In 2018, Telecom and Networking are Vital (Again)
Our collective nostalgia for the 1990s is a thing that is either currently happening, or already passed, depending on your pop culture barometer. For most of us, that time represents Seinfeld and Pulp Fiction, and for others it marks the heyday of the telecom and networking markets as the internet drove explosive growth. Much like the resurgence of 90s pop-culture, we believe networking is again an exciting area of new technologies and services.
Throughout most of the 1990s and into 2000, VCs’ had a robust hunger for networking technology investments. Companies in optical networking and hardware switches were regularly closing major funding rounds, and Sycamore Networks, Ciena, JDS Uniphase, Cisco and others went public and grew to tremendous market caps. Most were growing on massive valuations, hopes and dreams, until they weren’t.
Similarly, on the services side, with the deregulation act of 1996, the number of new service providers blossomed almost exponentially with CLECs, MSPs, data centers and fiber networks all receiving intensive investments as they raced to connect every building and PC to the internet. At that time, I was a junior member of the team at Norwest Venture Partners, one of the leading firms in the sector that backed many highly successful networking equipment and services companies. It was a very exciting time to be investing and playing a part in the rapid expansion.
As with all things new and exciting, eventually we as an industry went way overboard and suffered from a long hangover of excessive capacity and capital investments. Whether it was a bubble or the first of subsequent corrections, the era of irrational exuberance ended abruptly, followed by the Great Recession.
What happened? In simple terms, the early dot-com darlings lacked sustainable business models and missed over-inflated revenue goals. As such, growth forecasts for Internet traffic were overstated, and there were too many companies competing for the evaporating pool of dollars for more networking equipment.
In retrospect, networking and telecom companies helped us build out relatively forward-looking infrastructures that we only started to fully utilize a decade later. But, with the extended period of recent economic growth, and the rapid adoption of new cloud, mobile and IoT technologies, we are now at a point where existing networks are no longer sufficient.
There are new, emerging networking technologies, some poised to disrupt the disruptors of the 90s, that have me again excited for 2018 and beyond.
The Network Still Matters
For the enterprise, the network is arguably more critical than ever. Enterprises are still running their software on networks, just not their own. That said, the cloud doesn’t remove the need for a network—the opposite is true. With enterprise software running in a private or public data center rather than on premise, the cloud greatly increases the need for reliable, fast and flexible network connectivity, otherwise fundamental business applications crawl to a halt and productivity slows.
Speaking with practitioners, we hear repeatedly that modern connectivity is again a top priority, as the Internet of Things, mobile workforces and, yes, cloud applications and infrastructures (both public cloud and hybrid public/on premise setups) are driving even greater needs for bandwidth, and software-defined WAN and hyperconvergence are empowering greater capabilities within the enterprise and beyond.
Earlier this year, InformationWeek and Interop ITX released findings from its “State of Infrastructure” study. Organizations are focused on adding bandwidth, investigating ways to modernize their networks with software, and expanding their wireless networking capabilities. In the US and abroad, investments in new fiber networks are expected to continue to rise over the next three to five years.
We have not made a new networking related investment for over a decade. But recently, we’ve been exploring opportunities with a number of innovative companies. I’m not talking about capital intensive proprietary hardware here; instead, there are new approaches that are entirely software driven, offer greater flexibility and are far less expensive to deploy and maintain. We are also seeing new intelligence and analytics platforms that will enable the telecom and networking providers to be far more data driven and efficient in their race to meet the growing demands of customers.
Those 1990s era companies that have survived are now today’s incumbents, and there is plenty of white space for innovation, disruption and growth. For the first time in a long while, it’s an exciting time to invest in and around networking again.