article

Trading Desk – A Sea of Change for Bandwidth.com

Posted: 06/2001

Trading Desk

A
Sea of Change for Bandwidth.com
By Tara Seals

In the wake of a significant merger with Bandwidth International Inc., Bandwidth.

com Inc. (www.bandwidth.com) has changed direction midstream, pulling into port with a revamped and unique business model that is a mixture of agent, broker and online price comparison engine.

Originally launched in August 1999 as an online wholesale telecom capacity exchange, Bandwidth.com underwent a six-month sea change that included the cultivation of a consultative role, the signing of agency agreements, the addition of a retail division and an expansion in headcount and global presence. As a result, the dot-com company now is “to bandwidth what Travelocity and Expedia are to travel,” according to Henry Kaestner, Bandwidth.com’s CEO.

The move appears to be a successful one. The Bandwidth.com neutral site quotes pricing as an agent for most Tier 1 data providers. It receives 600 unique visitors a day, and between 25 and 30 of those visitors place order inquiries for specific retail and wholesale bandwidth solutions.

The shift began in January, when Bandwidth.com merged with Kaestner’s company, a carrier-neutral broker of wholesale bandwidth known as Bandwidth International. With Bandwidth.com’s online presence and Bandwidth International’s brokerage experience, it seemed to be a winning recipe for an online trading floor. The new Bandwidth.com team would broker physical and financial deals in products such as dark fiber, collocation facilities and lit fiber, with an online component.

But despite a “killer” domain name and large wholesale demand, the company moved away from its vision this spring. It now believes no liquid, bid-and-offer market for capacity exists, says Kaestner.

“We said, if they’re going to trade it, we’re going to broker it,” says Kaestner, who previously traded electricity. “But we’ve looked at the marketplace, and we don’t think it’s ready for an online exchange, because it’s a very slow-moving physical market.

“Financial markets are tied to an index, so there’s actually no physical delivery of any type of commodity,” he adds. “Or you can have a very, very liquid physical market that has lots of financial characteristics, like electricity–and this is neither.”

Taking that revelation further, Kaestner and Bandwidth.com founder, chairman and president David Morken saw that “Bandwidth is a reasonably sophisticated product,” and that every deal is unique. In response, the duo took a page from the alternate channel and hired matchmakers from telecom sales backgrounds rather than brokers. Rather than swapping standardized, measurable units, these product experts work with the buyer intensively.

“And that’s why each of our market specialists acts as a consultant, working with the buyer,” he explains. “It’s through that higher degree of interaction and five or six calls with various sales engineers at the carriers that the buyer can really feel he’s getting the right deal.”

The move proved to be a step toward an entirely different model. Offering the “right deal” also means creating a robust, neutral and lucrative portfolio of options, much like a traditional telecom agent.

“We quickly saw that there’s a lot of value-add that an agent that represents many carriers can bring to the table,” says Kaestner.

Morken began pursuing agency deals at the end of 2000. The company spent the first quarter executing agreements with carriers and CLECs such as AT&T Corp. (www.att.com), BTI Telecom Corp. (www.btitele.com), Cable & Wireless USA (www.cw.com), EPIK Communications Inc. (www.epik.net), Global Crossing Ltd. (www.globalcrossing.
com
), Qwest Communications International Inc. (www.qwest.com) and Sprint Corp. (www.sprint.com). Globally the company can price more than 100 carriers.

Hand in hand with becoming an agency is adding a retail component. While the lion’s share of Bandwidth.com’s customers still are large corporate enterprises that want to put together a global network, the company now enjoys a mix of retail and wholesale revenue streams. While working on a wholesale OC-48 deal, for example, it also may field anywhere from 15 to 20 retail requests for T1s, burstable DS-3s, frame relay and VPNs.

Kaestner has a positive outlook on Bandwidth.com’s future. In the next six months, the company plans to triple its headcount and to launch a marketing campaign. “Whether we get funded or not will depend on how big of a marketing focus we have,” he says. “But even without that, we’re still growing.”

Bandwidth.com also is growing in location. While the company’s London office continues to house wholesale deals, in April it established a Dublin retail office, to cater to European corporate bandwidth buyers. “Europe will be the next big area for us,” says Kaestner.

Acknowledging that signing agency agreements is much more difficult in Europe than it is in the United States, he adds that Bandwidth.com has entered into “partnerships” with overseas carriers that will bring more options to the table. “We bring them a deal and get paid on it,” says Kaestner. “What happens there is that we wind up putting someone like Scottish Telecom directly in touch with the buyer.”


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