This story appeared on Network World Fusion at
http://www.nwfusion.com/columnists/2002/0121bradner.html

'Net Insider:

The end of a bad idea?

By Scott Bradner
Network World, 01/21/02

Not long ago Nortel's $19 billion paper loss in just three months set a standard for fiscal prowess that other businesses could only wonder about. Now Enron has one-upped Nortel by losing about $23 billion in the last quarter of 2001 on top of a $68 billion loss for the rest of the year.

And these Enron losses were not the paper "goodwill" types of losses like Nortel's were - this referred to the actual value of shares on the New York Stock Exchange. Enron topped off an impressive 2001 by declaring bankruptcy, the largest in history. I wonder who will try to top this?

One of Enron's big things was acting as a broker. The company inserted itself between the producers and consumers of some commodity, such as electricity. Apparently the producers and consumers liked the arrangement because Enron was very successful at this - accounting, for example, for as much as one-quarter of the energy trading in the U.S. even though it never produced that much energy on its own. Enron was a very successful company, claiming annual revenue at its peak in excess of $100 billion.

The Enron Web site (www.enron.com) lists 32 product areas from power to fertilizers (there must be a lesson in that last category but I won't go there). This column only concerns one of Enron's product areas: bandwidth.

At first glance, brokering and selling bandwidth seems like a reasonable Idea, but I'm not sure that its time has come, if it ever will. Enron's online slide show explaining its idea of bandwidth trading starts with a quote from Machiavelli about the lukewarm support new ideas get from the Establishment. What it does not mention is that some ideas deserve lukewarm or no support because they are bad ideas.

Enron's model of bandwidth trading was to permit companies to get network bandwidth between aggregation points when it was needed and for the length of time that they needed it. This bandwidth could be used for special events such as televising sporting events or to augment an existing network. The company felt there was an opportunity in this area because of the inflexibility of the traditional players in the field. Historically, one purchased bandwidth in fixed-sized chunks for extended, often multiyear, periods, which took months to negotiate and provision.

But there are a few problems with Enron's idea. First, much of the problem with bandwidth these days is that it does not exist just where it is needed (no fibers), and second, the traditional model is dying. IP-based connectivity is easy to get and can satisfy most requirements. You do not need dedicated connections for all but the most demanding applications. It is hard to see how one can make a viable business model out of satisfying just these niche cases.

The bandwidth trading concept was bankrupt long before its champion.

Disclaimer: Bankruptcy is not a common topic at Harvard (well, maybe at the law school), so the above is my own opinion.

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