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Can an Upstart Upend Cisco?

His product has yet to ship. His VAR sales force numbers just five. And he's largely funding the business himself. But those shortcomings aren't stopping Iain Milnes, president of Zultys Technologies, a new Silicon Valley start-up that aims to dethrone Cisco in IP telephony.

That's right, Cisco, the $18 billion-plus networking and communications giant that happens to have the dominant market share in voice-over-IP (VoIP). Milnes, a wily Englishman who has made a career out of taking down bigger companies, makes no apologies for his market plan. Rather than follow those who've backpedaled from Cisco, Milnes aims to attack it head-on. If nothing else, you've got to love the gusto he brings to the market.

As for the product portfolio, here's what he has to offer so far: a custom media exchange, dubbed the MX1200, that helps enterprise customers consolidate all of their communications into a single 2U system. That includes data, video and fax communications. According to the company, "the MX1200 integrates the functions of many devices previously available only in several disparate boxes," including an Internet switch or router and a PBX. A user can connect as many as 28 phones and PCs directly to the device, which supports T1 and E1 CAS and ISDN PRA. Among other things, Zultys says the device is the world's first VoIP platform that is based on 100 percent open standards, including SIP, Linux, TAPI and vXML. List price ranges between $20,000 $212,000, depending on the configuration and the number of users supported.

Although the company expects to sell a modest number of units direct to customers via its Web site, it is banking on the VAR and integrator channel to account for the overwhelming majority of its sales--95 percent or more, according to Milnes. At present, the company has only a handful of VARs, though it expects to have nearly three dozen by the time the product ships this spring. By year's end, Zultys hopes to have as many as 100 VARs on board.

To get that many, however, the company will surely need some existing Cisco partners to flip, which will be tough given the steep investment partners have in Cisco certifications and the market momentum behind its products. Zultys could appeal to those who've been knocked out of the Cisco program, but some of them are not the most competitive VARs on the planet. Recruiting influential partners will fall to David Gibbs, vice president of North American sales. Gibbs' resume doesn't reveal long-standing ties to data VARs, but he did help build a channel at Zarak, a developer of voice and data testing systems, and Milnes' former company that he sold to Spirent for $420 million.

In all, Milnes has had a hand in four different start-ups, the last of which was Zarak. Despite the challenges that lie ahead, he is unrepentantly eager to lock horns with Cisco. Even if he steals only a fraction of Cisco's market share in the VoIP market, which he estimates to be worth $1 billion annually, his company should flourish given its low overhead.

"The market is mind-bogglingly big," he says. "If we get a third of it, that will be pretty damn good." Even one-tenth, he adds, will suit him just fine, at least for starters.

"It's Cisco's business that I want," Milnes says, adding that he believes he has a better product and story to tell. Whether anyone will listen is the real question. But with so much moxie and confidence, it's tough to turn a deaf ear to the pitch, at the very least.

As for the company's brand, Zultys, Milnes explains, is a Lithuanian spiritual symbol for fertility that typically takes the form of a grass snake so sacred that anyone who kills or causes harm to it could be saddled with several years of bad luck. Unfortunately for Milnes, the traditional spelling is with an 'a' instead of a 'u', but someone else already grabbed the URL with the usual spelling, so Cisco could be off the hook if it manages to crush the plucky start-up.

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