2005 Outlook: Communications –

Jonathan Silver is living on the edge-the edge of the network. That’s where all the action is these days. “So much intelligence has moved to the edge that, to a certain extent, the network has become the edge,” says Silver, a managing director at Core Capital Partners in Washington, D.C. He sees all sorts of opportunities to fund companies targeting that space, particularly those in the emerging market to secure important business communications going to edge devices.

What are you excited about in 2005 in the overall communications space?

Network security, especially as we continue to move to the edge of the network. For example, Trust Digital, one of our portfolio companies, is doing security management for PDAs. There is so much data moving to the edge of the network, but it’s the least protected part of the network.

What are some of the investment opportunities in communications this year?

I’m going to lop into the communications space and talk about RFID [radio frequency identification], which is a communications sub-sector. Major market movers, like the federal government and Wal-mart, are forcing change down into the supply chain. For example, they’re asking their suppliers to become RFID compliant. This is a transformation that probably takes 10 years. I think 2004 was not a year when RFID took off, but it will clearly pick up steam in 2005. This is the industrial supply chain, like tracking pallets. And eventually it will move from pallets down to individual products. The way the consumer will see it is that stores will never be out of inventory.

Is RFID part of a bigger trend?

I think 2005 will be the year that intelligence becomes embedded in the industrial supply chain-all the ways that businesses communicate and deliver products to other businesses. What RFID does on a philosophic level is blur the line between the customer and the supplier. The supplier begins to know in real time what the customer needs.

What kind of investment opportunity does that create?

You’ve already seen a lot of bets made on the production of RFID chips for RFID tags and readers. Now, because suppliers will have to become RFID compliant, the next set of bets will be around implementation issues. That includes software and systems integration. We’re looking at that area very closely. We’re interested in advanced technologies that enhance the capability of information flow. In other words, tags capture information, and there are all sorts of things that you can do with that information once it’s captured.

It sounds like one scenario is for small developers to build vertical apps for particular industries.

Yes, that’s right. You’re also going to see software being created to integrate all of these systems.

Any other opportunities?

Another issue is that there are even finer slices of the message distribution pie. That presents all sorts of interesting technical challenges. How do you manage the scarce resource that is the network and spectrum? We’re looking at investing in a company that addresses some of those issues.