April - 1999 - issue > Cover

Say you’re surfing the Web, looking for a shirt to buy. You find one at a reputable site, but you can’t quite tell from the picture whether the shirt has the kind of collar you like. Not to worry; the page has a “Push-to-Talk” button that connects you in real-time with a customer-service representative. You click it, talk to the rep and ask questions about the shirt you’re interested in. What’s more, the rep looks at the page you’re viewing — and pushes a clearer picture of the shirt back to your browser. Much better. Yep, it’s got the collar you want, and you’re ready to make a purchase.
This experience will soon be possible for all online shoppers, Ajit Pendse, president and CEO of eFusion. The company designs Internet telephony gateways and software that merge data and voice over a single phone line. Internet service providers can use these products to offer customers enhanced options (like call waiting and voicemail that engages while you’re surfing the Web); e-commerce businesses can use them to link their sites with real-time call-centers. Just two years old, the Beaverton, Oregon-based eFusion is already turning heads: Fortune magazine named it one of 12 “Cool Companies” in 1998 and its revenues are growing rapidly.

The idea behind eFusion seems simple enough, but its implications are far-reaching. “Basically, we merge PSTN (public switched telephone network) technology and voice over IP [with a conferencing standard] known as H.323. We licensed the source code about two years ago from Intel and put that into the core of our product,” explains Pendse. With initial backing from bigwigs like Intel and AT&T Ventures, eFusion rapidly talked other industry leaders into taking equity positions in the firm. Microsoft, France Télécom and Telecom Italia were quick to jump on board, and the company is partnering with the likes of Belgacom, 3Com, Ascend Communications and US West to provide business-savvy PSTN-IP applications to end users.

A Bold Proposition

While at Intel, Pendse was infused with the idea for fusing voice and data over IP. “We instinctively knew it would have gotten killed over time if it had been pursued within Intel,” he says. So Pendse and his collaborators made a proposal: They would spin off the firm if Intel would give them the initial boost. Intel agreed, and the two parted company in 1996. “They supported us, let us license the technology and put money into the company,” he says. As spin-offs go, this smooth exit was rather unusual; most high-tech offspring aren’t weaned from their parent companies so easily.
Supporters were excited to fund the nascent company, says Pendse, because it was committed to an open-architecture model. “We said, ‘If you want this market to grow in a nonproprietary fashion, you need to fund the company that’s going to make it happen.’ They knew they had to build that base now. This was an opportunity to work with a vendor who’s dedicated to open value-added services.” It helped, of course, that Pendse’s dealmaking experience had built him a large network of contacts both inside and outside Intel.
And no, Oregon was not a remote location for such a cool company to have its headquarters. It might not be Silicon Valley, but eFusion’s très cool parent has a pretty big plant in the often-overlooked state. “Every other generation of Intel microprocessor comes out of Oregon,” notes Pendse. “Intel has over 12,000 employees in its facility there.”

True to its Silicon Valley image, however, it’s not all work and no play at eFusion. Employees enjoy regular brewfests featuring local beers, and weekly tai chi classes to work off start-up stress. Even the company’s conference rooms are whimsically named after local beers.

Creating New Value

The telecom arena today is marked by increasing deregulation. New technology comes on the scene at a blistering rate. “Internet basic bandwidth is growing at twice the speed of computing. While we’ve been talking about it, it’s happening. We’re going to create so many more applications that will use up that extra bandwidth,” says Pendse.
Traditional PSTN is facing increased competitive pressure from the IP-based New Public Network. Prices can’t stay artificially high for long; they can and will come down. So how is a phone company to make money in the future? Not off the price of a regular call, claims Pendse, who believes that a phone call anywhere in the world will soon cost no more than $0.03 per minute. Such price slashes would mean huge decreases in telecom firms’ margins.
eFusion’s technology, Pendse says, is the answer to the telecoms’ looming nightmare. “Telecom companies would have to maintain two separate networks, one for voice and one for data. That just doesn’t make sense. So how will these companies recapture that revenue? You have to create value packages to make up that difference. We’re in the business of creating that value package, when voice and data converge. This will allow them to retain or regain their margins by creating value-added services for their customers on the New Public Network.”

Two-pronged Approach

The company’s strategy is focused on two applications of its technology: subscriber services and e-commerce. Its subscriber services products are aimed at ISPs and their consumers. Assume that, like most households, you’ve got only one telephone line. If someone calls you while you’re on the Internet, she’d get a busy signal. But if your ISP has eFusion’s technology, a box opens up in your browser asking you whether you’ll accept the call. You can then use your PC as a speakerphone — while you’re still browsing the Web — or send the call to a voicemail box. The services offered (call waiting, direct dial, and others) are familiar to customers; the twist is that they can now be used while surfing the Net, with just one phone line. Pendse can’t help gushing about the rave reviews this has received: “We have had phenomenal acceptance of this worldwide. For such a young start-up to have such a global footprint and worldwide customers is pretty unique.”

In the e-commerce arena, what counts is completed sales transactions. eFusion’s technology allows businesses to make an online customer’s experience more pleasant — and hopefully, encourage him to buy more. For firms with call-centers, eFusion also lets sales reps synchronize their browser with the customer’s. Because they know what part of the site a user is viewing, they can make changes or update information and push the revised page back to the customer.

“It’s all about bringing human interaction to the Web,” says Pendse. Other companies are focusing on e-mail-based customer-service solutions; Web support, after all, is less expensive. But Pendse doesn’t think these firms are really competitors. “That’s not real-time; it’s time-deferred,” he argues. “It might take a day. But you want instant interaction and you want someone to show you products. So it becomes an increasingly dominant component of e-commerce — to personalize the Web. That’s what we do.”

Pendse strongly believes in Web surfers’ demand for that personal touch. “There are companies like E*TRADE, for instance, where you can do several transactions in a day on the Web. But the bigger market is in people who want to get their financial consultant’s advice first. [With eFusion’s technology] the call would go through to a financial consultant and then they would place a trade.”

Cool Tools or Cold Fusion?

Is eFusion ahead of its time? Sure, say some analysts. The company (and the Internet) still have a long way to go to make all of these super-cool visions bear fruit. But in the fast-changing world of telecom, first-mover advantage can make all the difference. “If we were going to fail, we’d have failed in the first year. You take a leap of faith that your technology is going to work. We went beyond that a year ago,” says the ever-optimistic Pendse.

Potential competitors include companies such as Lucent Technologies and Ericsson. But eFusion’s advantage, Pendse asserts, is its nonproprietary nature. “Fundamentally, our technology is based on open standards. So we don’t have any installed base. We connect to anyone in the voice world and the data world.”
“We are now installed in 14 out of the top 20 carriers (telcos) around the world,” says Pendse. “We have technology that’s ready for prime time. And we’re in an incredible space of conversion — building value over voice and data networks. Our product works great with XDSL and cable modems, but it works with the 28.8 modems we’ve got today, too. It’s practical.”
Look out, Silicon Valley; eFusion may just have found the next killer app.