Secure start-ups will fare best in '03

It is always challenging to look out at a new year and predict which technology sectors will be most important to network managers and most promising for venture investors. The year ahead is particularly difficult because so many economic and political questions remain unresolved. However, here are my predictions:

• Network security will continue to be important. Intrusion detection and vulnerability assessment are good investment areas in 2003, as are application security and host-based security products. Ultimately, however, we will see more tightly integrated products to reduce costs and management complexity. VPNs will become more flexible and less expensive as start-ups provide technology to automate the set-up and management processes.

• Another important issue for network managers this year will be how to deal with the increase in remote wireless devices accessing corporate networks. Managing these devices, provisioning applications, and providing security at the device and network levels will be critical. Wireless messaging services are becoming not just a person-to-person service, but also a way for companies to get information to consumers or to communicate with employees.

• Data storage and voice over IP (VoIP) were investment bright spots in 2002 and should continue to do well this year. We will see less expensive and more automated ways to store important data with more intelligence added to the storage networks. Important companies in this area are Mayfield investments 3Par Data and OnStor.

• VoIP will continue to gain traction largely in branch and small offices. We will not see massive deployments this year, but after several years of trials, carriers will begin to roll out VoIP services such as IP Centrex or IP videoconferencing. Mayfield investments in this area include Convedia, a media server company, and Sylantro, an applications-enabled softswitch vendor.

• A trend that will have far-reaching consequences is the deployment of standard-based hardware into the network arena. Standardized hardware has driven out proprietary hardware at the desktop and network edge and is now starting to move into core servers and network equipment. This will provide a real opportunity for start-ups. In the past, funding network hardware companies was capital-intensive because equipment had to be built from scratch. With standard hardware, start-ups can leverage industry-standard processor technology and will be better able to focus on innovation and differentiation in the software layer.

If there is an overriding issue for venture investors in the network arena this year, it is how to interest network managers in the products and services of start-up companies. Network spending will be going toward deferred projects from the previous several years. Start-ups with finished products and customers in place will have the best chance of getting a foot in the door.

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Brooks is a general partner with Mayfield, a venture capital firm in Menlo Park, Calif. He can be reached at tbrooks@mayfield.com.

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