Web services network provider Grand Central Communications recently closed a $23m series B funding round and has chalked up some substantial customer wins. A new VP of marketing, Judy Ross, has also joined the company. The announcement of a partnership with Corporate Communications Broadcast Network (CCBN) provides a good opportunity to take a fresh snapshot of the company.
Customers: On the customer front, Grand Central won Eastman Chemical Company in February and is preparing to announce a deepening of its key relationship with Wachovia Bank.
"When we first engaged with Wachovia, it was very much in an educational mode," Ross told the451. "Now Web services are woven into every project they've got. It's becoming a de facto part of how they do business."
Grand Central's network helps Wachovia produce and consume equity research. Web services projects within the banks tend to be spearheaded by line of business rather than IT. Grand Central CEO Craig Donato believes these line-of-business executives are looking for disruptive technologies to solve their problems. They're more interested in providing visibility to information and assets behind the firewall than worried about security problems that might arise.
"You can't think of Web services just as SOAP and XML," he argued. Rather, it's a profound change in the way people think about integration. Instead of hammering out separate agreements with every partner, a bank like Wachovia can publish and promote its Web services, and let customers figure out how to use them.
Technology: If Wachovia's line-of-business managers have the luxury to do this, it's because outsourcing Web services to Grand Central shifts responsibility for security breaches to someone else. Grand Central accepts and converts between any number of security arrangements, from SSL to virtual private networks and digital certificates, and it's keeping a keen eye on emerging Web services standards like SAML and WS-Security.
WS-Security in particular offers new opportunities for Grand Central.
"When you look at what that standard does, it allows one side of a transaction to understand the security mechanism of the other," Donato explained. "Grand Central can add value by implementing every type of security model your partners would ever want to implement. Most corporations are only ever going to implement one. We make it a policy-level decision. You can specify up front that: 'For this Web service I'll accept the following levels of security.'"
As an example, he cites an unnamed high tech manufacturer that had built its corporate standard around VPN. A hoped-for partner used digital certificates, and negotiations on how to get around the mismatch had stalled. Inserting Grand Central, Donato says, broke the deadlock.
Financial: For all the headway its business model appears to be making, Grand Central's finances still look a little on the anemic side. The company has eight customers. Donato insists that most deals start with a limited-scale pilot then evolve from $30-40,000 up to $120-150,000 per year. The model is pure subscription. No up-front configuration fees apply.
Assuming an average deal size of $90,000, Grand Central is making about $720,000 per year in total subscription revenues off the eight customers it already has. That looks healthy enough, but the company employs 60 people. Assuming a thrifty burn rate of around $10,000 per employee, the company is spending $600,000 per month out of its VC war chest – last replenished with $23m in March 2002. To cover its own costs, Grand Central needs to generate $7.2m per year. In other words, it needs ten times the number of customers it already has.
If its revenues remain low, Grand Central will use up its cash reserves in about 38 months from last March, or two and a half years from now. Small wonder then, that Donato expresses the conviction that in the middle of next year there will be "a very big period in terms of adoption."
Competition: Since the451 last spoke with Grand Central, Web services companies have made great strides in defining categories. In particular, it's becoming much easier to distinguish between network providers like Grand Central, Web services management platform providers like AmberPoint, and hybrid models like Blue Titan, Flamenco Networks and Talking Blocks.
Donato argues that while management platforms monitor services inside the firewall, networks extend platforms to provide visibility and enforce policies right across to the partners' side. While he sees Blue Titan and Talking Blocks as network/platform hybrids, Grand Central has been in talks with both about playing complementary roles. "They see themselves as the PBX, and us as the switched network."
Flamenco is another matter, though. The two companies face off in virtually every deal. Flamenco claims its architecture is more effectively distributed – the central server is only involved in setup, and customers can then communicate in a peer-to-peer arrangement.
Donato is unimpressed. "You have to decide whether you're a software company or a service in the network," he said. "I see two messages coming from Flamenco. One is that network capability is just a way to help people get started. If that's not their endgame, that puts them more in competition with Blue Titan and Talking Blocks."
The451 assessment:Grand Central Communications is bullish about the prospects of business-to-business Web services applications. The company says it's seeing Web services move from tire-kicking and pilot projects to large-scale adoption in customers like Eastman and Wachovia. However, a close look at Grand Central's finances reveals an imbalance between the number of customers and the number of employees. Though not unusual for an early-stage company, it's not a sustainable state of affairs.
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