Straw Partners

 
 
By Joe McGarvey  |  Posted 2002-05-08 Email Print this article Print
 
 
 
 
 
 
 

With ILECs ruling the roost, small vendors are willing to roll in the hay with large ones to make a deal.

"No, I dont do that sort of thing, but I got a guy who does." If youre a homeowner and have ever dealt with a contractor, youve probably heard that line or, something similar, a hundred times. To get a big job, most contractors are more than willing to hire a subcontractor who offers a specialized skill. Its likely that kind of exchange is going on between carriers and large equipment suppliers these days. Although reseller agreements and partnerships have always been part of the networking landscape, never before have large equipment makers been so willing to team up with small suppliers, which are just as eager to give up their dreams of striking a direct deal with a major customer.
A few events have conspired to produce these conditions. The first is that, with competitive players having as much luck finding money as the former cast of Seinfeld finding an audience, startups have little choice other than to bend to the demands of large incumbent telcos. And what these ILECs want is to do business with companies that have global support staffs and secure futures.
The scenario is about the same for large equipment suppliers, which do have support facilities. If they lack a particular piece of equipment a carrier wants, however, they will beg, borrow or steal to fill the hole in their product portfolios. That means striking a deal with a startup. This sort of relationship between startup and experienced equipment supplier can take several forms. There is the neat-and-clean acquisition, which describes the proposed merger between Ciena and ONI or the deal between Ocular Networks and Tellabs, as well as Astral Point and Alcatel. There is also the OEM deal. Look no further than Mondays announcement by Turin and Motorola or the recent deal between Fujitsu and ADVA. The reseller or OEM deal can take a couple of forms. The larger company can sell the equipment under the original manufacturers name or put its own label on the box.
No matter what form these deals take, never before have executives at equipment suppliers so openly discussed this sort of subcontracting scenario as a business strategy. There are a couple of reasons for that, too. The biggest obstacle in the way of such deals in the past was corporate ego. Large companies never wanted to admit that they didnt have a soup-to-nuts menu, and smaller companies never wanted to admit they couldnt swing deals on the strength of their own products. Pride is taking a backseat these days, however, to survival. Both small and large equipment suppliers realize that the only way to stay in business is to do whatever it takes to make a customer happy. And since incumbents are the only service providers out there with discretionary income, equipment makers, if they cant meet the job requirements, are finding someone who can. The practice has become so routine that a bunch of equipment makers Ive talked to recently identify finding a partner with a hole in its product portfolio as one of their chief objectives for next months Supercomm. What that means is that, instead of courting service providers and carriers, startups are just as apt to make sales pitches to the likes of Lucent, Nortel and Alcatel. Even if no customers show up in Atlanta, there should be plenty of activity on the show floor generated by the booth-to-booth trolling of exhibitors on the lookout for potential partners. In some cases, startups are making their pitches to carriers, which then play the role of matchmakers. What might happen is that the carrier will go to a familiar source, such as Lucent, and drop a few hints. "Hey, we really like your transport gear, but we also have our eye on this switch from this little startup over here. It would be really super keen if the two of you guys could get together." That practice makes the most sense for large equipment makers. Selling a widget from an OEM partner could be what gets the system maker into the network, where it can unload home-grown gear. For the startup, the company acquires the weight of a large company without the need to put more employees on the payroll. If theres anything displeasing about the practice, it is that is has a bit of the feel of the backroom dealmaking that goes on in establishments of ill repute, such as the U.S. Senate. Its not that surprising to see a company make disparaging remarks about the products of another company one week, only to paste its name on the same product the next week. But business is business — especially if you got a guy or two.
 
 
 
 
Joe McGarvey has been the executive editor of The Net Economy since the publication's launch. Before that he served as communications editor at Interactive Week and was on the launch team of that publication in 1994. McGarvey has been covering next-generation technology trends for the past three years, following the development of softswitch technology and optical switching since their inception. His work has appeared in numerous technical trade publications, NASDAQ Magazine, The Daily Californian and the Los Angeles Times. He is a graduate of the school of journalism at San Diego State University.
 
 
 
 
 
 
 

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