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AirClic Inc.
5 Valley Square Park
Suite 200
512 Township Line Road
Blue Bell, PA 19422
+1 215-283-2200

AirClic AB
European Headquarters
Årstaängsvägen 1B
117 43 Stockholm
Sweden
+46-8-685-0700

www.airclic.com

Hotlinks to companies mentioned in this article

Appian Communications

Colt Telecom Group

Coriolis Networks

Native Networks

The Personal Information Technology Report

June 18, 2002

In this issue:

AirClic: The Future of Web-based Business

Metro Ethernet is coming of age

AirClic: The Future of Web-based Business

The story in brief: A wireless start-up makes personal information technology management as easy as a swipe of a scanner, demonstrating that successful wireless data applications may come down to giving users a simple portable interface to integrated networks, personal databases and real-time information processing.

For a perfect illustration of personal information technology, look no further than AirClic, a Blue Bell, Pa.-based start-up funded by Motorola and Ericsson.

AirClic sums up what personal information technology is all about. The company provides users with a way to collect, store, retrieve and share information. Its system is easy to use and adapts to any device that connects to the network, from conventional wired telephones to the most advanced pocket PCs.

AirClic's service starts with barcodes, or Universal Product Codes (UPCs), which have become a ubiquitous format for machine-readable information about a person, product or item. AirClic provides a means for the user to store such barcodes, along with the information they contain, in a proprietary database it calls its Mobile Information Platform.

A user may scan a UPC with a barcode reader that connects to a cell phone, PDA or other handheld device. Alternatively, the bar code number can be entered via the keypad or, with a phone, spoken directly into the receiver. Once a UPC code is registered in the AirClic MIP, its number becomes a "SmartCode" and is made part of AirClic's global registry.

The SmartCode also becomes part of the user's personal information database. AirClic has both business-to- business and business-to-consumer models that let users store, manipulate and send information from these personal databases, which they may access from PCs, mobile phones and PDAs. AirClic creates relationships with manufacturers, merchants, and various types of service providers, such as banks and hospitals, each of which may need to exchange information with an individual, explains Peter Ritz, chief technology officer and founder. AirClic collects a small fee each time a SmartCode crosses the network.

With major customers and partners in the U.S., Sweden and Japan, AirClic already has created a number of applications. In the U.S., AirClic is working with Beeline Shopper, which manages an extensive database of grocery products and associated nutritional information. In the circulars Beeline prints, product ads feature a UPC. Shoppers scan the UPCs into their phone, PC or handheld device, and then can create grocery lists sorted by aisle and get recommended substitutions and nutritional and promotional information, including coupons. In early market trials with Beeline and Basha's grocery chain in Phoenix, the average basket size increased by 11.5 percent, according to AirClic.

AirClic has similar business-to-consumer shopping services with Connect2 in the U.S. and TicketAnywhere in Sweden. TicketAnywhere allows users to purchase movie tickets simply by scanning a bar code in a newspaper ad.

AirClic users can even create a "personal number" for themselves. Not a phone number, the personal number is dynamic and can be transmitted to a cell phone or scanned off an email message or business card. The number retrieves contact information, perhaps for where the user is at that moment, directions to the individual's home or office, even the weather at the location. The quantity of the information provided in the personal number, and any associated network links it might contain, is completely up to the user.

Unleashing disruptive technology

The added value of AirClic's service is speed and convenience combined with providing a user the ability to easily manipulate personal data from multiple sources across the network without making multiple entries and waiting for multiple responses. Travel sites like Expedia and Orbitz already perform this function across airline and hotel reservation databases. AirClic extends this capability to nearly every product area -- and adds portability. This is where the technology gets truly disruptive.

Consider the result of this hypothetical deal between AirClic and Amazon.com: A prospective book buyer browses a Borders book store and makes a selection. But instead of buying the book, the buyer scans the UPC on the book jacket with a cell phone, then receives from Amazon.com a discounted price on the same book along with the opportunity to order it immediately via 1-Click.

This scenario, quite possible with AirClic, would give the brick-and-mortar crowd one more reason to hate Jeff Bezos. They pay for marketing, personnel and overhead, not to mention wear and tear on display items, while he, through a portable handheld, stands virtually at the buyer's shoulder whispering, "I can get it for you cheaper."

This could work in almost any retail environment, not just books. It's a powerful value proposition for retailers. That said, ironically a retail backlash could be the only barrier to AirClic's success. Always concerned that the Internet could cannibalize their own distribution channels, will retailers stand for serving as little more than showrooms for competing Web businesses?

User power over the Net

AirClic is attempting to build an Internet business by exploiting the Internet's true nature as a meshed network, not simply as another point-to-point line of communication. This is a subtle but important distinction. The first generation of dot-coms treated the Internet as a substitute for a phone line. AirClic's value proposition is that it places the power of lightspeed machine-to-machine communications in the hands of the individual. This is why it didn't tie its service to a particular type of end-user device-- a mistake that service providers, who continue to think of their business as connectivity-oriented, not network-oriented, make again and again.

With such information sharing, security and privacy are critical issues. Access to information can be controlled and defined at a number of levels, says Ritz. First, there's the standard username and password, common with most private data. However, the interface to the AirClic MIP can also be device-defined. That is, a user can configure service so that data can only be accessed from a particular cell phone, or from a specific IP address.

Levels of access can be defined by a pre-assigned security code. For example, while a hospital may maintain a large file on a patient, different parties, such as a physician, a billing clerk, a pharmacist or an insurance rep may only be able to see certain specified portions of the file based on the access levels the customer assigns them, says Ritz

In addition, data can also be encrypted prior to storage at the MIP and will still be encrypted after it's transmitted to another database, Ritz adds.

_________________________________________________
AirClic's Software Channels

AirClic actively courts software developers as channel partners. The AirClic Community Enabler Program (ACE) provides open, accessible and easy-to-use tools for third-party applications developers to build and deploy business and consumer applications using the AirClic platform.

Current AirClic technology applications include:

Logistics: Working with Nextel Communications, AirClic allows attendance officers (once called truant officers) in the Boston Public School system to keep better track of student absences and decrease truancy. Officers now get a simple print-out with each student's name alongside a barcode. The barcode contains that student's daily schedule of classes and extracurricular activities. If an officer catches a student in the wrong place at the wrong time, the barcode will confirm that when scanned.

Home Care: Employees of DirektConsult, which provides home-based health care in Sweden, use AirClic services to log visits, time spent, medication administered and meals prepared. That information is logged at a MIP database that client relatives can access. For example, adult children can ascertain whether an aging parent was visited, the day and time of the visit, and whether the parent received the proper medication. In the U.S., ABA Delta, which provides billing and task management systems for nursing homes, incorporates the AirClic technology into its software.

Supply Chain Management: AirClic supports software from Revelocity that lets businesses share supply chain information via the World Wide Web, lowering costs and increasing customer service.
________________________________________________________

AirClic, founded in 1999, is privately held. Strategic investors include Symbol Technologies, Motorola and Ericsson. Institutional investors include Goldman Sachs, Edgewater Funds, Blue Capital, Silicon Stemcell LLC and the IT Providers Millennium Partnership.

The company raised $72 million in its second round of funding in December 2000.

Now that it has a fair number of applications to showcase, AirClic's next aim is to get its service into more hands. Since the benefits of the service come mostly with experience, Ritz acknowledges that to take off, the AirClic service must be available to large swatches of the population. Right now, the company is looking to close large contracts that involve tens of thousands of users.

Service providers who support AirClic will benefit by offering their own customers an important way to gain additional value from their services by making management of personal information extremely easy. This is what the next generation of dot-coms will be doing. AirClic has a head start.

Metro Ethernet is coming of age

The Story in Brief: It will only be a matter of time before the surviving CLECs reassess and adjust their business plans to move away from pure connectivity to provisioning end-to-end services. While they regroup, the ILECs have an opportunity to use the latest integrated metro optical access technology to take a stronger position in enterprise networking.

After a year's worth of marketing hype, optical access equipment designed to mediate between Ethernet LANs and Sonet networks is finally hitting the market.

The equipment, from companies such as Native Networks, Coriolis Networks and Appian Communications, is designed to help service providers boost average revenue per line by allowing them to reuse bandwidth that otherwise would be dedicated to individual customers.

As the industry business model changes, forcing service providers to compete on the strength of their personal information technology services and management solutions, they must be able to deliver broadband connectivity cheaply and efficiently. They must do so first to keep user prices down and second, to get as much revenue out of their networks as possible, especially as more strategic capital is channeled to software, service creation systems and back office integration.

Bandwidth efficiency hasn't always been easy to optimize because legacy Sonet networks make it difficult to allocate bandwidth on a dynamic basis. As connectionless services such as Ethernet became pervasive, especially in enterprises, connection-oriented architecture like Sonet and SDH became more of a liability to an ILEC. It was a technology disparity that competitive local exchange carriers (CLECs), especially those basing their platforms purely on packet-switched protocols like gigabit Ethernet, hoped to exploit.

For a short time, it appeared that the Gig-E CLECs would build a substantial lead on ILECs in the LAN-WAN space, at least before the current shakeout, when many CLECs also learned the market was about delivering personal information technology services, not bandwidth.

Although the ILECs have money to spend, the question is whether they will do so. They would be well served if they spent some of the billions they'll generate this year. They may never again get this open an opportunity to build a competitive edge.

The best of both worlds

Although each optical access vendor refers to its platform somewhat differently -- bandying about terms such as metro access, IP rings, native mode transmission -- all are attempting to address the same need that ILECs have: to free up the bandwidth that lies unused because of the incremental and physical way TDM and Sonet systems assign circuits -- i.e., as in T-1, T-3, OC-3 and so on.

As a result, once ILEC bandwidth is assigned to a customer, the physical fiber that supports that bandwidth stays assigned to a customer. When that customer isn't transmitting traffic, that line remains dark.

The big advantage Gig-E CLECs had in offering a packet-switched service was that they assigned service dynamically and logically, not physically. Because specific facilities were not matched to specific users, CLEC networks aggregated traffic far more efficiently. The drawback was that most of the transmission was best-effort IP. Sonet, while inefficient from a bandwidth allocation point of view, is able to groom, protect and manage quality and service with unparalleled performance.

The multi-protocol aggregation platforms from Native Networks, Coriolis and Appian aim to combine the flexibility of Ethernet with the greater management capabilities of Sonet.

Revenue per line goes up and unit cost goes down when carriers can "fractionalize" fiber into affordable pieces, says Steve Harbour, CEO of Native Networks. Such fractionalization would create individual 10 BaseT and 100 BaseT connections off an OC-3 ring.

Generally, all metro optical access vendors set up their product architectures the same way. Larger equipment with OC-48 ports is installed at the carrier central office or point of presence. Smaller modules, usually with OC-3 ports, are placed at nodes in the Sonet ring. These nodes port to common interfaces used by enterprises, particularly Ethernet.

The systems see through the rings to the network edge using common protocols, such as multiprotocol label switching (MPLS), and vendors compete on the strength of the management, software and quality of service provisioning flexibility of their platforms, as well as price.

The cost of provisioning decreases because the physical fiber connections are now being broken down into thousands of MPLS tunnels, all logically assigned, each with its specific quality of service level. Customers get the level of service they contract for, while the physical fiber facilities are being used more efficiently. ILECs handle more traffic and can add more customers without large incremental cost.

_________________________________________________
Three approaches to Metro Optical Access

Pure play Ethernet. Chiefly used for LAN to WAN, data communications only, all packet-switched.
Advantage: Low-cost
Disadvantage: No high-level management or service level arrangements. Can use IP QoS protocols such as MPLS, but is often best-effort Internet, especially at the low end.
Comment: A favorite with Ethernet pure play CLECs but offers no value to service providers with TDM infrastructure. Offers little way to differentiate service other than price.

Next-Generation Sonet. Push Sonet/SDH to the edge
Advantage: The management strength of Sonet from core to edge, plus it builds on the Sonet legacy.
Disadvantage: Very expensive, and still has TDM's lack of flexibility when it comes to dynamic bandwidth assignment. Network capacity and potential revenues remain locked up.
Comment: Was a good idea when the Bells were the only service providers around and could charge $10,000 a month for a T-1 line.

Multiservice aggregation and transport.

Advantage: Leverages widespread use of Ethernet in LANs with widespread use of Sonet in the metro network.
Advantages: Makes best use of all available technologies in designing for a metro edge space; low cost interfaces to the enterprise; low cost interfaces to the core
Disadvantage: Vendor market is still shaking out. Some vendors won't make it. One vendor, Dynarc, declared bankruptcy in May.
Comment: Will the measurable value in re-use of optical bandwidth help ILECs get past their fear of shedding their T-1 business?
________________________________________________________

Most of the early deployment of its equipment has occurred outside the U.S., says Native's Harbour. The European CLECs have been the first to try the technology, mainly because they have built out most of the fiber. Colt Telecom Group uses Native Networks' systems in Milan. Harbour also cites deployment by CLECs in London and throughout Scandinavia.

That CLECs are finding ways to leverage the large installed base of enterprise Ethernet while extending the lives of their own SDH and Sonet networks should be a warning to ILECs that this window of opportunity will not be open for long. With CLECs in the U.S. still reeling, ILECs have a chance to reassert themselves as broadband service providers. After all, the multiprotocol access technology addresses one of their regular complaints -- that their legacy networks make cost of deployment unreasonably high compared to what competitors can do with a fresh build-out. The ILECs say they've been looking for a level playing field in competition. The multi-access platforms certainly tilt things their way.

-- Steven Titch

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