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November - 2003 - issue > On The Cover
Emerging From The Shadows
Karthik Sundaram
Friday, October 31, 2003
SEEMS THE RULE OF THUMB IN naming your next wireless LAN startup is to be inspired by an exotic island or retreat: Tahoe, Shasta, Meru, Aruba...the last one, claim founders Pankaj Manglik and Keerti Melkote, was chosen by some judicious elimination: the name had to start with an "A", had to be a single word, easily rolled off the tongue, and one that would stick. It looks like Aruba was a good choice.

Recently, the venture capital world pumped $20 million into the San Jose, CA-based startup, signaling sound confidence in Aruba's technology and future roadmap-a sentiment not seen often in the entrepreneurial world of recent times. "We were considered 'hot' even before we began," recalls Manglik, "simply because we were two EIRs at Matrix Partners who had agreed not to speak to any other VC."

Manglik and Melkote met at Intel where they ran the internal network operations together-living through the Web wave and users clamoring for HTTP access. "In many respects, Wi-Fi is another unstoppable wave driven by user demand upward and vendor push downwards," says Manglik. He left Intel for Wharton and after graduating in 1997, made his way back to the Valley to join Cisco's Stratacom arm. Good friend Melkote partnered a long stint at Cisco within their successful Catalyst group. But when the bubble began to blow, both went their ways to different startups-Manglik to Alteon Web Systems and Melkote to Shasta Networks. Despite the separation both were convinced of their collective ability to come up with good and truly valuable ideas-some of which they saw others build into viable businesses that would one day pay off.

Ultimately it did. Post 9/11, Manglik, then an executive at Alteon, was convinced that the market wasn't going anywhere. "For the next two years, it was obvious to me that the only business to be in was in building, not selling products" recalls the Aruba CEO. Melkote quit Tahoe Networks "since 3G wasn't going anywhere and I was getting restless" and convinced Manglik to team up with him "because life is too short, and we can always find a job if we don't manage to start a company."

Committing to spend the next six months in coming up with the "next big idea," Manglik and Melkote traversed the market trends for inspiration. Two things were undeniable: security and wireless. The question was could they be combined into a compelling product to address the serious problems corporations were willing to pay big bucks to solve.

A wireless security switch was tan idea that needed validation. So the two drove to Sand Hill to bounce it off their good friend, mentor and now investor, Shirish Sathaye, general partner at Matrix Partners. "We did not meet him to raise money," insist the duo. The idea hit home and Sathaye eventually took them on as "entrepreneurs in residence" (EIRs) at Matrix.

In April of 2002, Aruba Wireless Networks was formally launched. "Shirish had this checklist for any wireless idea," recalls Melkote. With the carriers in deep pain, Sathaye was wary of carrier-class solutions, and "magic" panaceas that would cost millions. The duo apparently managed to meet all of Sathaye's criteria before they could even think of being funded. Solutions for the enterprise were traditionally emerging from wireless companies that viewed "unplugging" the enterprise as yet another business model for extant technology. On witnessing the state of the Wi-Fi technology, Melkote remarked "I would never have deployed these products within Intel's network." The question for Manglik and Melkote was, if these products were wrong, what was the right product?

They started melding their networking acumen with RF experts to build something no one had seen-a Wi-Fi switching system. "From our past experiences in the networking at Intel, ours was a unique position," says Manglik. The review of the network grief in the enterprise opened up what could be a $2 billion market for Aruba. In the past, most solutions that have entered the home market-cell phones, PCs, even laptops-originated at the enterprise and percolated to the "home" use. Surprisingly, wireless LANs, says Manglik, is a solution that originated from the home and is being pulled into the enterprise. It wasn't exactly a solution that enterprises would buy and deploy-something that could be bought for a few hundred dollars at the local electronic store.

The other issue in the wireless LAN space-what Aruba calls the "Synoptics of wireless factor"-is manageability. The trends in the past have been some good lessons for the startup. With faster connectivity, ASP became a mega trend. Applications delivered from the server became a hot business, though dying out as fast. With Ethernet, LAN connectivity itself and then faster connectivity became another trend. Synoptics came in with the concept of a managed hub that allowed enterprises to truly build a large Ethernet that could be replicated. Wireless LANs, say the founders, is on a similar trend. If a territory manager cannot manage a WLAN, the chances of buying and deploying one are very slim.

"In the enterprise environment, wireless LAN solutions are driven by manageability and total cost of ownership," says a wireless analyst in Boston, MA. Centralized WLAN switches are gaining attention as enterprises seek ways to ease the configuration and management of wireless access points to keep in step with changing security specifications and user-access privileges. Attacking a space occupied by incumbents Proxim, Cisco Systems, and Symbol, Aruba and other new entrants have developed software that resides within appliances to offer Layer 2 and Layer 3 security, access control, authentication, QoS (quality of service), and roaming capabilities.

The startups will have a tough time out-engineering those WLAN veterans that have already adopted their own centrally managed architectures, according to Gemma Paulo, senior analyst at In-Stat/MDR in Scottsdale, AZ. "You'll see the startups knocking on a lot of doors, concentrating on new implementations," Paulo said. "The WLAN market is large, and there is still a lot of opportunity, but you have to wonder if all of them will make it this year." One concern Paulo and others have is that many of wireless switches are designed to work with their own access points. But Aruba, among others, hasn't taken this approach. It's so-called Wi-Fi switches work with any third-party "fat" AP to deliver a new set of wireless services like managing radio frequencies and securing the RF domain.

With Matrix willing to place its funds behind Aruba's pitch on Wi-Fi for the enterprise, it was easy to find subsequent investments (see The Sequoia Story box). For a beginning, the founders spent a majority of their time in the East coast, networking with engineers at Bell Labs and other well-known experts in the RF field. "'Socializing' an idea is a dilemma that every entrepreneur faces," comments Melkote, who spent many hours with engineers, VCs, customers and others in honing the product and messaging. "Our initial idea revolved around the switch. The access point (AP) was just a $100 commodity in our minds." Manglik and Melkote derived three key issues in the space-security, manageability, and mobility. "Dumbing down" the AP has marked out the Aruba product range. The security and manageability is rested within the switch while the AP is rendered passive. "An AP has nothing on it," observes Melkote, "as the software and security encryptions lie within the switch."

The company now offers a spate of wireless switching products-affordable small branch office boxes for 20 to 50 users to full-fledged campus Wi-Fi switches that sit in the data center servicing thousands. The Aruba 5000, the company's flagship product, remains the only Wi-Fi switch with a modular approach for swapping out components and easy upgrades and reconfiguration. Aruba's APs provide wireless connectivity for end users but can also be used to monitor the air for rogue and intrusion detection and prevention.

Aruba has been extremely fast in its switch build-out. In March 2003, it was testing its beta and in July, launched the Aruba 5000.In its first quarter of shipments the company sent 75 units to paying customers, exceeding internal revenue targets. Eventually, Aruba hopes to license its access point software for use by other companies in their products. Software is an integral part of Aruba's line. Its AirOS software provides basic OS function and adds new wireless applications, such as wireless intrusion detection, secure mobility and so on, that users can enable when needed. Added to that Aruba recently introduced its RF Director application that gives network managers various and sophisticated RF management controls that help them plan, analyze or secure their wireless environments.

Customer dialogues have helped the Aruba evolution greatly. Before shipping or showing a box, Manglik and Melkote talked to over 100 different enterprise prospects. "In one instance, the rogue AP detection-which was considered a pain point-was thrown up as a critical issue," says Melkote. "Yes it's a real issue, but you can't build an entire product that serves only a few purposes. This is what the appliance guys have done." The AP management feature is a successful addition to the 5000. In it's marketing, Aruba has been as careful. "There is no point in expecting the market to come to you," says Manglik. So he tasked David Callisch, Aruba's Communications Director to do "anything clever" and to "do it fast and cost-effectively." Callisch launched the "Wi-Fi It" program where Aruba's products and services are provided at no cost to event organizers that want to bring Wi-Fi to their attendees. "The profile of the audience that comes to such business events matches our target profiles most of the time," says Callisch. Aruba has set up switches and APs at conferences all over the world like the Networld+Interop Vegas and Paris shows, Burton's CATALYST conferences, Meta's METAmorphisis events, COMDEX, and others. In turn, Aruba gains potential customers as prospects see and use the technology in real time.

Some of the early customer wins have been in the financial industry, where the need to be "unwired" is growing. With the fresh round of funding, the startup is scaling up its marketing and production. And the investment is paying off. But, Forrester's Maribel Dolinov questions the status. Despite ranking Aruba at the top of the pack of Wi-Fi startups, her recent research on Wi-Fi equipment adoption still points to all things Cisco. In her report, Dolinov interviewed 40 network architects at $1 billion-plus about their current wireless LAN deployments. Over 90 percent of the firms we interviewed, she says, currently use or plan to use Cisco Wi-Fi gear. An amazing fact: 92 percent of Cisco users have heard of the Wi-Fi startups, but few plan to switch. Dolinov lists three factors in the adoption of a Wi-Fi solution: users demand wireless, the lack of a business case to justify the WLAN deployment, and technology frustrations. With legacy vendors now outlining their WLAN strategies, the market is in an interesting state.

"One of the biggest investments we've done is in brand building and user education," says Manglik. "Incumbents, like Cisco will naturally be invited to the party. You have to make sure your start up has enough visibility that you will be short listed with them. . Beyond that, it's a question of who has the better product." The first-to-mind branding seems to be getting Aruba the mind share it needs. Sales have been healthy; Aruba sells its Wi-Fi switches and APs even to clients who already have some sort of Wi-Fi solution in place.

"Companies either have a little wireless that they can't seem to get their arms around or have a moratorium on wireless altogether," says Callisch. "In either situation, Aruba can help by either giving corporations a centralized control along with sight for their blind APs or a model into which they can effectively build a scalable and secure wireless network."

And from the looks of things, wireless is moving from being just nice to now necessary as embedded wireless NICs within laptop are now the standard. "For many corporations learning to turn wireless off before you turn it on is just as important," says Melkote. Wireless is many times clubbed with coverage, which is not really true. What enterprises need to worry about is capacity, density and delivering quality of service to every user."

With incumbents hovering uncomfortably close, Aruba is charting a clear path to its future. "Previously, a wired environment was about hardware," comments an industry analyst. "ASICs made the difference, whereas in a wireless environment, software will dominate." Aruba seeks to enable new services and applications over a wireless environment that would help it go forward and has begun introducing software modules that are easily digestible by corporations who only need or want one thing for now.

Manglik expects the company to be cash flow positive in early 2005 and desires to issue an IPO at that time. Will the wireless market pan out that long? Quite possibly. Whether Manglik and Melkote manage to achieve the long-term goals or not, Aruba for now looks to be a dominant combatant. With the incumbents lying low for a while now, the young startup has certainly managed to come out the shadows.

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