BootStrapping Strategies Part 4: Building Defensibility

When Ubiquiti released the NanoStation “customer premise equipment” (CPE) in 2008, it changed the “Wireless Internet Service Provider” (WISP) market.  WISP’s (much like Ubiquiti) typically started as bootstrapped entrepreneurial ventures that were cash flow constrained.  With the introduction of the disruptive cost/performance NanoStation CPE, Ubiquiti provided a near zero time return on capital investment to the WISP operators and correspondingly greatly accelerated their network deployments worldwide.

At this time, Ubiquiti’s business was booming and highly profitable, but I was also scared to death because the business was still not defensible.  Although our new system CPE business was technically much more sophisticated than our original radio module hardware business, it was still based on the 802.11 WiFi standard.  And therefore, it could potentially be replaced in these growing WISP networks by a more cost-effective solution from a competitor.

3COM's popular 3C509 NIC

Making standards based hardware is a dangerous position for a company to be in.   A great example from the past is the story of 3COM  — the pioneer of the original 802.3 Ethernet standard.  In its early years, 3COM was a monster company commanding very high margins for their network interface cards (NIC’s), which were used in nearly every networked PC during the 1990’s.  When I was a teenager I had a business setting up PC networks and would also use hundreds of 3Com’s popular 3C509 PCI cards to install into computers.  However, once the Ethernet 802.3 standard became more popular, new competitors entered the market supported by higher levels of hardware integration, and drove 3Com’s NIC business profitability into the ground.

I knew that our 802.11 WiFi based NanoStation CPE business would follow the same cycle of prosperity to commoditization that 3Com’s NIC business experienced if we did not correct the course quickly.  Fortunately, in our case, there was one key shortcoming of using the 802.11 WiFi standard for outdoor long-distance wireless that we were able to take advantage of in creating a defensible business.

The 802.11 WiFi standard is based on a contention protocol referred to as “Carrier Sense Multiple Access, Collision Avoidance” (CSMA/CA).  This type of protocol is very effective in an indoor environment where all clients are located in close proximity of the Access Point.  However, the WISP networks were not indoor networks; they were outdoor networks typically spanning many miles using directional antennas.  In this scenario, the clients have a direct line of sight to the Access Point, but become isolated “hidden nodes” to each other.  Consequently, each isolated client, unaware of the presence of their neighbors, assumes they are in the clear to transmit and their transmissions will collide with the other isolated clients at the remotely located Access Point.  As the network scales in clients, the collisions become exponentially worse.  Additionally, these same remotely located clients will often falsely interpret the presence of local transmissions from competing networks as the traffic of their real neighbors and at times turn to an idle state.  In short, the 802.11 wifi standard breaks down in these outdoor long-range networks as client capacity scales and is incapable of consistently supporting quality of service levels for the next-generation Internet applications including streaming video, VoIP, and gaming.

Outdoor 802.11 WiFi and The Hidden Node Problem

18 months after releasing NanoStation, Ubiquiti would solve these problems with our new AirMax technology platform.  It consisted of Access Points, antennas, and a new NanoStation CPE.   Although the hardware was still WiFi based, there was one very important difference: the protocol no longer relied on the 802.11 WiFi standard.  Instead, the AirMax protocol was based on a “Time Division MultipleAccess” (TDMA) scheme much like those used in Cellular Networks.  Unlike the 802.11 WiFi standard, the AirMax protocol was deterministic, resolved the hidden node problem, and allowed for far greater scalability, noise mitigation, and quality of service performance when compared with 802.11 standard equipment deployed in a long-distance outdoor environment.

AirMax TDMA Protocol

Not only did AirMax bring important performance improvements to the WISP market, it marked the beginning of Ubiquiti’s defensible business model.  Now, when WISP’s built AirMax based networks, they were “locked-in.”  And as the AirMax market expanded, we would reinforce the strength of the platform by adding additional software features, management applications, and advanced products.  Following the Apple model, Airmax put us in a great position of leverage as we now controlled our own technology platform, and through our community, we would also control the end-user relationship.

4 Responses to BootStrapping Strategies Part 4: Building Defensibility

  1. Roy June 24, 2012 at 11:06 am #

    I really enjoy your honesty and humility here. From reading your posts aand studying the fundamenals of ubiquiti, I get a very good feel for your thinking and strategy as a business leader. This is quite a unique blog and your story and trajectory makes you quite the outlier. My analysis is that your company, ubiquiti, has only scratched the surface of the success and achievement it is poised to achieve over the next few years. I am looking forward to consuming future posts from you.

  2. AJ June 25, 2012 at 9:19 am #

    I really enjoy reading your blog! I honestly only looked you up because of your recent business aspirations with my favorite NBA team. Memphis greets you with open arms! Go Grizz!

  3. Martin June 28, 2012 at 10:29 am #

    Feed the bears!
    You’re the prospective new owner of the Grizzlies, a basketball fan, and CEO of a company in the communication field, and the thousands of loyal Grizzlies fans hear nothing. Not even crickets chirping! Even a simple “I can’t talk during the vetting process” would be a very kind gesture.
    Like it or not, you have a new responsibility to the many fans of the Grizzlies, in Memphis, and throughout the world.
    Now get your butt down here to Beale Street. First round is on me!

    Best of luck in all of your endeavors.

    • RJP June 28, 2012 at 11:41 am #

      Hi Martin,

      You are right on — league rules prohibit me from commenting at this time.

      However, I appreciate your support!

      Robert

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