By Steve Hamm If a startup's backers are any indication, tiny Neoteris may have a future. Among the veteran tech leaders who have invested in it are Jim Clark, co-founder of Netscape and Healtheon, and Jim Barksdale, former CEO of Netscape. But even with such legendary backers, Neoteris' founders couldn't have predicted how good their timing would be when they began working on their networking technology more than 18 months ago.
The company's first products allow a corporation's employees to easily tap into their networks from remote locations using just a Web browser. In the wake of the September 11 terror attacks, more companies are allowing employees to work from home, making telecommuting technology more valuable. Called Instant Virtual Extranets and released on Nov. 19, Neoteris' products offer corporations sizable savings in both cost and complexity, according to analysts.
"This is revolutionary technology," says Joel Conover, a senior analyst for market researcher Current Analysis. That's because, rather than requiring companies to buy separate hardware and software, Neoteris offers an "appliance" computer with preinstalled networking software. All employees need are an Internet browser and a password. "We're building a company that will really change the way enterprise do business -- creating a virtual corporation," says Neoteris CEO Krishna "Kittu" Kolluri.
MIGHTY COMPETITION. The challenge for Kolluri will be turning Neoteris' innovative technology into a successful business. Despite heightened interest in remote-access products, the Sunnyvale (Calif.) company is facing the worst technology recession in 15 years. Many companies are simply not in the market, especially from upstarts without a proven track record. Neoteris has just 25 employees. And the competitors -- companies that sell so-called virtual private network (VPN) technology -- have household names such as Cisco Systems and Nortel Networks.
Still, Neoteris is entering a market that's growing rapidly. In spite of the economic downturn, hardware and software sales for VPNs are expected to rise from $2.3 billion in 2000 to $7.5 billion in 2005, according to market researcher IDC. Since the VPN leaders are well-established companies, analysts believe Neoteris will do best in the markets for small and midsize businesses, where the big players haven't ventured. "That's opening up," says Jason Smolek, an analyst at IDC.
A key to Neoteris' success will be getting powerful distribution partners who can pitch the technology to corporations. Neoteris is lining up dozens of regional technology distributors to retail its products. And it's even trying to forge alliances with VPN sellers who want to offer their customers a simpler and cheaper tool. But the more difficult task will be convincing large systems integrators and networking companies to sell its products as part of their portfolios of technology and services. The company says it just inked a deal with a major security products systems integrator -- but can't reveal the name yet.
PRODUCT FOCUS. Neoteris' core competence is technology. The four founders were top engineers at Internet health-care pioneer Healtheon Corp., now called WebMD. They hired Kolluri, a former Healtheon executive as their first employee and CEO. At Healtheon, Kolluri was a senior vice-president in charge of the $130 million health-care provider's services division -- overseeing 400 employees. He says he joined Neoteris because he wanted to focus once again on products. "I wanted to build a company with strong intellectual property, as opposed to just building a dot-com," he says.
The key advantage for Neoteris is that its products are easy to install. Because they're self-contained and fit into already-existing networks, it takes just hours to get going. In contrast, it can take weeks or even months to install VPN technology throughout a corporation. With VPNs, each employee's notebook computer or home computer must be loaded with special software. And, if any changes are necessary, each computer has to be upgraded with new software.
Neoteris offers a clear price advantage over the major VPN suppliers, too. While a VPN project can cost well over $100,000 in software, hardware, and labor, Neoteris' pricing is from $15,000 to $65,000 for employee-access products. Prices for products that allow a company's corporate partners to access its network range from $30,000 to $100,000.
TAPPING IN. Neoteris has landed 22 customers so far, and it has some loyal fans among the dozen companies that tested it prototype. Finisar Corp., a maker of fiber-optic communications equipment, has hooked up about 220 of employees with Neoteris' technology. "It's much better than the alternatives in terms of cost and convenience," says Patrick Wilson, the company's information technology director.
NetLedger, a California-based startup that sells online software for small businesses, has 20 sales people tapping in to its network via Neoteris. Ben Sardella, a senior account manager, says it allows him to work on the road and from his parents' home in Boston. "Anything I can do here, I can do from there," he says.
Like some of its small-business customers, Neoteris knows what it's like to operate on a shoestring. It received $5 million in venture capital last June and still has more than half of the money in the bank. It plans on raising a second round of venture financing early next year. Kolluri says he hopes to make a profit relatively soon -- by late 2002 or early 2003.
"MAKE NOISE." Backer Jim Clark says Neoteris' conservative approach to business is one reason it's the only new startup investment he made this year. He likes the way the company patiently developed its technology for 18 months before going public with it. "These guys believe in getting the work done before you go out and make noise," he says.
Now that Neoteris has launched its products, it would love to make a racket. But that will be tough. With scant money available for advertising, the company will have to rely on word-of-mouth marketing to make its presence known. Kolluri and his cohorts better hope the word spreads fast. Hamm writes about technology for BusinessWeek from New York