Bandwidth on the Block

An Internet-based bandwidth exchange was an idea whose time had come. But it wasn't until Bandwidth.com teamed up with Perfect that the idea really started to cook. The Bandwidth.com Web site provides a one-stop resource where small- to medium-sized businesses shopping for tele-communications capacity can go to get multiple competitive quotes. Perfect's customizable and fully automated RFQ (request for quote) environment is enabling it to do it efficiently and intelligently.

With the Telecommunications Act of 1996 effectively ending the monopolies held by local exchange carriers for more than 50 years, a large number of competitive local exchange carriers (CLECs) were emerging to challenge the regional Bell operating companies (RBOCs) for market share. But even though businesses now had a choice of carrier, they also had a big headache.

"Before we arrived on the scene," says Bandwidth.com's President David Morken, "if you wanted to buy a T1, you literally had to pick up the phone as many times as you could to get competitive quotes. And even if you knew the company to call, it was work to find someone who could actually give you a price."

Morken saw an opportunity in this fragmented and inefficient market. "We saw that we could aggregate demand at a startling pace without any advertising, just with the inherent value of the
domain." Results of a customer poll conducted later confirmed his suspicion. The site currently averages 2,000 unique visitors a day, 70 percent of whom say they found the Bandwidth.com Web site simply by typing in the domain name.

Once at the site, the interested buyer submits an RFQ that Bandwidth.com qualifies and then forwards to a national account rep at one of the carriers. The carrier representative prepares the proposal for the client and, after further negotiation, closes the deal directly with the buyer. Bandwidth.com earns a commission for that service. "It sounds simple, and it really is," says Morken. "Our service saves time and money for the buyer. Prices can vary as much as 100 percent for the same lines from carrier to carrier."

Soon, however, it became apparent that aggregating demand wasn't the whole answer. As Morken puts it: "Imagine going to a car lot and screaming out what you are looking for and having every salesperson on the entire lot descend on you...Buyers were having to drink from a fire hose and carriers were generating 50 quotes and only closing one deal."

Bandwidth.com needed a way to match buyers to sellers more intelligently. The company consulted a number of different business-to-business solutions providers, including i2 and Moai Technologies. In the end, the decision tipped in favor of Palo Alto, Calif.-based Perfect.

"The other offerings have the ability to do transactions, but they don't have that intelligent filter. Perfect's solution was the only one that let carriers specify what their parameters were and gave buyers the ability to whittle down the list of carriers to only those that best matched their needs," says Morken.

Not on Price Alone

Drawing on theories he helped develop for U.S. government auctions, stanford University professor and Perfect's Chief Economist Paul Milgrom was instrumental in developing Perfect's patented technology. Operated as a hosted solution, the PerfectMarket suite includes an administration tool that Bandwidth.com uses to configure the marketplace and to perform the day-to-day monitoring and updating. The solution also gives suppliers the ability to create flexible business rules that increase the level of automation-with less-costly human intervention needed-as confidence in its bidding strategy grows (see sidebar, "How Carriers Drive the Automated Bidding Process"). Led by President and CEO Kevin Surace, a veteran of General Magic, Perfect unveiled its solution in early February at the Demo 2000 show. By that time, Bandwidth.com had more than 30 carriers and was handling requests representing more than $100 million in annual revenue for the carriers. "At that point, we were desperate to find a solution," says Morken.

After reading a write-up in the Wall street Journal and later meeting with the company, it became clear to Morken that Perfect was the solution they were looking for.

In the months that followed, the two companies met a number of times to work out the configuration. "We walked them through the nature of the product, what's most important," says Morken. "Then Perfect took the ball and ran with it. Next thing we knew, we had a beta."

Bandwidth.com runs the solution off of Perfect's own hardware, software and connectivity. After a transaction has been concluded, results are transmitted to Bandwidth.com as a comma-delimited text file via an HTTP "post" call to the company's Perl script, where it is imported to an MS Access transaction database. Bandwidth.com then invoices carriers based on each individual carrier's commission agreement.

As of late July, the Perfect solution was in the final stages of implementation, training carrier reps on how to keep their pricing, provisioning and quality of service rules current. "[The carrier reps] are actually excited about having these parameters up front for the customer to
review," says Morken. "At the end of the process, everyone else will be weeded out, and they'll be left with just the people who are very interested in them because of what they offer."

While Bandwidth.com claims to be "batting darn near 1,000 when it comes to signing up new carriers," Morken acknowledges that some of the carriers aren't crazy about the level of price transparency involved with the Perfect solution. He expressed confidence, however, that it will not be a major hurdle. "If we have the traffic and liquidity with the requests, they're going to have to participate, whatever carrier they are," says Morken.

Gaining Access to Market Intelligence

In the future, Bandwidth.com will be able to offer carriers more than just increased sales revenue. The company will be able to offer access to market data that has been captured, stored and analyzed by Perfect's suite of market intelligence tools and services. "It's incredibly valuable to Qwest, for example, to know where it stands in the market compared to everyone else," says Morken.

According to Morken, it is still a little too early to say what form the market intelligence will take and who will have access to it, but he is clearly excited about the prospects. "If you have high volume cruising through your market, that [market intelligence] is potentially more lucrative than the commission you're making."

For Bandwidth.com, the volume and closure rate-that is, the percentage of requests that ends up becoming commissionable sales-is the key metrics driving the Perfect implementation. With the
Perfect solution in place, the site can handle more volume. The more volume, the more commissions. The closure rate, on the other hand, is directly related to the number of relationships that the buyer has to make before committing. "Without this solution, the buyer is forced to establish relationships with upward of 56 different carriers before committing, and that causes a lot of fallout," says Morken.

Morken isn't predicting how many deals his company will close when the new Perfect solution is in place, but he's optimistic. "We are incredibly excited about the efficiency and intelligence Perfect's solution brings to the picture," he says. "Without it you have cacophony; with it, a conversation."