Convergence Emergence
Polite and self-effacing, 3Com Chief Executive Eric Benhamou doesn’t look like the kind of guy who would elicit death threats.
But that’s exactly what happened when he spent $5 million for the right to append his company’s name to San Francisco’s Candlestick Park as part of an aggressive strategy for making 3Com--the second-largest network technology company--more familiar to consumers.
And last year Benhamou engineered a risky $7-billion merger with modem maker U.S. Robotics. In the process, 3Com added the PalmPilot--the best-selling hand-held computing device--to its growing stable of consumer and small-business products. The 42-year-old Benhamou has been a tireless promoter of “network convergence”--moving voice and video traffic to data networks and ushering in a host of new consumer and commercial applications.
The Santa Clara-based company’s multimedia lab is crowded with high-resolution terminals and 2-D projectors demonstrating “convergence” applications for distance learning and tele-medicine. Seated amid the futuristic hardware in the lab of 3Com’s headquarters, Benhamou discussed the expansive world of converged networks, obstacles to their deployment and the cult of the PalmPilot.
Question: The idea of converging voice, data and video networks is difficult for the average consumer to get their arms around. What will the world of converged networks look like?
Answer: It’s enough to think about multimedia. People can visualize multimedia, because it already exists on computers. Extend that vision to networks. Neal Stephenson’s science fiction novel “Snow Crash” [published in 1992] describes a Metaverse, which is basically a 3-D virtual reality in which people live through avatars of themselves. These 3-D avatars have three-dimensional behaviors. They speak, look at objects and hear things. Stephenson’s Meta-verse is basically a converged network.
Q: Where will we begin to see converged networks entering our lives?
A: An early application will be long-distance voice communication over IP [Internet Protocol] networks. Consumers and small businesses are likely to benefit the most, since it costs less to transport digitized voice in the form of packets rather than use telephone circuits, and they often don’t have the purchasing clout that large businesses do for telephone service.
Converged networks will also be deployed in business call centers, where operators will be able to facilitate Web transactions by touching a button on the Web page to have voice interaction with customers.
Another early application will be distance learning. Students participating remotely in a class will be able to interact with instructors and students using all forms of media--asking questions through e-mail or voice. This technology will help students and teachers have more collaborative information sharing through the network--features like projecting the contents of a whiteboard in one classroom onto a whiteboard in a remote classroom.
Q: Converged networks would presumably be more technically complex than the ones in operation today. We’ve already seen major network outages with large financial consequences. Do you worry about the vulnerability of converged networks?
A: At 3Com, when we talk about deploying converged networks, the very first thing we focus on achieving is 99.99% reliability, which means that in the course of a year a network can be down for only a few hours. We haven’t achieved that yet.
We have to figure out ways to simplify [network] administration.
Q: How do you achieve that?
A: One way to achieve dramatic simplification is to increase bandwidth everywhere. If you operate any kind of equipment in the red zone long enough, you’re going to have failures. Things become exponentially more complicated when you operate networks at close to 100% capability. If you throw bandwidth at the problem--which is something you can do in a non-tariffed environment--you dramatically simplify and lower the cost of operation and increase reliability.
The second way is to work toward what we call “zero-based administration” of the network. A completely self-administered network is perhaps an impossible goal, but unless you set the bar high, you won’t achieve the mind-set required to have a breakthrough on cost.
Q: Most of 3Com’s products go inside PCs or in the network infrastructure. The 3Com product that has received the most attention, though, is the PalmPilot. How do the PalmPilot and the recently introduced Palm 3 fit into your overall corporate strategy?
A: 3Com’s vision is what we call “pervasive networks.” The PalmPilot and Palm 3 are devices that fit into people’s shirt pockets. You can synchronize it with your computer, or even physically connect to your computer using a modem or wireless technology. So the PalmPilot is a sort of movable extension of the network that you carry around with you.
This device makes it easier for consumers to understand what a pervasive network can be like. So when we think about the network, we don’t just look at the infrastructure portion of it. We look at all the access points. That’s why we’re in the modem business, the network interface card business, why we look at wireless. The PalmPilot is just a different way to access the network, one that will become more popular.
Q: 3Com reached agreement with Tele-Communications Inc. earlier this month to supply cable modems to TCI subscribers in the future. What does the deal mean for you?
A: Broadband access with cable is one of the winning technologies. Cable is not just 50% better than what we have today, it could be 10, 20 times faster--a completely different experience and relatively inexpensive. Today you can get 56 kilobits per second into the home for $20 a month. For example, with cable, you can get 1.5 megabytes per second for $40 a month. You can receive video clips, audio, and plain data. This deal represents an interesting step toward convergence.
Q: A couple years ago Netscape had 70% of the browser market. Then Microsoft spent hundreds of millions of dollars building and marketing the Internet Explorer, and now Netscape is on the run. Today, 3Com has 70% of the palm-computing market and Microsoft is spending $250 million on its own palm-computing device. How will you avoid Netscape’s fate?
A: History may repeat itself. Microsoft could spend enough money on hand-held computing devices to drive us out of business. But it takes more than just money to achieve market leadership. If a company builds up market share and grows fast enough, a new reality is established in the marketplace. The name of the game is for us to make the Palm-Pilot strong in de facto reality and achieve leverage. Today we have 7,000 developers writing software for the Palm OS. These people are producing applications faster than Microsoft’s developers because it’s a simpler platform. We never conceived of the PalmPilot as a shrunk-down version of Windows. We bet on the fact that people wanted to do very different things in the palm of their hand than when they were sitting with a laptop or their desktop.
Q: You mention tariffs. Is the current telecommunications regulatory environment a significant obstacle to the deployment of converged networks?
A: The regulatory environment is very complex right now--and made more complex every day because we’re dealing with powerful companies who spend large amounts of money lobbying local, state and federal agencies like the FCC. The Telecom Act of 1996 theoretically enables competition, but PacBell still has a virtual monopoly on local telephone service in California, and that service is still subsidized. Whenever you introduce artificial distortions that move you away from a true market price, the result is an unpredictable competitive situation. . . .
Q: Some observers predict that 13% of phone calls could be carried by the Internet by 2002. Will traditional telephone networks rapidly fade away?
A: We’re not going to see all voice traffic moving over to data networks overnight.
Q: Your biggest competitor in the network business, Cisco Systems, reported better-than-average financial performance in the last quarter. What are 3Com’s prospects for the future?
A: Competition is extremely tight and severe in this industry. We have many large competitors. Cisco is by far our biggest competitor, but we are bigger in the SME (small-to-medium enterprise) business, and none of these network companies are players in the consumer business. Cisco is expanding into the SME business as well, but we’re in a much better position to be the long-term leader in this market because it’s closer to our design center. Over time, the SME market will actually be bigger than the enterprise market, so we think we’re in a good position.
Freelance writers John Geirland and Eva Sonesh-Kedar are writing a book about the new-media industry. Geirland can be reached via e-mail at geirland@aol.com and Sonesh-Kedar can be reached at ofirk@aol.com.
