile disks (DVD), and even the new personal video recorder (PVR) have all been due to the success of the consumer electronics industry innovation and marketing. Regardless of innovations or standards established through telecommunications companies (e.g. Satellite or Cable Television) the consumer electronics industry has generally led the way with new products and evolving de facto standards.
Evolution of Consumer Electronics in the Home
Prior to recent years, the home has largely housed isolated single purpose electronic gadgetry. Home theater systems, whole house intercoms, home security systems, etc. have circumnavigated many homes with twisted pair copper wire, coaxial wire, special muti-purpose wire, and even some fiber optic cables. However, these systems have rarely reached beyond the home or combined to form a multimedia network of devices within the home. The few exceptions have generally been proprietary, narrow band (dialup), or proof of concept products. None of these have gotten serious attention from the consumer whose buying preferences dictate where the consumer electronics industry innovates.
As many homes have subscribed to broadband, an important transformation has come to the once isolated home. Broadband has established an Internet Protocol (IP) beachhead within the home, enabling a multitude of long standing consumer electronics to finally reach beyond the home. Broadband has brought with it the monster of all networking standards in IP thus creating a rich plug-n-play environment that is off the shelf compatible with thousands of hardware and software products. Thanks to the entry of cable modems and digital subscriber line modems (DSL), these broadband subscribers can begin to run relatively advanced home networks. In fact, the simple addition of something called a residential gateway (also known as a Cable/DSL router) can enable multiple home appliances to access a single IP beachhead established by the cable modem or DSL modem. These residential gateways can connect to a home’s existing twisted pair copper wires or provide access through popular wireless networking standard such as 802.11b.
The residential gateway has the potential to become the epicenter of the home. Residential gateway vendors such as Belkin, Linksys, and NetGear continue to develop increasingly simple to operate devices that can easily connect to various broadband connections and facilitate Internet connectivity to multiple home appliances. However, the potential for the homeowner to take control of the myriad of services possible with a broadband Internet connection has created quite a stir among broadband service providers (BSP). BSPs have invested heavily in building the last mile Internet connection that facilitates these services and they would like to be involved in the delivery of value added services to their subscribers rather than allow companies on the Internet to provide them over their Internet link.
Some initial Internet based services offered directly to broadband Internet subscribers have now begun to appear. These services offer their subscribers movies ($6-10/month), secondary line phone service ($15-25/month), home security ($15/month), online gaming ($10/month), etc. These value added services combined easily command a multiple of the amount many subscribers pay for their broadband Internet connection and BSPs are searching for a way to get involved. All these value added service companies are Internet based, paying for their own Internet connection to facilitate their business, and many are also working with slim margins so they are reluctant to pony up access fees to BSPs. BSPs are left to build their own competing service, block these services and force their subscribers to purchase rights to access external value added services, or do nothing which means simply remaining a provider of a last mile broadband connectivity.
Where is the Consumer Electronics Industry when you need them?
In absence of the consumer electronics industry stepping forward to create products that help all BSPs solve this problem, the cable industry has broken off from the group to build its own competing value added service infrastructure. The cable BSPs have formulated a draft specification for how their devices in the home will operate and how the BSP could manage value added services above and beyond providing basic Internet connectivity. These services managed by the cable BSP will differ from their competing Internet counterparts by utilizing advanced bandwidth Quality of Service (QoS) features that will permit them to not be impacted by network bottlenecks. They will also leverage extensive security measures such as Key Distribution Centers (KDC) to ensure proper authorization and to limit theft of service. These security measures may also form the basis of future managing of digital rights capabilities.
This specification marks an attempt define how fairly generic hardware and software components within the consumer electronics domain must operate on cable systems. If successful, consumer electronics would need to certify their components with this specification before these components could leverage the advanced services being offered by the cable BSPs. However, the question many people are asking is “How will the consumer electronics industry respond?” Clearly, consumer electronics companies oversee the majority of products consumers use within the home and if this space suddenly becomes hindered or clouded by certain industry sectors defining their own products it may well restrict consumer electronics companies from doing what they do best – innovate. If successful, it would also open the door for other to require additional (perhaps unique) certifications for their products. The consumer electronics industry might well be looking at not one but multiple certifications for the same device such as a residential gateway – one for cable, telephone, satellite, wireless, etc. From a consumer perspective, it could look even more confusing. You could have products that will only work well with one type of broadband service (e.g. DSL). The cable industry will make a conscious attempt to allow traditional capabilities of such devices as residential gateways to go unchanged while also supporting their specific capabilities – a magnanimous gesture considering the resulting complexities left for the consumer electronics industry and average consumer to unravel.
Today, consumer electronics for the home already satisfies the requirements of all the various broadband data service offerings by cable, telephone, satellite, wireless, etc. It has done this through creating a de facto standard that functionally meets the needs of consumers as well as the operational requirements of BSP offerings. If all BSPs shared a common interest to deliver their own value added services (albeit competitively) this consensus would represent a much larger market for the consumer electronics industry, a much less complicated product, and result in a much easier decision for the consumer.
Consumers will ultimately dictate who wins this battle for home appliances as well as who provides services to these home appliances. What remains to be seen however is how and where the consumer electronics industry will be involved. Will consumer electronics lead this area or will they uniquely address the requirements that each business sector establishes on their own?
7.0 Network Suds New York Report
8.0 Leasing Space: The Numbers Are With You
By NetSudser Brian Fogelberg, J.D., CB Richard Ellis, Corporate Advisory Services, 952.924.4609, bfogelberg@cbre.com
The economy is sluggish and sales are down . . . way down. Yet operating expenses don’t automatically drop when revenues do. In order to weather the storm of this economy, businesses are seeking out ways to reduce expenses, often involving tough decisions on staff reduction, business reorganization and refinancing options. One of the operating expenses all companies face is the cost to physically occupy the space(s) they need to run their business. This cost translates into a lease payment for leased property or a mortgage payment on owned property.
There have been numerous articles recently on the glut of office and industrial space both locally and nationally. The articles typically include all sorts of statistics on vacancy rates, net absorption (the difference in the amount of space occupied from one period to the next) and the large scale headquarter relocations (ADC, Best Buy, American Express, Target, Medtronic, Pillsbury, etc.) and the impact that has on vacancies. While that information is important, what does it mean to a company in the market looking to renew or relocate its space?
The answer is simple: great competition leading to great opportunities to lower occupancy costs or upgrade the quality of space at huge discounts. However, like most transactions, the degree of success will be determined by the process employed. The purpose of this article is to touch on that process briefly as it relates to four lease provisions which are usually near the top of a company’s list:
(1) Lease Term
(2) Space Expansion/Contraction
(3) Rates
(4) Tenant Improvement Allowance
LEASE TERM
One of the market-driven benefits to tenants is the greater flexibility in terms available from landlords and through subleases. Just a few years ago when vacancies were low some landlords would not even consider a 3-year term, or if they did, the rates offered were punitive. Today, 3-year terms are commonplace and shorter terms are negotiable. This market development provides tenants with shorter obligations and therefore less risk, and at rates that are no longer cost prohibitive. Sublease options also typically provide shorter terms because the tenant has usually occupied the space for a period of time before marketing part or all of it for sublease.
While these shorter- term leases have their advantages, if your business can entertain a 5-year (or longer) term, it should be investigated thoroughly. This is because the same market forces of a soft economy are at work making landlords even more anxious to secure longer commitments to offset the expense and instability of shorter obligations. The competition among landlords is fierce, driving rates down and tenant improvement dollars up. By making a longer commitment when rates are down ensures greater savings each year and for a longer period. Another hybrid option is a 5-year term with a termination right after three years. This allows a company to get the desired lower rate and higher tenant improvement allowance of a 5-year term, but has the flexibility to terminate after three years. Landlords do not favor offering buyouts but most will not lose a deal over it. The cost of a buyout should be limited to the unamortized improvement costs, up-front leasing costs and either longer advance notice to terminate or a cash payment for anticipated down leasing time.
SPACE EXPANSION / CONTRACTION
A significant business hurdle in managing your real estate may be the change in size of the space you need to run your business. In other words, how do you best protect yourself against the problems associated with situations when you need more or (more likely) less space within the term of an existing lease. As in all cases, the protection comes from properly structuring the lease prior to execution.
Needing more space is usually less of a concern because it typically means your business is growing and you need more space to meet growing demand. A Right of First Refusal or a Right of First Offer in the lease requires the Landlord to offer space as it becomes available to you prior to publicly marketing it. This gives you first crack at the space should you need it. Of course, the space may not be contiguous but it still may be better than having to locate part of your business in another building. Another solution is to negotiate with the landlord for a new larger space in the same or another of its controlled buildings. Landlords are usually willing to tear up an old lease if you are seeking to lease more space under a new full term.
Needing less space is a more common problem, particularly in today’s economic environment. Many companies are downsizing and are ending up with excess space that they are paying for and not using. Marketing the space for sublease may be a good option to recapture some of the cost. However, the marketability of the space depends upon a number of factors including the amount of space, the buildout of the space, the remaining lease term and the cost. The abundance of other sublease space currently available makes this option more difficult. The best protection against having too much space is a thorough internal assessment of your company’s operations and employee functions, as well as the use of a space planning professional, before you sign a lease. This will increase the efficiency of your space and thereby reduce the risk and amount of possible excess space as well as save rent. However, all the planning in the world cannot protect against major shifts in business where subleasing space is necessary. In those situations, prior planning can still make the process easier. This includes negotiating a flexible sublease provision in the lease, negotiating a shorter term or buyout (discussed above), assessing a potential building’s attractiveness to sub-tenants, and considering the ability to demise the space in an easy and inexpensive manner should it be necessary.
RATES
Buy low sell high. It’s the business success formula. But how do you know when entering into a lease transaction if you’re getting a low rate? Or more importantly, the lowest rate? For any new lease or lease renewal negotiation, the two keys to success are market knowledge and market competition.
Market Knowledge consists not only of knowing the properties, their asking rates and tenant improvement packages, but more importantly knowing the rates and tenant improvement packages that are eventually being negotiated below the asking rates. That market knowledge has value and can be utilized in negotiations with landlords. Without sufficient market knowledge a company is essentially negotiating in a vacuum with no basis upon which to measure their deal, and therefore no way to improve it. With respect to the rates landlords advertise, they merit little attention because they merely represent starting points for negotiations. It does help to know that many landlords try to keep these “quoted” rates high even in a down economy for several reasons. First, if they can secure a tenant without negotiating (or very little) on the price, and it does happen, all the better that the rate is higher. Second, a higher quote leaves more room to negotiate and to appear as though they have made substantial discounts, yet because they started from an inflated rate the discount to the tenant is actually much less. Third, some landlords prefer to give free rent or other economic incentives so that it is easier at both the time for renewal and when the economy improves to get the rates back up. Fourth, if current tenants see advertised rates below their rate, they get angry and want to re-negotiate. And fifth, higher rates look better on the building’s balance sheet even if discounts were made in other areas.
Market Competition is even more critical to negotiation success than market knowledge, because the competitive process itself will, in part, provide market data. But without competition, there is no leverage, even if a company simply wants to renew at its current location. While the concept of competition as leverage is a “no-brainer,” if not done completely and effectively money is still left on the table.
To create the competition, the company’s space requirements need to be communicated to the landlord community (including the current landlord) to let those landlords with potentially suitable properties know that the company is on the market looking for space. This not only creates the greatest competition but it also helps to ensure a comprehensive survey of properties to analyze. This is followed-up with further communication, a space tour and the issuance of RFPs to the top candidates from the tour. From this point forward, the process becomes more detailed and involves ongoing financial analysis, continued deal point negotiation, tenant improvement allowance negotiation (see below), space planning and cost estimate analysis, and lease negotiations. While the scope of this article prevents any detail in this part of the process, it is important to know that any shortcut in these steps will undermine a company’s market leverage and thereby leave it short at the bargaining table.
TENANT IMPROVEMENT ALLOWANCE
A tenant improvement allowance is a landlord financed construction loan to the tenant to assist or cover completely the cost of building out the space to the tenant’s requirements. The landlord recaptures this loan through the lease rate over the term, including interest. Accordingly, a “TI” allowance has an inverse relationship to lease rates.
Most companies prefer to cover all buildout costs with the tenant improvement allowance because it means they do not have to come out of pocket with their own funds. Instead, the cost can be rolled into the lease rate and consequently expensed as part of the lease payments. Alternatively, if a company came out of pocket for the improvements, it would have to depreciate the improvements over the 39-½ year depreciation schedule and then accelerate the balance at the end of the lease term if they are leaving the space. If they remained in the space, the amortization schedule would continue through any renewal periods. This alternative is now slightly less stringent with the enactment of the “bonus depreciation” legislation which allows up to 30% to be deducted in the 1st year, but the balance is still amortized over the remaining 38 ½ years.
The relationship between lease rate and improvement allowance, and separately leveraging each, is part of the ongoing financial analysis and negotiation process. For tenant improvements, it is important to remember to not only negotiate the allowance amount as part of the deal, but also analyze the buildout costs that the allowance is to cover to get the most for your allowance dollar, including credit for any unused amount. Some areas to investigate include the interest rate the landlord is charging for the funds, the construction management fee, the number of bidders and the general contractors mark-up. As part of the RFP process, the right to competitively bid the tenant improvements by the tenant should be included. This is because the construction component is almost a deal unto itself, and creating a competitive environment will also drive down the buildout costs passed onto the tenant. Many landlords earn a significant margin on the buildout of space in their buildings and it is important for a company to recognize that and take the steps necessary to negotiate that cost to the fullest.
CONCLUSION
The real estate market has not seen vacancies at this level in 10 years. Landlords are being forced to make concessions . . . but they are not going to just hand them over. That means advance preparation, thorough analysis, competition, and ongoing analysis and negotiation are required to leverage the market to the fullest.
9.0 Wireless VoIP Patented?
From the May 29, 2002 issue of the Pulver Report - www.pulver.com - authored by Jeff Pulver, jeff@pulver.com
Symbol's Patent for Wireless (802.11) VoIP: How did it Happen?
Recently I read the press release posted to: (
http://www.symbol.com/news/pressreleases/pr_wireless_patent.html ) where Symbol announced that it was awarded a patent for "telephonic communications for wireless digital devices using wireless local area networks (LANs)."According to their press release:
"The Symbol patent, filed on Jan. 16, 1998, is the system that today adds telephonic capability to 802.11, 802.11b, and 802.11a wireless handsets and mobile computing devices. Such capability allows these devices to access voice messaging features, which are available in wired telephone sets connected to PBX systems. Prior to the invention, telephonic capability and PBX functions like caller-id, call forwarding, call transfer, and call waiting, were not possible on wireless LAN client devices. With the Symbol patent for telephonic communication utilizing a wireless LAN, mobile workers can enjoy enterprise telephony features in the same wireless device also being used to also perform data applications and within building locations where cellular coverage is either too costly to reach or not allowed."
Hopefully the Symbol patent only applies to the specific proprietary solutions that Symbol has developed rather than a generic patent for delivering VoIP over wireless networks.
Does this mean that people are no longer still free to build and develop 802.11x VoIP applications? I hope not. I would appreciate hearing from some of the Patent attorneys who read the Pulver Report as far as their opinion as to how far reaching the Symbol patent really is.
10.0 Guest Writers for This Report
I have opened up the Monthly NetSuds Report to guest writers. If you have a passion for a topic, and you can write (at least no worse
than me), send an email to me
matt@netsuds.com. You can even send copies of your work. It needs to be on "com and .com" topics and can include entrepreneur/investor activities. Good information from our service providers and vendors is also welcome so long as it is not a "commercial" for any one company or individual.
We will consider both sponsored and unsponsored columnists and guest writers.
If you are aware of others who would like to receive the NetSuds Report, ask
them to visit
http://www.covc.com/mail.htm to subscribe or
unsubscribe.
Please send your comments and feedback regarding this issue of the NetSuds
Report to matt@netsuds.com.
Matt Noah
980 Lake Susan Hills Drive
Chanhassen, MN 55317
612.279.2154
fax: 425.795.2019
matt@netsuds.com
© 2000, 2001, 2002 NetSuds.com™, Inc. All Rights Reserved.
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Digital Lake is Expanding If you have a small networking company you would like to sell or if you have a customer base from your private Windows or Novell consulting practice to sell, please contact David Anderson at danderson@digitallakeinc.com or 612-986-9461. We are expanding via acquisition in the Metro area. |
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