Pipeline Q&A: Syndesis (cont'd)

Pipeline: Usually, when OSS look bad, it’s because they cost more and do less than they’re supposed to. How do you respond to critics who suggest Syndesis’ equipment modules cost too much to develop and maintain?

Lochow: Everybody says my equipment modules are too expensive. A lot of these critics haven't had to build equipment modules for a Tier 1 with high volume and many permutations. If you're going to have full flow-through, the level of complexity is such that you have to have an off the shelf product and you have to take on the burden of the object libraries. We don't just activate - we build a service. Any typical box will have 1000 commands in it, and a service provider will use 100 depending on the service they want. I can write a [module like other vendors] for $90,000 also that is a query to a specific task in the box. But if you pick that query apart it's nothing like Syndesis', which sets up a service and manages a set of activities that are very complex. If you took Syndesis' specification for VPN, for example, handed it to one of these other vendors and they said they could build it for that price…I'd beg to differ.

The complexity in Tier 1 networks is there for all of us. If you're going to take on that complexity and let [carriers] build product on it, do it with an off the shelf product that you don't spend two years with an SI or a year with internal staff to implement. Ours is a product that in a given Tier 1 can put up a DSL product in a few weeks. The reason we can do that is because we bear the complexity. It's not fair to look at our $500,000 equipment module (EM) versus [another vendor's] $90,000 EM. For the greater cost, I can build a real product. My competitor can build a framework the carrier can then use to build on. But, you buy my product and we will bear that burden. I sell the simplicity and shield my customer from the complexity because that's my burden. But when you add up the real TCO at a corporate scale, not a departmental scale, I'm head and shoulders cheaper.

Pipeline: What is Syndesis’ current relationship with Cisco Systems like and what are you doing to grow your ongoing relationship?

Lochow: The (original OEM) relationship was formed a year before I came here, but it was a good relationship that was really designed for Cisco to bundle our software with a big hardware sale for a CLEC. When the bubble burst, that model failed. In addition, they started creating an IP product that competed with ours, so we said “you go off and do that.” Since then, we've come full circle. Now we're back in talks and are working closely with Cisco on the SBC account for a lot of IP [solutions]. We have a good relationship on the engineering side because we support all of their products. I have a strong desire not to have the old relationship back, but rather one where we might be the “Intel Inside” of some of Cisco's software products.

Pipeline: You’ve used the phrase “off the shelf” several times to describe your product. How do you define “off the shelf” in OSS terms?

Lochow: Customers ask, how can I ever use an off the shelf product here when things are changing every week? We'll say to the customer, “we looked at the network and of what you've got, 80 percent use EMs we already have. Some we've never seen before, but within 2 weeks we can turn the base product up and enable 80% of the network. We can begin provisioning and activating the majority of it. Within 6 months we can have the other 20%running - and that's part of the price. While we get the 80 percent base up and running, we're building out that other 20%. We take responsibility, through the maintenance fees, for the job of managing the libraries and managing complexity. That's what we call off the shelf. The way we always win is putting in a proof of concept. We are completing four or five at [a major European PTT] right now. We can do a major POC and show the value of the product and show it working on a live network instantly. That's what an off the shelf product can do that a framework can't.

Pipeline: What insights can you share regarding the challenges companies like Verizon and SBC face as they invest billions in last mile fiber networks and IP capabilities?

Lochow: The major challenge they are facing is cable, and the only reason they are doing it is cable. Companies like SBC are bundling to compete with cable. As soon as the fiber gets to the curb, SBC can bundle everything, including mobile and television, at one flat rate. The strategy is build out the fiber, negate cable's bandwidth, and offer a bundle. If you're in a bundle and you take one thing away it all goes up in price. This is all a strategy to force cable out. It means the cable companies have to offer VoIP and figure out how to offer cellular. It's all about who owns the customer and who's keeping the customer. Ask yourself why AT&T is [struggling]? Every customer is owned by someone else.

Pipeline: What can you tell our readers about the work you’re doing with SBC and the challenges of being a partner for such a large and complex organization?

Lochow: We sold [into SBC] at the senior management level and we spent a year in SBC to win over the technology people. It's not enough to sell at the executive level. You have to win over the entire team. Part of the sale is starting with the execs and setting the value proposition, but then you have to go back in and win over hundreds of people.

SBC made the announcement that we are one of their premiere vendors and have admitted they're one of our customers. They have bought everything I have and stuff I haven't built yet. We're building proprietary product for them. SBC says we can bring anyone through there except for AT&T. They are very good about talking one-on-one with other service providers about what we've built. We won one of their top vendor awards in our first year there, two years ago.

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