Aventail CEO's Software-to-Services Tale

FRAMINGHAM (04/18/2000) - Aventail Corp. CEO Evan Kaplan spoke recently with Senior Editor Carolyn Duffy Marsan about the company's migration from a software manufacturer to a service provider and how it hopes to take advantage of the growing business-to-business e-commerce market.

NW: What is the status of Aventail.Net, the managed extranet service you announced in November?

Kaplan: We started off with six or seven customers. What we were able to show our customers was that there was traction in this kind of model, meaning that you could take a piece of the IT infrastructure, do a highly engineered service and add value by staying focused. It takes a tremendous amount of engineering up front to build the application, and then you basically move from customer to customer. You have about 90 percent common infrastructure across customers that allows you to scale.

NW: Who are your initial customers?

Kaplan: They haven't been officially announced, but they include the second- or third-largest bank in the world, two top-tier industrial customers, a $5 billion mechanical and agricultural supplier and one of the Big Five consulting firms. So it's a pretty broad range.

NW: Have any of your Aventail.Net customers deployed?

Kaplan: We started signing them up in December [and a couple have gone live this month, but they won't let us divulge their names publicly].

NW: What are your plans for your extranet software business?

Kaplan: We're not walking away. We're going to continue to supply our larger customers. But we are trying to transition to a service model. When we looked at our software customers, we found that some of these guys were never going to get their supplier networks up because they can't hold the focus long enough and they can't hold the people. They can't pull it off at the scale they need.

With our service, we can put something in front of these folks that they can't put together themselves.

NW: But you've got the same challenges in hiring and retaining technical people.

Kaplan: Yeah. We will have that in spades after we go public, but right now we're holding that off by giving people stock. The difference in an organization like Aventail is the people who develop the technology and deliver the service are part of the same overall team. When they're in an IT department, they're in service to people who are the line of business. With us, IT is the core of the business. So that gives us a better aptitude at recruiting and retaining people.

NW: How much have you increased your staff?

Kaplan: At this time last year, we were 65 people. Now we're 185.

NW: What is your strategy for selling additional services?

Kaplan: We'll start by selling infrastructure services. But once a customer has its supplier chain up, it has a community of people that might be interested in accessing applications, getting trusted e-mail or trusted file delivery. We're not interested in services inside the firewall, but we are interested in add-on services outside the firewall.

NW: Where does all this action in the business-to-business market leave Aventail? You were there before the market became hot, although you called it an extranet instead of a business-to-business exchange.

Kaplan: How we're there now and how we were there two years ago are very different. We still use the term extranet, but I prefer business partner network. We create what we call the business-to-business dial tone, the infrastructure to do business-to-business applications. We sell this core managed service and then we add highly engineered services. Then you just drop whatever custom applications you want on top of that.

NW: What do you think is going to happen with business-to-business e-commerce marketplaces over the next year?

Kaplan: In the commodity space, these marketplaces are going to be very real.

One of our customers that I didn't mention before is a water supplier - that's a real commodity. On the other side are highly valued products. But I don't think exchanges will be successful in this space. Instead of going to an independent marketplace, these companies are going to bring their customers and suppliers closer in so they can minimize costs and inventory turns. That's the model that the powerful value-added enterprises will take. That's what we're excited about.

NW: What are we going to see from Aventail in the next year?

Kaplan: We'll focus on building these business partner networks. I keep asking myself: 'What else would people need for aggressive collaboration on the Internet with their business partners and buyers and customers?' Then how do I engineer those services and what partners do I need?

The activation, getting the names into the directories and building the security components is the hard part. Writing new services is easy. It's a lot like contracting with HBO for the Movie Channel or ESPN for the Sports Channel when you're already delivering cable into the home.

We're already delivering the infrastructure to the corporate world. We've set up the billing and the account. Now what else can we offer?

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