A Conversation with Digital Ocean’s Jeff Alholm

When you think of wireless communication, what comes to mind? Perhaps names such as McCaw Cellular, ARDIS, NCR, maybe even Proxim. Jeff Alholm, chairman and CEO of Digital Ocean would like you to add the later to your list and, if it’s not too much trouble, perhaps even place it at or near the top.

With approximately 50 employees and based in Lenexa, Kansas, Digital Ocean is a small company in size only, featuring an impressive track record of producing innovative products. These include:

• Starfish Ethernet Access Point, providing wireless access to an Ethernet network
• Grouper 100MP, a wireless transceiver for Newton MessagePads
• Grouper 105MPS, a wireless barcode scanner for use with the Newton
• Tarpon, a ruggedized Newton with integrated LAN or WAN communication

Now, Digital Ocean is entering into the near-standardized world of 802.11 wireless local area networks. Along the way, 36 year old Alholm has keep his sense of perspective and humor about the industry.

Startup in Kansas?

Alholm’s career has been highlighted by startup companies. This included the raster graphics firm Child, Inc., which he joined while attending the University of Kansas. Later, at Radiant Systems, Alholm was able to experience the equipment requirements of a critical care medical environment. It was here that Alholm contemplated the value of using a wireless system for monitoring and communication.

He began: “As we looked at the classic OEM suppliers in wireless LANs about five or six years ago, there was nothing that could work in the robust fashion that was necessary to do data transmission. And certainly, when you have critical care data where there is a liability associated with losing the data…argh! We couldn’t go with the typical suppliers.”

Alholm recalled: “We ended up starting Digital Ocean. Digital Ocean originally focused on low-power, portable, wireless LANs. We had taken a look at the industry and were just amazed at the power consumption of the devices out there. And I still see this in the industry today. In general, the power consumption is just unbelievably huge.”

As Alholm explained it, most of the time in a communication system is spent listening for an incoming signal. Alholm noted: “The problem is that 40% of the power consumption of a low-power transmitting device is at the reception stage. You can always figure out ways to transmit less, but if you’re listening all the time, then it consumes a tremendous amount of your power budget. In some cases, it’s going to be significantly higher than that.”

Alholm was encouraged: “We looked at that and said that there’s clearly a better way to design a media access layer.”

Launching Digital Ocean

With the decision made to go ahead with founding a new company, a name had to be found. Alholm remembered: “We were sitting around one day in my house in Kansas and we were talking about what would be a great name for a wireless LAN business.”

“We were joking around and someone came up with the name Ether. But dog-gone [Bob] Metcalfe [the inventor of Ethernet] had to come up and use the perfect name for a wireless network, Ether. Then someone said Digital Ocean would be a great name. Of course, my first response was that I didn’t like it.”

However, his team was able to convince him. “Within ten minutes, people had thrown out all kinds of neat product names, such as Coral Reef, Starfish, and Grouper. One of the guys in the room was trained as a geologist and he started talking about geological formations having to do with the oceans. So we even have an internal vernacular of technology pieces that we’ve named after these ocean things.”

Alholm gave an example to round out the trivia surrounding the Digital Ocean name: “The GPS product, which we internally call Stargazer, is a fish with eyes that look towards the sky all the time.”

The Wireless Opportunity

Alholm described the motivation in starting Digital Ocean based on what he thought was a rather unique opportunity. He explained: “At that time, the Macintosh had a disproportionate amount of the portable computer, the laptop, market. That was the year of the PowerBook, and they were selling them faster than they could make them. If I recall the numbers correctly, it had between 24 and 28 percent market share when Macintoshes, in general , never had more than 13 percent.”

Alholm continued: “Plus we had the idea of transparent bridging, the idea of hanging off the back of a LocalTalk or Ethernet port. Of course, all the Mac portables at that time had only LocalTalk. We thought it would be a real powerful model if all the network paradigms of your computer worked using wireless—with no drivers!”

Though Windows was already a formidable force in the laptop market, Alholm felt justified in focusing on the Mac. “We saw a marketplace that was incredibly portable, relatively sophisticated, and because people paid a premium for Macintoshes at that time, the was more of a propensity for these people to purchase a wireless LAN adapter. So we worked on that.”

Typical to many new high technology ventures, however, schedules slipped and product shipments dates were pushed back. Alholm recalled: “In the end, we were late getting to market for a number of reasons—nine months to a year later than we had originally anticipated. We were shooting for around January of 1993, and really, we shipped in volume in August.”

Targeting Wireless

Asked to describe the original target group, Alholm painted a picture not uncommon for mobile computing companies at the time, keeping in mind that August 1993 also marked the launch of Apple’s Newton which was supposed to catapult us into an eventual $3 trillion market.

“Whenever you get 10 megabits, or whatever real throughput on wireless, there will be a hundred, or a million, or a ga-zillion megabits on wired. And the point is that a controlled atmosphere is always a more secure place than an uncontrolled atmosphere. So the reality of thinking of wireless as being equal to wired—I always find to be a completely bizarre perspective.”

Alholm explained: “The original focus was the horizontal market. But in the end, we saw the classic Geoffrey Moore market penetration model where mission critical applications appear, but you have to go out and find them, or they have to find you. We had a product that potentially had application for schools, and mom-and-pop shops that didn’t want to run LocalTalk or Ethernet through the store.”

Alholm continued: “But we didn’t have an Ethernet product initially. If we had come out with a bridging Ethernet product immediately, as we have now, we would have sold quite a few more units in that beginning stage. This is because we would have sold them for workstations and other products. The problem was that by being LocalTalk-only, we cut ourselves out from a tremendous amount of the marketplace. There was no technical reason for us to be only LocalTalk.”

Sketching on a piece of paper, Alholm explained his view of the market in a bit more detail. He started: “We break the wireless LAN marketplace into three basic pieces. One is wireless access, the other is inter-building, and there is one we call mobility. The problem with wireless access is that you obviously have to add value to justify the wireless versus wired.”

Alholm feels that it is a losing proposition to compete head-to-head with wired systems. He semi-joked: “Whenever you get 10 megabits, or whatever real throughput on wireless, there will be a hundred, or a million, or a ga-zillion megabits on wired. And the point is that a controlled atmosphere is always a more secure place than an uncontrolled atmosphere. So the reality of thinking of wireless as being equal to wired—I always find to be a completely bizarre perspective.”

He continued: “It’s just not that way. I mean cars and trucks are emitting interference. Coax and differential twisted pairs are, for all practical purposes, their own little universes. How can wireless compete? Wireless has to share with the fire department, mom’s cellular phone, and everything out in the air. You don’t have that problem with wired.”

“In our model of wireless access is the idea of how do I have access to my existing infrastructure? What we found is that when people came to us saying ‘hey, I want to connect my business using wireless,’ what they were really saying was ‘I have this dynamic workgroup and I want it to be able to hang off of my existing infrastructure.’ That infrastructure, by definition, was Ethernet.”

“These people, who tended to be workstation oriented versus portable oriented, tended to be much more speed conscious. Now the advantage we have is that we’re able to have real Ethernet speeds using wireless. So we could have played really cleanly with that.”

Alholm summarized the situation: “Again, it was a hole in our thinking. Even if we had done that correctly, I’m not so sure that the wireless industry, in this horizontal sense, is really there yet.”

Continuing with his model of wireless communication, Alholm described infrared as the classic wireless access technology. He also noted some drawbacks: “The problem that infrared is having from a market acceptance standpoint is that the ideal wireless access is based somewhat on speed. If I’m hooked to my infrastructure, I want the thing to run at the speed of my infrastructure. The other problem that infrared has is the law of physics. If you’re in a windowed room, it’s not going to work as well, because light is the ultimate interference.”

Alholm concluded: “So the wireless access market is unique, but you’ll find us doing some wireless access. We have a couple of applications where people are on a factory floor and they want access to some existing infrastructure. However, you can’t write to mom and talk about the size of this marketplace.”

Other Wireless Models

Alholm next described the inter-building wireless market, an opportunity that he also characterized as quite unique. He noted: “You see a number of really niche players selling something like ten thousand dollar boxes to go between buildings. And certainly, there’s an opportunity for us to do that, we’re just not convinced that the market is that large.”

“We have a couple of customers in New York with Macintoshes where one customer is a graphic arts company, and the other is a graphic arts service business. They have a couple of customers across the street, I think on Park Avenue, and they use our products to communicate across Park Avenue. As long as they are within that 500-600 feet limit, it’s fine. We also had a university do a bunch of things like that.”

Wireless access and inter-building communication have their challenges and offer some opportunity. But Alholm is clearly interested in his third category of wireless, something he calls mobility. He recalled: “What we originally did was focus on mobility. In hindsight, probably wireless access happened a little sooner than we had anticipated.”

Alholm described Digital Ocean’s first mobility product for the Macintosh, a product which they repackaged to work equally well on the Newton in 1993. Alholm recalled: “With that, a whole new marketplace opened up, which was handheld computing.”

“The advantages that we had with the Newton were that we could hang off the LocalTalk port of the Newton with no software. All applications that were written to work on a wired Newton or Macintosh, by definition, worked on our wireless system with no driver. Just magically, these things all work.”

Alholm described the advantages of developing for a system that provides transparent access to resources without having to take special considerations for the wireless aspect.

He noted: “The developer can do all the development on a wired system, and then spend 15 minutes, plug the wireless system in, and it works. Preferably, they don’t wait until the last 15 minutes, but that’s what happens. That’s where we really got into this handheld computing market.”

Customer Reaction

Starting as a horizontal market oriented company, Digital Ocean credits its customers as being responsible for the shift towards more vertical-style markets. Alholm noted: “Interestingly enough, if you consider the vertical nature of the marketplace today, we experienced the trend of customers coming to us and asking for custom features.”

“They asked us if we could build a system that they could drop six feet to concrete. They asked if we could make it backlit. That put us into a position where we had to make sure that we could acquire the Newton rights. All of a sudden, we found ourselves in this vertical marketplace.”

To illustrate this, Alholm pointed to their ruggedized Newton product as an example of the result of answering a specific customer request: “The Tarpon product, originally developed for a particular customer, now is broadly sold to a bunch of people.”

“Funding has been basically internal. We got almost $10 million from individuals, primarily from just a couple of people. We’re privately funded and not a classic venture capital firm. The problem is that when you’re in Kansas City, you’re in Kansas City. You can’t just go to Sand Hill Road.”

Alholm described some of the challenges of selling a new technology into a broad market. “We originally tried to sell the product over 1-800 numbers. We looked at it as a market creation situation that the representatives and distributors didn’t really understand.”

“Ultimately, we had to create a name for ourselves. Candidly, we really concentrated on the horizontal market, thinking that we were going to sell these to some percentage of all the portable and desktop Macintosh users.”

Selling into this market also requires a certain amount of evangelizing—a role which Alholm is more than ready to assume, judging by his enthusiasm: “I would be so bold as to suggest that if you want to look at what wireless local area networking should look like, look at our products on a Mac. They are amazing taken against the PC marketplace. I mean the Chooser works, everything. Basically, the existing infrastructure all works using wireless.”

Bullish on PDAs

Equally enthusiastic about the Newton, Alholm found this market a bit tougher to judge. He confided: “We saw an opportunity but candidly, just didn’t know how to gauge it. We didn’t know if it was going to be a success or a flop. We didn’t know if it was going to be a horizontal or vertical market; we just didn’t know.”

Alholm continued: “We watched Momenta and EO, and we scratched our head and said ‘gee, there must be someone out there [customers] because no one would be foolish enough to spend all this money otherwise'”

Alholm remains upbeat: “I believed in the vision, I just didn’t know what was going to happen. I believe that ultimately, pen-based computing and communications on handheld devices is a paradigm that will win not only in the vertical market, but will even have some horizontal pull too. I’m not going to argue when and where, I’m not that smart.”

Come to think of it, neither is anyone else.

“What I’m really saying about this is I don’t know. But the advantage we have is very little incremental cost. We can take this existing LocalTalk product, hanging on the back of a Macintosh, and put it in plastic that looks like it belongs on the back of a Newton, throw it out into the marketplace, and see what happens.”

This Isn’t Sand Hill Road, Toto

Of critical concern to any technology startup is the question of adequate funding. Alholm described how Digital Ocean shunned the traditional venture capital model and instead raised money through private placements. Alholm explained: “Funding has been basically internal. We got almost $10 million from individuals, primarily from just a couple of people. We’re privately funded and not a classic venture capital firm.”

He elaborated: “The problem is that when you’re in Kansas City, you’re in Kansas City. You can’t just go to Sand Hill Road [a venture capital center in Silicon Valley].”

Alholm remains positive about Kansas: “With respect to high technology, after a few start-ups there, you can certainly do them. There’s a reasonable community, and a great university structure in the University of Kansas about 30 miles away from us. But it does have its disadvantages. It’s a relatively small, isolated place where everything is a plane ride away—but a reasonable plane ride to either coast.”

Newton Communicates

Not unlike Digital Ocean’s experiences with Macintosh wireless products, Alholm described the shift in interest for the Newton products from broad-based curiosity to targeted vertical applications. “A lot of people started playing with it in the horizontal arena, but from our perspective, almost everything was happening vertically. The ProMed application with Apple generated a fair amount of press; I don’t know if it was a tremendous amount of revenue.”

Alholm elaborated: “ProMed was an application where the Department of Defense outfitted a number of hospitals using wireless to write prescriptions and other tasks. By the way, it’s through a major second phase now. This involved the Digital Ocean device on the back of a Newton, along with applications for physicians. That was a break from the point of view of watching the market mature.”

Describing the typical sales cycle, Alholm noted: “What has historically happened is that someone will buy one or two or three or four, and then you won’t hear from them for a half year as they figure out what they’re doing and what their application is. The beauty of where we are at now is that a fair number of those have matured into something significantly larger.”

However, things are never so simple, Alholm stated: “When these customers came back, they didn’t want to buy the existing product, because they were vertical. Instead they wanted the existing product in a ruggedized case, or with a backlight, or with GPS and a wireless LAN. They wanted all these extra things. And that’s the marketplace we’re in.”

Hinting at things to come from Digital Ocean, Alholm left this teaser: “Fascinatingly enough, the market has matured into more than just wireless LANs. We have some wireless wide area applications that we’re doing for customers. We can’t publicly announce those, but they are the obvious things that you would think.”

What Competition?

With all the players currently exploring some aspect of wireless communication, it was surprising to hear that Alholm was hard-pressed to come up with a direct competitor able to match Digital Ocean’s products. “In that sense, there are almost no competitors.”

“I mean, who does what we do? In some sense, in the wireless Macintosh local area network market, Photonics has been the only historic competitor and now they’re essentially out of business it appears.”

In terms of technology, Alholm displayed his typical enthusiasm for Digital Ocean’s approach of using direct sequence spread spectrum technology, leaving him somewhat less than excited about the alternative frequency hopping systems, especially for Ethernet-based networks.

He noted: “We use direct sequence, which is a much more expensive technology in the sense of transistor count. The argument that the frequency hopping people put together for why they’re less susceptible to interference is that they will jump out of the way. And my argument is that for a walkie-talkie, that’s fine. But what are you going to do in a real environment where you have to send data.”

Alholm is equally convinced about Digital Ocean’s selection of frequency bands. He explained: “Our current products all ship in the 902 MHz band, and we have recently announced that new products will start shipping with support for either 2.4 GHz or 902 MHz.”

In explaining the difference, Alholm described some of the physical characteristics and problems of each band that is difficult to overcome, no matter how good the technology. “The 2.4 GHz region has more band, so you have more megahertz to work with. However, due to the laws of natural atmospheric absorption, 2.4 GHz won’t go as far. So watt for watt, you can’t go as far.”

He continued: “You have to remember that the 2.4 GHz band was left over for a good reason. It’s the natural absorption of water. So, what happens is that wherever there is water, the signal is attenuated. What’s interesting with the 2.4 GHz band is that the foam walls in some buildings look like lead to a 2.4 GHz radio because the foam has water in it. I mean literally like lead, you just cannot get through it. That’s where 2.4 Ghz is really bad.”

In comparison, Alholm noted: “902 MHz not only has a better distance but it is the band next to cellular phones. So all the absorption and distance characteristics are extremely well understood, and it has wonderful penetration properties. But there is only 26 MHz available for communication, versus nearly 70 in the 2.4 GHz band.”

However, nothing is ever cut and dry as Alholm explained: “There are problems with the 902 MHz band. The 802.11 wireless LAN standard currently is focused on the 2.4 GHz band initially. So if you have a 802.11 MAC and PHY (media access and physical layer), you have to be at 2.4 GHz. The second issue is that there are some new laws in the 902 MHz band that limit how high your antenna can be. I think the user, in the end, should have the option.”

Wireless Bloopers

Medical settings are particularly challenging, and where the selection of a particular wireless technology can literally be a life and death matter. “What you find is that frequency hoppers are awful in a medical environment. In a direct sequence device, the band looks like noise. On the other hand, if you listen to frequency hopping, it sounds like chirping jumping around while the direct sequence sounds like a hiss all the time.”

“We’re pretty jazzed about CDPD…In the end, if you want a wide area solution that covers the country, CDPD is it. And while CDPD has been slow to deploy…You can’t ignore the infrastructure costs. The CDPD community can out spend ARDIS and RAM Mobile Data without blinking. I think the other solutions will be niche players.”

To illustrate his point about direct sequence versus frequency hopping spread spectrum, Alholm related this story: “I had the unfortunate experience in my career in medical instrumentation that a patient died. It happens all the time, we all die. The patient died of natural causes, nothing anyone could have done. But unfortunately, there was a radio instrument in the room and it made the monitors appear as if the patient was alive long after he wasn’t. Now, in the medical business, that sucks!”

Not to seem overly biased, Alholm pointed to a weakness in the 902 MHz band. “Aluminum smelting happens at 902 MHz. You couldn’t use our device in an aluminum smelting plant, for example. I mean there are examples.”

Alholm ended the question of frequencies on a conciliatory note: “There are reasons where you want to use the 2.4 GHz band. I’m not saying pooh-pooh on the band.”

The Future is Wide

Alholm gave us a peek into the future of Digital Ocean. “You’ll see a number of wide area products from us, very shortly, probably in the next three or four months, and more than just our traditional local area networks. We have a real exciting business and technology relationship with AT&T in the field of an 802.11-compliant chipset. We are trying to drive the cost of wireless LANs down, down, down, down.”

In terms of wide area networking, Alholm tipped his hand a bit. “We’re pretty jazzed about CDPD. Footprint-wise [coverage], it makes a lot of sense. In the end, if you want a wide area solution that covers the country, CDPD is it. And while CDPD has been slow to deploy, there are some technology advantages to it.

You can’t ignore the infrastructure costs. The CDPD community can out spend ARDIS and RAM Mobile Data without blinking. I think the other solutions will be niche players.”

Jeff Alholm
Chairman and CEO
Digital Ocean
11206 Thompson Avenue
Lenexa, Kansas 66219-2303
(913) 888-3380
(913) 888-3342 (fax)
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