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IKANO News:
Title: Wholesale Web Portals - Salt Lake Tribune - By GUY BOULTON
Date: October 30, 2000
Posted: THE SALT LAKE TRIBUNE
Ikano Communications Inc. would be perfectly happy if customers using its Internet service never heard of the company.
Ikano, based in Salt Lake City, is in the business of putting other companies -- not to mention organizations and institutions -- into the business of providing Internet service. Its customers range from the LDS Church to a Cincinnati utility to a pharmaceutical company.
Customers receiving Internet service from such institutions and companies are oblivious to Ikano's role, and that's just fine with the company.
Ikano, the equivalent of an Internet Service Provider (ISP) wholesaler, does everything from providing the basic Internet connection to billing to setting up extra e-mail accounts. What Ikano's customers do is sell or, increasingly, give away the service. The service itself, from its Web address to its home page, has all the appearances of being provided by the company or institution that is Ikano's real customer.
The business is called "branded" Internet service, and Ikano and a lot of other companies see it as a promising market.
Ikano started as Sisna, a regional ISP. National companies now dominate that business. Ikano recognized that growth as a basic ISP would be hard and probably impossible.
"We focused on a different model," says Henry Smith, Ikano's president and chief executive.
The company, which employs more than 200 people, now sees itself as a "network infrastructure company." So, too, do most of its competitors. There is not much glamour -- or profit -- in providing basic Internet service.
Some companies, after all, have taken to giving Internet service away.
Ikano has set out to move up the food chain, so to speak, by focusing on the market for branded Internet service. That said, many of its competitors, including some of the biggest companies in the industry, have designs on the same market.
"No big idea you own yourself," says Eric Carlborg, Ikano's chief financial officer.
Competitors include such giants as WorldCom Inc., Qwest Communications International Inc., PSINet Inc. and AT&T Corp. -- plus a host of smaller players.
"It's definitely a competitive business," says Lydia Leong, who follows the ISP and Web-hosting markets for the Dataquest unit of Gartner Group.
But the market for branded Internet service is projected to grow as more businesses offer free Internet services to their customers.
"It's your equivalent of giving away a coffee mug," Leong says.
Ikano is relatively small compared to many of its competitors. The company had sales of $5 million in its fiscal year ended June 30. But its work force has more than tripled in the past year. And it projects sales of $20 million to $30 million in its current fiscal year.
Not surprisingly, Ikano believes it can hold its own against much larger companies.
"One thing this company does very well is look at the future of the Internet," says Smith, one of the company's founders.
Ikano's competitors, no doubt, say the same thing. But the company has won some impressive customers.
A unit of an undisclosed pharmaceutical company, for instance, is contracting with Ikano to provide free Internet service to physicians. When the doctors log on, they of course see the company's name prominently displayed on the home page -- not to mention some convenient links to information on the company's products.
Ikano, which is overseeing the project, will get a monthly fee for providing the service, maintaining the sites and providing customer service.
Another Ikano customer, a utility in Cincinnati, wants its customers to enter their meter readings and pay their bills online. That will save the utility the cost of sending out meter readers and bills each month. To give customers an incentive to do so, it plans to offer Internet service at a discount.
Banks are expected to do the same to encourage online banking. And then there are organizations such as the University of Utah, which want to sell Internet service to their students and alumni.
The question is how many customers these deals will bring Ikano and its competitors.
Smith contends contracts with large companies can bring a lot of customers.
But Ikano also can make money on contracts that bring as few as 5,000 new customers. "We have really got the branding element down to an art," Smith says.
Signing branded partners takes time. Sales cycles are long. And they are even longer for a small company such as Ikano. People don't lose their jobs for hiring a large, established company.
Still, Ikano can offer existing and potential customers an international network that enables people to get online from Japan to Germany without incurring a toll call. The company recently added 750 POPs, or points of presence, in Europe and Japan. It has a network of about 2,900 POPs through agreements with other ISPs.
That enables Ikano to offer local service and flat-rate pricing whether a customer is in Tokyo or Toledo, Ohio.
But that's just the start. Ikano contends its real value is in its ability to handle billing, customize accounts and provide customer service.
Earlier this year, it opened a customer-service center at the Salt Lake International Center designed for 1,000 employees.
Ikano apparently is making progress. In December, the company raised $11.5 million from investors. At the time, Ikano was valued at $40 million, Smith says. One of those investors, Inside Capital Partners, now plans to invest an additional $10 million in the company by exercising warrants, a type of security that entitles an investor to buy stock at a specific price.
The warrants value Ikano at more than $80 million -- double the company's estimated value in December.
"They can see we are executing today," says Carlborg, the chief financial officer. "We are meeting projections and delivering results."
Ikano hopes to raise an additional $20 million in the coming months. And this time Smith estimates the company's value at $150 million or more.
That is at least Ikano's starting point in the negotiations. "We'll see how that goes," acknowledges Carlborg, a former investment banker with Merrill Lynch.
So far, Ikano is unprofitable. But that's to be expected given that it has spent more than $15 million alone on its network operating center in downtown Salt Lake City.
At the center, engineers monitor 200 servers, including 40 to 50 at the site. Some of the other servers belong to partners, including Sisna franchisees in cities such as Idaho Falls; Brigham City; Cedar City; and Mesquite, Nev.
Ikano's contracts guarantee short waits and reliability. And the company contends its system is designed to be up 99.98 percent of the time.
The company's network operating center basically consists of servers, routers and switches -- plus the equivalent of a lot of telephone lines.
Servers are large, fast personal computers that typically store the information found on Web sites -- though some have more specialized tasks. Routers act like traffic cops, directing data from the servers. Switches connect the servers.
That is more or less the standard equipment. But Ikano also has proprietary technology for billing and provisioning, or the setting up of accounts.
"It's the billing and provisioning agents that set us apart," says Jeffrey Madison, Ikano's chief technology officer and one of the company's founders.
The technology enables Ikano to be a low-cost wholesaler of ISP services. Some customers -- including a few of Ikano's competitors -- contract with the company for billing services.
The billing and provisioning software was an outgrowth of Sisna, which grew partly by franchising Internet service. Sisna still accounts for about one-fourth of Ikano's revenue and about 80,000 of its more than 200,000 customers.
Sisna, founded in 1994 as an ISP, briefly was part of Digital Courier Technologies Inc., a public company based in Park City. Digital Courier bought the company in 1997 and then sold it back to its three founders the following year at a fraction of its sales price.
The three then set out to make the renamed company a player in a much more lucrative market.
Selling so-called branded services means Ikano can add customers without incurring steep marketing costs. Those customers can be added at little incremental cost. And they generate recurring revenue each month.
"That's the key -- we've got this platform," Carlborg says.
So do Ikano's competitors. But Ikano's sales are expected to increase more than fourfold this year. And the company's executives don't seem particularly worried about competing against much larger companies.
"Time and money can overcome us," Carlborg says. "But if we execute well, we are going to win."
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