Milestone Group Quarterly: July 2004

Articles

• CEO Hot Seat: John Street, CEO, MX Logic
• Investment Viewpoint: Brad Silverberg, Managing Partner, Ignition Partners
• OpEd: Ben Gomes-Casseres on Alliances Sweet Talk
• Milestone POV: Scott Boutwell on Driving Revenues Via Relationship Management Q&A with Howard Anderson on The State of Venture Investing

CEO Hot Seat: John Street, CEO, MX Logic

Milestone:  At last count, there were over 100 tech companies selling anti-spam solutions, how is MX Logic different?

Street:  MX Logic isn’t just an anti-spam company. Most of the competition has focused only on anti-spam solutions. Through years of experience in the messaging industry, we’ve built a much more comprehensive email security platform that is well positioned to provide a full array of email security solutions in the future that are delivered via managed services. MX Logic is the only managed service provider who has built our product as a turnkey software product, thus enabling transport carriers and service providers to get into the managed service sector of email security by deploying the MX Logic solution in their own network environment, run by their own operations teams. Many analysts see managed services as the fastest growing sector of email security. The MX Logic platform serves as an SMTP gateway. Today, the primary focus aspect of our products provides attack protection, anti-spam and content analysis capability. Tomorrow, the MX Logic solution will be able to layer in best of breed managed service product offerings built around SMTP delivered data traffic through the MX Logic solution.

Milestone:  OK you’re different, how do you then compete in such a crowded space?

Street:  MX Logic believes that a managed service solution to email security will be widely adopted. It is natural adoption path small and medium enterprises who do not have the IT bandwidth to battle the ever-growing problem internally. In addition, we are now beginning to see large enterprises adopting a managed service approach to augment their internal protection. This approach is a fundamentally sound approach to combating network flooding that we are seeing more and more of—delivered in the form of worms and other denial of service attacks. Also, our software solution is the only product available on the market today built by a service provider for a service provider. Through the use of our threat center, MX Logic can detect email traffic anomalies in real-time and deploy blocking techniques at the network layer, thus eliminating problems farther upstream, and diminishing rogue traffic across the networks.

Milestone:  Can governmental legislation stop spam? Can this be achieved globally?

Street:  During May, MX Logic’s threat center reported that only 1 percent of unsolicited commercial email complied with the CAN-SPAM Act, the U.S. federal anti-spam law. Additionally, we found that only 12.3 percent of sexually oriented spam complied with the Federal Trade Commission’s recent ruling requiring pornographic spam include “SEXUALLY EXPLICIT:” in the subject line. This data is a good indicator that anti-spam legislation is not a silver bullet. Fighting spam is an enormous challenge—one that requires a multi-pronged solution. In addition to enforceable anti-spam laws, winning the war on spam will require the continued deployment of robust email defense technology, meaningful industry cooperation, like that in the Internet Engineering Task Force, to beef up authentication in the SMTP protocol, and empowering users to protect themselves from spam and other email threats. A true solution to spam, on a global level, will require progress in all of these areas and cannot rely solely on national anti-spam legislation or even an international anti-spam legal framework.

Milestone:  In May, Symantec announced plans to acquire Brightmail. Does Symantec now run the table on anti-spam? What about the Microsoft factor, aren’t they getting active in anti-spam?

Street:  No one company runs the table on anti-spam. Spam and email security are not simple, static issues—and no one company currently has the panacea. Every day brings new technology developments to fight spam, new industry efforts to develop better email authentication standards and other new approaches to stopping spam. And every day, spammers develop new tactics to get around technology. It’s not unlike an arms race. Microsoft has demonstrated a meaningful commitment to ending the spam scourge. The recent merger of Microsoft’s Caller ID anti-spam technology with the SPF authentication standard for consideration in the IETF offers real hope of the creation of an effective, industry-backed email authentication protocol to combat spam. As authentication takes hold, other email product offerings will surely be bundled with delivery services. MX Logic is well positioned to deliver these add-ons through our gateway platform.

Milestone:  How does anti-spam technology fit in a broader 'email defense' segment?
Street:  Spam is the catalyst for enterprises to examine how they are looking at defending their email infrastructure. Anti-spam technology is one part of an overall email defense strategy that must also incorporate protection from the constant parade threats including viruses, worms, spoofing and other email attacks. Comprehensive and true email defense requires a flexible, fluid intelligent solution that can constantly keep up with ever evolving email threats. As email security evolves, a managed service offering moves faster than any other product to keep up with the ever-evolving threats.

Milestone:  There are noises that email is becoming irrelevant. Is it losing its effectiveness as a means to communicate?

Street:  As a form of communication, email is still in its infancy. People have barely begun to really get comfortable with communicating asynchronously in near real time. Spam is a setback, but this form of communicating will evolve and develop into the primary mode of impersonal communication. Filtering in, filtering out, we will all become very facile at finding what we are looking for, both through improvement in technology, and improvement in the way each of us uses the tools. That being said, email is truly a killer app. It has revolutionized the way people interact and it is a mission critical channel for both communication and commerce. However, unlike earlier mass communication media like radio, TV and even print, email is under constant attack from spam, viruses, worms, phishing and other threats. Until these threats are contained, there will be gradual erosion in end-user confidence in email. But, email is here to stay and people will adapt and improve their communication skills.

Milestone:  What's the future of email as you see it?

Street:  Email will become the primary mode of business communication, particularly where there is no familiarity between parties. At its core, email is primarily a transmission instruction set, attached to a specific communiqué. Viewed this way, audio and video attachments will become more and more prevalent, thus making the use of a keyboard unnecessary to communicate in this medium. With the improving technology of voice to text and text to voice services, the keyboard becomes less important for the transmission of a message. I read a lot of mail, but I don’t type well, so I respond far more judiciously, and if I have something lengthy to communicate, I’m not going to type it out. People will use synchronous communication primarily for personal communication between familiar parties. People will rarely attempt to communicate in this way with strangers, unless they are in the same physical space. I am now seeing business cards where there is no telephone number, just an email address. A telephone number is only given out to one who is personally known. Because of these two events, email communication will increase, especially in the handheld environments. We can have our email “read” to us and reply with voice. We will begin to segregate our communication in a single, unified messaging environment, which will become more and more convenient (but certainly not at first). Marketing through email will increase, not decrease. However, there will be excellent authentication capability, and marketers will be basically legitimate, or at least willing to pay to place the email in the recipient’s inbox. Gateway solutions, i.e “in the cloud” product offerings will dominate as the complexity and abundance of products increase, thus moving the burden of operations out to transport “communications” companies.

Milestone:  Where is MX Logic at with funding?

Street:  We are currently raising our second institutional round of funding. The level of interest has been strong.

Milestone:  John, you’re a serial entrepreneur with several successful exits. What’s the best advice you have for other tech execs?

Street:  Make sure your technology meets a real market need, hire the best talent and listen closely to the needs of your customers. And run scared all of the time.

Milestone:  What’s the worst case scenario for MX Logic? What keeps you awake at night?

Street:  I sleep like a baby. I wake up every fifteen minutes and cry a lot. Seriously, I’m not a big worrier. I have been in this industry for over nine years, and it has been a wild, wild ride. So many things have happened in that span of time that not much surprises me anymore. No matter what happens, in the end, all that matters is the quality of the stories, and I’ve got a few to tell. Maybe I’ll pick up a couple more good ones in this endeavor.

John Street is Chairman and CEO of MX Logic (www.mxlogic.com) He oversees MX Logic's corporate financing strategy and business direction. With extensive experience in launching successful ventures in telecommunications and Internet messaging, Mr. Street grew two businesses to the Inc 500 list status and received Entrepreneur of the Year recognition in 1995 by Ernst & Young and Merrill Lynch. Most recently, Mr. Street served as Chairman and Chief Executive Officer of USA.NET, Inc., successfully raising over $100 million in private equity financing. At its peak, USA.NET managed more than 33 million mailboxes and processed more than 70 million messages a day on behalf of its customers, including American Express, Palm, Netscape, Register.com and Goodyear. Mr. Street also served as Chairman and Chief Executive Officer of Telephone Express, a provider of long distance services, and grew the company from startup to over $60 million in annual sales before selling it in 1997. Mr. Street has served on several boards and has been involved in a wide variety of other startups, ranging from fulfillment services to direct sales and marketing ventures.