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A Fine Mesh at Idealab

A second-generation startup is proving itself

Utilizing unlicensed, near-infrared wireless spectrum, Idealab's Omnilux is about to make a run at the Free Space Optics (FSO) market with its mesh networking vision.

Is it possible that Idealab, the accidental icon for all that was exaggerated about the early Internet Era, is overseeing the growth of a fundamentally sound wireless company? Yes it is! In fact, there are several Idealab companies that not only look good on paper, but are proving themselves with real-world customers right now. Optical mesh networking upstart Omnilux, Inc. is one of these.

If you remember the Internet Bubble, you surely remember the buzz about incubators. It's a period many investors would like to forget. You had big press at the top of the hype hierarchy. eCompanies, divine interVentures, Internet Capital Group, and CMGI, among others, were all fighting for dot-com status in the eyes of the venture capital and public investor community. More than a few established firms and universities also followed the "company creation" mantra of the day, although in retrospect most turned out to be glorified landlords to new entrepreneurs. Perhaps most blatantly fixed upon the landscape of the late 90s was Pasadena's Idealab (or idealab! in logo form) with its Yahoo!-like exclamation point punctuating the arrival of each new company that stepped forth from the innovation machine.

With the irrational exuberance of the day, Bill Gross, Idealab's founder and CEO, became something of a celebrity. Armed with an engineering degree from the California Institute of Technology, Gross found success as an entrepreneur with a handful of hardware and software companies in the '80s and early '90s before the hype of a new Internet-enabled economy found him.

From a solar energy outfit he founded in high school, Gross moved into audio speaker technology and natural language applications and then to educational software. In the late '90s, following two successful acquisitions of his startup ventures, Gross was in the right place at the right time to launch Idealab into the public consciousness from a shiny Pasadena, California office complex in the shadow of his alma mater.

Fast-forward to 2004. Idealab's most infamous creation, eToys, is long gone. Although Idealab had only a small fraction of its financial war chest invested in the online retailer, the two remain closely linked due to the volume of press each received. eToys generated buzz at a fever pitch one holiday shopping season, then joined the Internet failure hall of fame almost as quickly. But amazingly, and almost anonymously, Idealab is still going strong. Its mission is nearly the same as it was in 1996: turning "innovative ideas into successful technology businesses."

It's been a hot and cold existence for Idealab in its short history: distracting lawsuits from limited partners, seeking to pull their money out of the project, contrasting with the windfall success of Overture being acquired by Yahoo! in October of 2003 (or with Google's July 2004 purchase of Picasa).

This brings us to Omnilux. Sitting in Idealab's current portfolio, which includes companies as diverse as Evolution Robotics, CarsDirect.com, Airwave, Picasa, and location-based management and security firm Newbury Networks, Omnilux is just starting to show off the results of three years' worth of R&D.

Founded in May 2001, Omnilux sees a "repeating mesh topology" for wireless broadband networks as the price-point enabler that will allow second tier service providers to find quick success in bringing data services to campus-based enterprises. The Omnilux Omni-Node product is a transceiver used for creating a high-speed mesh network among adjoining rooftops with free space optical (FSO) links. Its physical appearance puts it in the same class as some of its "science project" predecessors that have appeared in the FSO market over the years. More than a few vendors chased potential riches in the heavily bankrolled era of urban service providers like Winstar and Teligent. At the same time, Seattle-based Terabeam amassed more than $500 million in venture money to deliver high-speed wireless networks to office rooftops, before flaming out.

But the Omni-Node has one key differentiator: its price.

Utilizing patented technology that it acquired from the Jacobs School of Engineering at the University of California, San Diego (UCSD), Omnilux can provide a turnkey solution to service providers that lets them get up and running at a cost of about $3,000 per rooftop. CEO Edmond Sanctis says that the "stranded capital" found when deploying 100Mbps connectivity in campus-wide enterprise settings, using traditional technology, isn't an issue here.

An operator seeking to link 10 buildings in an underserved office complex might only need to devote $30,000 to the project, which would be recouped in less than a year's time by way of network data fees. The concept of free space optics has been so appealing to competitive carriers because they have had to lease high-dollar access lines from an established provider before seeking new business customers. The alternative to establishing their own infrastructure through wireless means has been tempting, though not always financially feasible. To date, the true value of the FSO model, where streets and sidewalks remain unharmed as ultrabroadband access connections are installed via secure wireless data links, has only been realized in areas where six-figure capital expenditures for rooftop data links have been viable.

Point-to-point RF technologies, where direct, line-of-sight links between two rooftop devices achieve the desired result, have been common for years. But it is the Omnilux mesh networking aspect, where signals are passed in multiple "hops" from one building to the next, that may allow for a full duplex, 100Mbps campus network to be established affordably. The signal also hops around any obstacles that block line-of-sight between buildings. And at 85% of what a fiber installation would require, it allows for practical business cases, according to Sanctis.

So, it's off to market this year for the team at Omnilux. The company is ramping up its production and recently announced a partnership with Singapore's Teledata Ltd., which may lead to quite a few new Omni-Node deployments in the Pacific Rim before the year is out. Idealab's company-building acumen has resulted in the creation of a solid management team, the kind you can assemble easily with a compelling technology in a down market.

If Idealab can live up to a fraction of the hype that it generated (and created, arguably) during the Bubble Era, many of us may have to dust off our preconceptions of the concept. There is a second generation of startups that are growing toward maturity in Pasadena. Perhaps it's time to take a second look.

More Stories By Tim Bresien

Tim Bresien is WBT's VC editor, the principal consultant with infraStar, Inc., and a freelance writer covering investments in the wireless communications sector. He is a former research analyst with the telecommunications consulting firm of Bond & Pecaro, Inc., Washington, DC, and a cofounder of the Telecom Investor Forum, held annually at SUPERCOMM.

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