Shift Networks preparing to expand products and market reach

Shift Networks Inc. could be on the verge of announcing a round of investment from Bay Street after grabbing the attention of financiers. The Calgary-based company is performing extremely well in securing IP communications business from the country's small and medium-sized enterprises (SMEs) in Western Canada and is now preparing to target the same market in Ontario. Trent Johnsen, president and CEO of Shift, explains that the company's on-demand or subscription-based model of providing IP telephony to small businesses can be described as a virtual key system. This is a system that many small companies have used for the past 30 or 40 years, making adoption of the service that much easier. "I talk to small/medium business owners and they actually get it," he tells Network Letter. "All of the business we're businesses that are making a decision with regard to their phone system." Shift received a solid endorsement last month when independent research firm Loewen, Ondaatje, McCutcheon Ltd. (LOM) issued a glowing report on the company. LOM notes that Shift is well-positioned to capitalize on the SME market. "The solution is underpinned by a scalable technical architecture that already hosts hundreds of happy customers, thousands of subscribers, and millions of calls. There is a wide body of evidence that suggests there is proven pent-up demand for high-quality hosted communications services in the markets that Shift Networks currently operates and plans to operate in during the next 12 months," reads the report. Now that the company has validated the economics of its business model and its service is being adopted by an increasingly greater number of SMEs in the West, Shift is preparing to enter the lucrative Ontario market. But before it can do that, the Calgary company needs additional financing to support the growth and that's what two days of presentations at the end of last month with Bay Street bankers was to have accomplished. Johnsen spoke with Network Letter from Toronto on March 1 about the company's business model, competition and why he believes Shift will succeed. Below is an edited excerpt of that conversation. Network Letter: Can you provide an explanation of the company's on-demand model? Trent Johnsen: I think one of the better descriptions that has been used of our primary current technology over the last couple of years is virtual key system. So, we've been busy since the summer of 2004 developing the foundation for a new generation of IP on-demand-based service for small-medium businesses, which hosts in a classic central-data-centre-application-service-provider-type structure all of the traditional functionality of key systems that small businesses have used for the last 30 or 40 years. But instead of having to buy any equipment other than the little IP router that we provide, the customer buys an IP telephone, takes the CAT 5 cable out of the computer, plugs into one of the ports in the IP phone and then you'd use a bridge cable from a second port on the IP phone and plug it back into the computer. The phone boots up, retrieves an address from our central servers, is up and running on your LAN and it's got this really rich set of features, pretty much any feature you've ever imagined on a PBX or key system is now available on the IP phone set and through our Web browser portal administration site. NL: Why is this model going to be successful? TJ: Getting something done in the traditional business telephony model is based on the physical existence of two pair of copper wire everywhere and guys in vans with tool belts pulling wires into premises and back to central switched facilities. This is really expensive and it takes a ton of time. If you want to order a new business line, you call the telephone company, you wait in a queue to talk to a CSR, a CSR then takes your order and that thing now begins to flow through multiple departments in a telco. Some weeks later union guys in a van drive out to your building and start looking for two pair of copper wire in your main floor phone room. With Shift, much like Internet banking, Shift customers today just log into their Web browser, click a drop-down menu of numbers they have available to them and select a new business telephone number. If you are a new employee joining our firm today we can say from 8 a.m. to 5 p.m. we want the phone to ring to you at your desk and after 5 p.m. we want it to ring over to Susan's desk or go to the auto attendant. We can also say after 5 p.m. there's no international calls. You set up all the user profiles determining what employees can and can't do, click "save" and you've got a new business line. NL: That's similar to what IP PBX or IP Centrex type systems can do and those are designed for the enterprise market. TJ: In fact that sort of articulates a large part of our mission: if you want to open a shop with five or 10 people, we believe that we can make available to you at a better price on a subscription basis that same level of IP voice services that Manulife or Scotiabank would put in from a vendor like Cisco or Avaya. We can make it available to five independent engineers and it's $25 a seat per month. NL: So, how is business? TJ: I talk to small-medium business owners and they actually get it. All of the business we're winning is from businesses that are making a decision with regard to their phone system. So when we run into a business that is moving or has outgrown their business telephone system, we win 100% of that business. Because if you look at our value proposition you'd say why the hell would I buy a piece of central telephone equipment. NL: So you're winning 100% of that kind of business? TJ: Since the day we launched this service, if we run into a business that is in a buying decision relative to their business telephone system we have won 100% of that business. We're getting a little better at helping businesses who are satisfied with the status quo understand some of the additional value they could enjoy by having these kinds of IP capabilities. But with 85% to 90% of the market which has a good business telephone system right now and aren't looking to make any change, we are not nearly as successful having them abandon their existing business phone system as I would like to be. So this year we're going to layer on our hosted managed email, calendaring, instant messaging suite and begin to integrate that with our voice services. We're also working hard to drive down the cost of the IP phone sets. We think within the course of this year we'll be able to walk into a much higher percentage of small-medium businesses with such a strong value proposition that they'll sunset their traditional business telephone equipment. NL: Now upwards of 99% of businesses in Canada are considered small business, according to IDC. This market is virtually untapped if we consider the number of companies that have already adopted these types of systems. TJ: It's staggering isn't it? It's literally untouched right now. Shift is one of the only companies in Canada and one of a handful of companies who are really doing this in North America. There's a tremendous amount of noise and confusion around the underlying technology being VoIP, but it's a combination of other things. It's this incredible value that businesses get from the broadband infrastructure in Canada. As small businesses get increasingly affordable broadband access, companies like ours can come and just deliver them innovative efficiencies and cost savings. NL: Revenue opportunities appear to be pretty large and the LOM report predicted some pretty strong revenue for the company over the next couple of years. Were those numbers somewhat mirrored in what the company had internally? TJ: The analyst worked very extensively with myself and my CFO on those numbers, so yes those began with our modeling. His revenue projections are probably slightly more conservative than ours, but if you read between the lines in the LOM report as well, there is very little revenue forecast there for our layering of additional small business services above voice. I'd like to think we can certainly beat the numbers in the Loewen report. And the reason I know we can is Loewen's numbers are based on what we're already doing today by way of monthly loads with current headcount. If we get more working capital, I can add more people, I can add more services, I can blow through those numbers. NL: With respect to those other services, is Shift going to launch those services this year? TJ: Yes. We will launch mail, shared calendaring, file sharing and instant messaging to the desktop in the first quarter of this year. We've been working extensively on our Shift mail product since about June of last year and much like our voice services, we need to make sure we get it so it's very easy to use, so it's extremely stable and fast because with small customers and small revenue transactions, it has to be highly productized - easy to buy, easy to use. We're just about done, we've got a very exciting product that we'll begin loading for our existing customers and offering to all our customers coming on this quarter. NL: It is expected that the CRTC will eventually give ILECs more freedom to market their telephony and IP services. Will Shift be able to compete against the big guys when Telus, for example, is allowed to more freely market its VoIP services in Alberta and BC? TJ: We of course strongly believe so, and if I could pick my competitors I'd probably pick the telcos. They're Canada's largest, among the oldest corporations. They've been protected as a monopoly. The telcos still think they have some God given right to be in business, and as long as they believe that they will never go take care , they'll never go hustle to win the business and they will never take care of the customers to the degree a company such as ours does. We feels like it's a privilege to have people do business with us, and we have to be looking over our shoulder or we're not going to succeed.

Shift Networks preparing to expand products and market reach

News | March 15, 2006

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