Route Control Promises Cost-Saving Solutions –

Having successfully convinced venture investors that network performance should no longer take a back seat to Internet connectivity, RouteScience wrapped up 2001 with a $30.5 million second round infusion. The two-year-old route control equipment provider has now raised a total of $56 million, and has no plans to return to the private equity market.

RouteScience is the latest company to receive funding in an emerging sector, called route control, that has garnered quite a bit of attention from the venture capital community over the past few years. In fact, VCs have pumped more than $110 million into the burgeoning sector since 1999.

Route control companies like RouteScience strive to help their customers cut costs on their Internet services while improving the overall performance of their networks. Furthermore, the technology adds an intelligent gatekeeper at the edge of the network designed to reduce traffic bottlenecks.

In addition to RouteScience, some of the key players in the space include Sockeye, which has captured $28 million from Battery Ventures, Baker Capital, Polaris Venture Partners and Credit Suisse First Boston; NetVmg, which raised $27.5 million from Accel Partners and Duff Ackerman & Goodrich LLC; and Proficient Networks, the newest of the quartet which has captured $6 million from El Dorado Ventures and Canaan Partners.

For its part, RouteScience has raised money from big-name backers like Sequoia Capital, Benchmark Capital, Foundation Capital and Sevin Rosen Funds.

This group of fledgling firms is attempting to provide companies with top-notch network performance in spite of their restricted IT budgets, which have been slashed due to the economic downturn. It’s no easy task, however large companies have been loathe to commit to new IT expenditures without clear cost savings.

It’s a gamble, though, that if taken, could save enterprises millions of dollars in the long run.

“A year and a half ago, people weren’t really concerned with what they were paying for their network connection,” said Charles Beeler, route control investor and general partner of El Dorado Ventures.

Now it’s the opposite. With companies being forced to make their shrinking IT budgets work harder and smarter, route control firms are perhaps more relevant than ever before because the technology they offer could ultimately represent five or six figures of monthly savings for some companies, Beeler estimates.

Route controllers test various network-performance parameters and make real-time decisions about the best route based on business and cost inputs. The technology enables companies to load-balance their Internet usage, get good service from lower-cost service providers and avoid low-performing networks entirely.

The way most large companies route their data now is horribly inefficient. Usually, they contract with at least one main Internet service provider and one that provides a back-up connection. Enterprises that hire multiple service providers to connect to the Internet have multiple routing options for transmitting data, but current routing technology arbitrarily chooses the pipe, or the Internet connection.

Currently, routers use Border Gateway Protocol (BGP), which tries to funnel the information through the route with the fewest autonomous networks, in other words, the fewest separate ISP companies.

Testing, 1, 2, 3

However, route control executives claim that test fails to choose a conclusive route 55% to 70% of the time, in which case BGP routes the information to the lowest IP address, which isn’t very efficient.

Because it arbitrarily routes data, BGP can’t adjust to accommodate companies’ business plans, network performance or pricing models. On the other hand, the upside to a route control system is that it is more intelligent and, as such, enables a customer to map out performance and cost targets for different types of information. Furthermore, the system itself can adapt with changing network conditions to find the optimal route for the data.

Take Charles Schwab, for example, which generates its revenue from order traffic during trading hours, but also brings in traffic from people researching their investments.

The trading-hours order traffic requires the most reliable connection regardless of cost, but Schwab might gain considerable savings by programming the parameters of its business plan and service agreements into a route control system and directing all non-revenue network traffic through a most cost-effective pipe.

The sector has a slew of names besides route control, some call it intelligent routing, business optimized networks and route optimization and probably at least as many types of products and performance-testing methods.

Founded in 1999, RouteScience has likely been active in the space the longest. The San Mateo, Calif.-based company produces a box, called PathControl, which sits next to the router. It has been shipping a 14-slot chassis since October 2000, and plans to have a smaller 8-slot chassis version available for small-scale enterprises this quarter. The company expects its most recent venture windfall to tide it over until it reaches profitability.

The most recent entrant into the space, Proficient Networks, also manufactures a hardware solution, called the Network Policy Engine 1010A. The San Francisco start-up plans to ship a beta product this month, and may draw another bucket from the private equity well in about six months. The company also plans to grow its staff to 100 from 30 employees by year-end, said Proficient CEO Allan Leinwand.

Sockeye Looks For VC

For its part, Sockeye was spun out of outsourced e-business infrastructure giant Akamai Technologies Inc. Newton, Mass.-based Sockeye ran its GlobalRoute appliance through the rigors of beta testing last summer, and the product hit the market in November 2001. Sockeye’s GlobalRoute appliance sits next to the router and works concurrently with Akamai’s servers, reacting to data feeds about network performance at different points in the Internet. Sockeye, too, anticipates it will need another round of venture funding at some point in the near future.

Last but not least, netVmg brings to the route control table a software solution called the Flow Control Platform, which loads onto general-purpose hardware outside the network. The San Jose, Calif.-based company currently has four customers in product-level trials and 10 in technology trials. The company anticipates a return to the private equity market one last time with a $10 million to $15 million-targeted offering, which is expected to fully fund its business plan.

“The biggest competition we have is in establishing the category and justifying our existence as an industry,” said Eric Wolford, senior vice president of marketing and business development at netVmg.

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