Chapter 10 - Networking: Market Competition 1981-1983
10.8 Ungermann-Bass
Even though they had just introduced their 10 megabits per second Ethernet with fully compliant XNS in July 1981, management still felt at risk: they did not have a confirmed semiconductor chip strategy in place. They were certain they did not want to use the announced Intel chip. Conversations with management of the start-up, Silicon Compilers, had been encouraging, but they had not heard back from them in weeks. Then Charlie Bass remembers when Silicon Compiler personnel came back after working with Seeq, another startup and the desired semiconductor foundry:
They came back, and we had some fundamental differences on the concept of the design. It had to do with FIFOs and caching and engineering stuff, but it was losing some of the architectural advantages and characteristics that we wanted to see, and we could see that it wasn’t going to be much better than Intel and we weren’t going to be able to use it as much, and so we said: “No, we don’t like this. This isn’t good.
They thought the issue closed. Only to be surprised. Bass remembers:
Well they went quiet, we didn’t hear much, and then one day we hear through the rumor mills that they are working a deal with 3Com to build this chip, and in fact, there was a press release – a collaboration between Seeq and 3Com and Silicon Compilers. Well, we hit the roof. We called Kleiner Perkins and said: “Wait a minute. You can’t do that. We gave you everything we know, and now we’re hearing that one of our chief competitors is getting the PR and the advantage of working on this deal.” So we had this summit meeting.
Kleiner Perkins resolved the matter by giving UB $500,000 with UB relinquished any intellectual property claims. The experience left management even more certain they needed a chip solution. Bass recalls:
We had spent so much energy in this, we’re thinking: “There’s an opportunity here, building chips.” So I said: “Look, I’m going to call Ken Katashiba at Fujitsu. Those guys, they know how to build chips. They don’t know anything about what this culture is all about or what this market opportunity is about. So I got Ken to go with me to NCC, in Chicago, where Xerox was making its Ethernet announcements. And it was cold – I think it was November – and the Zilog people were all there announcing ZNet. And I’m dragging Ken around by the buttonhole introducing him to the Zilog people and showing him what Xerox is doing, and I said: “Now Ken. This is going to be something, and you guys can do something here if you’ll help us build this chip.” Well, Ken bought it, and he had the clout, or rather the access, to Ikeda, to bankroll the whole thing. So we cut a sweet deal with Fujitsu, where they, in effect, paid all of the up front engineering costs to build that part, and we had the part before Intel finally released their part.
Technological progress came easier than sales. Jim Jordan remembers:
The first customers you were getting were typical of almost any new technology. The ones you were getting were the universities, the guys that always try the first new thing in technology. In any kind of commercial account, it was always the engineering department that bought them. In the early days of LAN you didn’t sell anything to the blue [IBM] side of the shop – nothing. It all went in the engineering side. It was always going on DEC equipment. That was one of the reasons the market didn’t take off, sooner than it could have, because IBM has the major influence in the big accounts. IBM, in the early ’80s, was resisting because they didn’t have anything, so they were telling the MIS guy: “You’re going to lose your control.
As tough slugging as it was, UB reported sales for 1981 of $3.8 million and a loss of just over $300 thousand. They clearly had seized early market leadership and built a head of steam. And they had cash of over $8 million to finance their aggressive vision. (They issued another round of Preferred Stock during the year for nearly $6.5 million.)
In February 1982, UB introduced a 5 megabit broadband Ethernet, a product leveraging the skills and knowledge of Gregory Hopkins and his team. Only problems completing the product delayed shipments until September.
In great demand as a speaker, Ralph Ungermann remembers wanting to raise the awareness of UB within the investor community - knowing there would always be a need for more money:
Our real competitors in those days were the PBX guys, right? I was on 50 conferences with Rolm: Ungermann-Bass versus Rolm. Rolm was going to be the hub of the office, right?
While Ungermann talked to the financial community, Bass gave talks to customer forums. Bass recalls:
I spent half my life, in those days, giving seminars and tutorials all over the place on the planet to anyone who would listen, because this was the early stage of evangelical kind of business. You had to go out and convince people the stuff worked, that it made sense that it was going to be around. So I was giving one of these tutorial things to some financial symposium, and afterwards this guys walks up and says: “Would you sign my tutorial notebook?” And I said: “Well, why?” And he said: “Well, because there’s a woman that works with me and she’s followed your company, and this would really mean a lot to her to have your signature.” Well, that’s the first time in my life someone had asked for my signature, other than on a check or a closing document, and I look at the guy’s badge, and it says IBM. So I said: “Now wait. You got to tell me what’s going on here. What do you mean you’ve been studying us?” Well it turns out this was a group in Raleigh that had been the classical IBM task force that had been studying the industry, trying to figure out what all this stuff meant. Well, I knew about Token Ring and I knew what was going on in Zurich, I’m thinking: “What the hell is going on here. I got to find out what this means.” So, the first chance I got I go to Raleigh. Cold call.
Bass learned that IBM was going to let a contract to build a token ring to broadband bridge. What an unbelievable opportunity to expand the reach of UB’s products. There was also a human component as Bass remembers:
I’m having problems with Ralph and Jordan, and beginning to feel a bit disenfranchised in the company. So I really take this on as a mission and set about writing a proposal to bid on this project, and put my heart and soul into this, and went through all the machinations and lobbying and meetings and – you know, trying to find out who’s making decisions and what’s it worth and what do they want to hear, how do you do it, and so forth and so on.
John Davidson remembers:
We were asked to put together this bid very quickly, and it was asked to have a technical component. So I wrote quite a bit of text to try and describe how we would go about building this bridging functionality, and it was written in some intimate detail. Then we produced the document, submitted our bid, flew up to Raleigh to talk with Murray Bolt and Dan Warmenhoven and others, and present to them our design. And I believe that they felt this was a good design. Probably what they felt was: “Well, here’s a good, small, fast-moving company that knows something about broadband. We like Charlie. These technical guys seem to know what they’re talking about. We’ll pick them,” My perception is that we were competing against others for this opportunity, including Sytek.
In the course of discussions on how they will deliver the token ring technology required for the project, Bass contacted another small start-up that had plenty of token ring expertise. He remembers:
Well, what happen is, we start realizing we might win this thing, and the questions starts becoming: “How do we do it?” And it becomes a part of the rationale of going ahead with Amdax. It looked like these guys could do this. I went down on just the due diligence and figuring out what the hell we were buying, and realized this was one smart bunch of engineers, and no way in hell did we want to do what they’re doing, which is some 50 megabit Token Ring, but that background makes it ideal for them to implement what we were being awarded by IBM.
Once UB won the IBM contract they began negotiating to buy Amdax, a company known for its broadband and token ring technology.