Open skies

30 May 2007

The Cloud has won plaudits for its City-based wireless network and secured several heavyweight investors. But as Niall Murphy admits, it's made mistakes on the way - and had to think on its feet

Niall Murphy is chief strategy officer of The Cloud, which has been making headlines after building a multi-node wireless network covering the entire Square Mile of the City of London. It was set up in 2003 by Murphy and co-founder George Polk, and 3i and Accel Partners invested in 2004; they were joined in a second round in 2005 by Nordic group Provider Ventures as the company moved into Scandinavia. It's just about to close a third round of investment to help develop its Wi-fi activities across its six main European locations - Denmark, Finland, Iceland, Norway, Sweden and the UK.

Where did you get the idea for The Cloud?

I've always felt being tethered by wires is a ridiculous concept. Wireless is just the way that networks should be delivered. I'm a bit of a geek, and aside from being a commercial guy and an entrepreneur I like to mess around with the technology. So if can you picture the scene: it was about 1999, I was living in Amsterdam and I got my broadband connection projected to myself in my favourite cafe across the canal, and I got it to do things that were fairly extraordinary at the time, like looking at video. I was reading about what 3G was going to do in five or six years and here I was actually doing this stuff with what was then about a thousand dollars worth of technology.

I thought then it would be a great idea to set up a wireless business, but it took a couple of years before the right timing and the right set of circumstances came about.

We also weren't sure at the time whether we should be making a service business play, which is what we've actually done in building an internet service provider, or a technology play - for example writing software for this developing opportunity.

When you talk about timing, this was shortly after the internet bubble burst. Surely that wasn't the best time to think about starting a business?

Ironically, it was a really good time because the number of competitors that were trying to enter the market with new things was very small. And when we did set up a couple of years later, we did it the old-fashioned way: we sold something to somebody that we didn't quite have and we got revenue for it, then we made the thing we were supposed to have and sold another one. So we bootstrapped the business out of revenue. We actually funded the business off revenue for the first 18-20 months before we brought in VC investors.

And your investors are pretty impressive names: how did you persuade them to come on board?

We didn't just want to raise any money. We wanted to raise money from partners that could help us really scale the business. The idea wasn't just to fund the basic business concept - we'd already managed to do that with revenue. The issue was how we were going to take it forward as rapidly as possible to grab what we saw as the emerging strategic opportunity. So we needed investors of a certain calibre to do that.

In terms of bringing them on board, there were a combination of factors that were key. Firstly, you have to prove to them that you can do something. Investors are pitched to all the time, but when you've actually established the business and you've proven the basic thesis of the business model, that's very important and it sets you apart. Secondly, you have to show the business model has a vision of long-term opportunity that's of sufficient scale. In our instance we believe there's a new type of network operator that can be created using global internet technologies and a new business model can disrupt the business models that have been created in this space.

Thirdly, you've got to have a team that's capable of doing it. It's not just about the technology because that's worth nothing if it can't be applied correctly, so it's the people behind the business. Co-founder George Polk's entrepreneurial leadership and my own capabilities in this area were a key part of the equation.

You talk about the business model as if it's set in stone, but you must have made changes along the way?

When we started out, we had a hypothesis of the macro opportunity, but if you asked me back in 2003 to define exactly what that looked like, I couldn't tell you. I could see how we could buy ourselves a ticket to play the game, then you play at one level, move onto the next level and you keep going. We've made some mistakes in getting into some applications like voice too early, for example, but as someone said, the definition of an entrepreneur is someone who has no idea what he's getting into but knows how to get out of it.

So we've shifted our commercial model several times because the money is flowing in from different places. Our revenues come from the end-user directly and from wholesale and distribution partners who work with us to bundle and integrate Wi-Fi with other products and services. In the early days we needed to work very closely with the operators as we could extract revenues from them. Gradually we've shifted to put more emphasis on the end-user. But we are making revenues right now from the places where we are going to make them in the future and at an operating level we are profitable today.

In the end we expect Wi-Fi to be effectively bundled with most broadband services, mobile services and with a lot of different applications. There's a clear phenomena where there's a drive for everything to be connected. If you think about connectivity, and all of those applications and devices, then you can see how the model becomes quite powerful over time. Laptops have been the predominant devices, but now that we see gaming devices and handsets all getting these chipsets, there are many other opportunities.

You've managed to hire some impressive names, such as Owen Geddes who joined recently from BT. Is the lure of share options still a big draw?

To be frank, we've had success and failure in that area. It takes a certain kind of individual to survive in this kind of scrappy environment as opposed to a large, established business. Everybody in the business has a stake and we have an options programme. But we're also conscious of the fact that this is not 1999 and people don't work for free. So that option element is a very important part of the package but it's not the only one.

Some people are more motivated by the team and the cause than the money. So you could have a great financial package but if the role they're playing isn't right for them, then they won't be very effective. So we've got some great tech guys who obviously need to be rewarded financially, but that isn't what makes them get up in the morning.

But there's a lot of excitement about this business. We're trying to get ourselves into a position where we're the logical first choice and we're an independent business so we can move quite effectively. That's quite attractive to people who see that breakout opportunity and want to be part of it, but perhaps they aren't entrepreneurs themselves.

What attracted you to London as a place to prove your technology?

The City has an extremely high density of a quality demographic of users from our point of view. These are communication-heavy people. So as an environment for a proof of concept, it was ideal. London also has a lot of prestige from a marketing perspective. In our Metro Wi-Fi initiative we now have four flagship cities that are putting our technology in - London, Amsterdam, Stuttgart and Karlskrona in Sweden. Cities are a lot more complicated than doing conventional indoor hotspots in a place like a hotel and there's much more local partnership involved, so we're also busy with projects in quite a large number of other European and UK cities.

So where do you go from here? Presumably the skill now is making sure you manage your growth quite carefully?

We're really focused on our six existing markets and getting to a level of service availability in each of them that means the product - wireless broadband mobility - becomes much more end-user adoptable. That's where we're probably going to stay for the next 12 months or so. We have a very specific coverage agenda in each market. Once we have a business that is healthily profitable and has a key leadership position in each of those markets, then we'll move on to the next stage of the strategy.

Niall Murphy was talking to David Longworth of Webster Buchanan Research