Shaklee looks to small service provider for global growth

Global networking services provider Virtela Communications is key to Shaklee's plans

Shaklee Corp., which sells natural foods and other products, is looking to expand its global presence from five countries to 10 times that number over the next decade and is relying on one of a group of small but nimble global networking services providers to make the leap.

Pleasanton, Calif.-based Shaklee, with an independent sales force of 700,000 people and a small IT shop, knew that it needed world-class network services when it embarked on the growth strategy two years ago, Shaklee CIO Ken Harris said in an interview last week.

Harris hired Denver-based Virtela Communications Inc. a year ago to provide those network services, and he said the relationship has so far exceeded his expectations -- and resulted in a payback with new efficiencies in the first year. Harris, the former CIO at Gap Inc. and at Nike Inc. -- where he said he had good luck hiring unusual and small vendors -- declined to discuss the costs involved with the Virtela deal.

Virtela is one of several smaller, upcoming virtual network operators (VNO) that have emerged in the U.S. and Europe in recent years. VNOs provide customers with an alternative to established asset-owning companies such as AT&T Inc., said Mark Winther, an analyst at IDC. "The proposition that a VNO such as Virtela offers is that they are fast and agile and provide good service solutions in exotic places," Winther said.

Harris agrees. After Shaklee reviewed Virtela and nine other service providers such as AT&T and Verizon Communications Inc., Virtela's first test was setting up data circuits in Mexico.

"Virtela brought capabilities in Mexico that no way we could have gotten had we worked with the local telcos," Harris said. "Virtela busted their butts and worked all kinds of hours and came through in flying colors."

Harris said Virtela has helped set up voice-over-IP operations in three of five offices and was able to save Shaklee money by allowing it to close two of its six order-processing centers.

He said the service has already provided Shaklee with a return on investment and rivals the data and voice networking services of other providers in the industry.

Harris said he likes working with small vendors such as Virtela because such companies can be more creative and respond faster to customer issues. "You don't get lost as if you're one of millions of customers," he said.

He stressed that if a contract is written properly -- with economic incentives for both parties -- it is possible to forge a lasting relationship with a smaller vendor. And if the vendor gets bought out, it's important that whatever contract is in place include an ability to transfer guarantees, Harris said.

Winther said Virtela might be the second-largest VNO of nearly 20 in operation, behind Vanco PLC in London. Others include New Edge Network Inc. in Vancouver, Wash., Vanguard Managed Solutions in Mansfield, Mass., Masergy Communications Inc. in Plano, Texas, and Megapath Networks Inc. in Pleasanton, Calif. The worldwide market for such providers is perhaps $500 million, a tiny fraction of the global service provider market.

Virtela and its competitors generally rely on deals struck with facilities-based carriers and don't own much infrastructure. But Virtela adds performance management capabilities atop all the networks it pieces together to give customers end-to-end performance guarantees, Winther said.

In general, the VNOs and VNO hybrids can offer prices 15% to 20% below larger service providers, Winther said. "It's kind of like K-Mart vs. Nordstrom."

The downside of working with VNOs is that they lack the enormous resources of an AT&T, including the large support staff and the ability to leverage better deals with large carriers in countries such as China, Winther said.

The quickness Virtela showed Shaklee in Mexico is what defines an effective VNO, Winther said. "If you need a new telecom circuit in Hanoi, AT&T might say it will take three months, but Virtela might say, ‘I can turn it on in 10 days,'" Winther said. "You might say you don't know Virtela and it's a risk, but even if you lose and they don't turn on the circuit in 10 days, you can still go back to AT&T."

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Copyright © 2006 IDG Communications, Inc.

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