Internet router for telephony companies

There's a very popular children's story in the US called "Charlotte's Web". Eyal Dagan, general manager of the company with the same name, says it is quite allegorical.

"We also spin a spider's web in setting up the Internet network," says Dagan, "The parable could be taken further, but we'll leave it at that." The name, conjured up by one of the founders residing in the US for many years, works. Dagan reports that, at the last SuperCom exhibition held in Atlanta, there were many American faces that smiled at the name.

Charlotte's Web is likely to prove a legend on the local scene, but it is far from child's play. This is how it began: Dagan and his friend Eli Stein who worked together at NBase (an Israeli operation of MRV set up by three Israelis that develops communications products and is traded on NASDAQ) sat down together one day, about eighteen months ago, and decided to do something and form their own start-up to make the strongest Internet router in the world. MRV did not want to lose its developers. They deliberated and decided that if they couldn't beat them - they would join them. Dagan and Stein departed from the company armed with enough cash to enable them to develop the product right up to the beta stage.

Dagan and Stein spent four to five months interviewing scores of people. They recruited Ilan Shimoni from 3Com, Eyal Evrech from Intel and Gidi Kempfer, from the academic world. Dagan had two modest requirements: the candidate should make a good impression and excel in his studies. Although the initiative began with Dagan and Stein, the entire team is regarded as the company's founders in almost every aspect.

After the team was assembled, they discussed Charlotte's Web's mode of operation. "We asked how we could make the highest, finest and strongest tower," says Dagan. The tower is a router at the center of the Internet, a sort of refrigerator the size of a minibar, in effect a large tap or valve, which directs cyberspace traffic.

How does one make routers stronger? Charlotte's Web designed seven chips for installation on hardware already existing in the market, and software with sophisticated algorithms.

To understand how strong these routers are, Dagan explains that four to five of Charlotte's Web's routers are capable of networking the entire State of Israel - every man, woman and child in the Holy Land - if they are all hooked up at 2 Mbps. And the price, accordingly, is $1.5-1.9 million each.

Charlotte's Web does not have a unique product. The company is one of an admired elite in the market, but Dagan stresses that his company is "like a Formula 1 racing car". The market's major player is without doubt Cisco. "When we noticed that Cisco controls almost 100% of the market, we could see there was some potential," says Dagan. "When you see someone controlling the market, it makes you feel uneasy. We decided we could do better. It turns out that we were not the only ones to think so, and other companies thought they could do better too."

These other companies are Nexabit, sold to Lucent a month ago for $900 million, start-up company Pluris; and another start-up company called Avici. Nortel, which has a minority stake in Avici, recently announced it was withdrawing its representative on the board of directors, apparently in order to make the company more attractive vis a vis competitors. Another company, Juniper, recently had an IPO and climbed to an Everest-like value of $6.5 billion.

"Globes": Aren't you a little late in entering the market?

Dagan: "At the SuperCom exhibition, we presented the world's strongest router. We didn't think we would reach that stage. We will launch the beta model by year end, and we hope to start selling in the first quarter of the year 2000. Apart from Juniper, no-one is actually selling yet. All the competitors have more or less the same timetable, and if we go on the market two months later, it won't be disastrous. There are few companies in this market. The real challenge is to produce a working product, and whoever succeeds will be a player in the market."

Published by Israel's Business Arena July 12, 1999