Ex-Bay Networks CEO: Nortel's enterprise group could do well on its own

Former Bay chief Dave House says group should focus on banks, financial companies

Former Bay Networks CEO Dave House says he likes the idea of Nortel's enterprise data division -- built around Bay technology -- breaking free and picking up its old name.

"It had a good name," he says of the company that he sold to Nortel in 1998 for $US9.1 billion. "It has some latent value."

The idea that Bay Networks might be given new life popped out this week from John McHugh, Nortel's vice president and general manager of Enterprise Data Solutions, who noted that Nortel still owns the Bay name, which is fondly remembered and respected.

House notes that given the bankruptcy it is going through, Nortel isn't the best name to carry around right now. The alternative would be to come up with a new name, but the simplicity of Bay is appealing. "It's not a strange combination of letters and it's easier to remember than Avaya," House says.

In its day Bay Networks had good technology and blue-chip customers, and those are assets House would bring into play again. The technology would have to stand on its own merits, and the business would have to convince potential customers that it is viable as a company, he says.

It would also take sharp messaging that clearly and simply defines what the company has to offer, House says, and he would direct it at the high-end enterprises such as banks and large corporations. "If I were the CEO that's where I would be aiming," he says.

While the landscape has changed since House left Nortel in 1999, he thinks it would be possible for an independent vendor based on Nortel's enterprise data group to do well. "Historically Bay had a technology advantage over Cisco, which had a sales advantage," he says.

Bay might have done well had it remained independent in 1998, but that was not possible, House says. Then, carriers were rapidly adopting IP and Ethernet technology. That required the traditional carrier-equipment vendors to team up with enterprise vendors in order to supply IP and Ethernet. But in 1998, Cisco declared that these traditional carrier suppliers such as Nortel and Lucent were its competitors.

House leapt on the concept to woo vendors of carrier gear to buy from Bay and push it through carrier channels. His message: "We're your friend. How can we help you fight Cisco?"

The downside was that these potential partners worried that if one of their competitors bought Bay, they would be left in the lurch. That meant one of them had to buy Bay to get its technology, and that one was Nortel. House says the price was too good to turn down.

From a buyer's point of view, Bay was the most attractive enterprise data vendor to buy. At the time Bay's market valuation was just a tenth of Cisco's, yet Bay was No. 2 in supplying IP routers and a leader in LAN hubs and switches for corporate networks.

When the carrier bubble burst in 2000, the carrier market for IP and Ethernet cooled, and the hot market again became corporations. Bay might have done well independently then, he says. And if Nortel had shifted its focus to enterprise gear then it might have done better as well.

Today's Nortel enterprise data group might do very well outside the Nortel culture, which compared to the fast-moving world of enterprise gear was slow to move, House says. When he was there between 1998 and 1999, he noted a big difference between the business culture he had created at Bay and the one he worked in at Intel.

Decisions at Nortel were made meticulously and carefully and written out and voted on unanimously to avoid shortcomings that regulators could jump on. Internal debate wasn't free-flowing, he says.

At Intel, the culture nurtured straight talk, public debate, making a decision and getting everyone on board to back it. Nortel's culture was different, perhaps because it had a 100-year history of dealing with regulated phone companies as customers.During his tenure as president of Nortel, House says the sales forces of Bay and Nortel were merged but the Bay gear never got the support it should have with the worldwide sales team.

House signed on for one year at Nortel and worked out of the office of then Nortel CEO John Roth. "Everyone reported to the two of us," he says, and the marching orders were to make Nortel more like Bay in the way it was run. But when it came to implement such a strategy, doing so from the No. 2 position was difficult. "You'd tell someone to do something and you could see them looking behind you to see what John thought."

Nortel had a culture of lifers, people hired out of college who expected to spend their careers there. That made employees compete against each other for promotion rather than against competitors, he says.

He also had to confer with Roth to hire, fire, promote and change salaries, all of which were cumbersome and undermined his authority.

"I don't have a lot of information on what happened after I left," says House, who is now chairman of Brocade. "That was in 1999 and I haven't been in touch with those people on a professional level since then.

"What would have happened if we'd gotten Intel culture into that marketplace? I would contend we would have done better," he says.

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