(Un)wired for success
Wireless startup brings notoriety to Chico as it gains investments and partnerships from major national and worldwide companies. Is it ready for the big league?
Disgusted with Web speeds so slow they could have fallen asleep waiting for a page to download, Chicoans Steve Twist and Marty Griffin each went looking for faster Internet access. Both went with local wireless Internet startup company Digitalpath Networks, which promises zippy broadband connections.
A couple of years later, both men still have the service—with two very different experiences. The unlucky of the two, Twist, a professional photographer, reports major frustration with on-again, off-again service, speeds that vary greatly, plus a multitude of calls for help to the company’s support desk. His only alternative has been 9K dial-up, so he has stayed with Digitalpath.
Across town, Griffin is sitting pretty. The DJ and radio program director says outages are “very rare” and the speed Digitalpath offers is great—and consistent. He loves that he can surf the Web without using his phone line and that he can set up multiple computers on one hookup and have several e-mail addresses for his family.
Unlike Twist, Griffin can get another broadband option, DSL, but he has no intention of switching. On top of all that good stuff, Digitalpath gives him free service because he is the “relay point” for his neighborhood.
Digitalpath is an ambitious, cutting-edge Chico-based tech company that is aggressively betting on the wireless future and just recently picked up a powerful partner, the national Internet service provider EarthLink.
Digitalpath is without doubt the most exciting and promising high-tech venture coming out of Chico. With such high-speed services as DSL and cable broadband available only in certain neighborhoods, and with dial-up service so frustratingly slow, wireless offers a potentially ubiquitous and extremely fast service that could satisfy most high-speed Internet users, especially at prices comparable to dial-up.
At the same time, as is common for startups, the company has faced some glitches along its path, perhaps as a result of its rapid growth.
Digitalpath says the majority of its customers are like Griffin: satisfied. But whether that majority is a strong one or just one more than half, the company is not revealing. So, it’s unclear whether there is an adequate satisfaction rate and, research for this story found that for some customers, the technology simply didn’t work, and for others it’s come with serious problems.
If Digitalpath can solve these problems while continuing to attract venture capital, it has the potential to become the most successful tech company in Chico’s history—and in the process create tremendous wealth for its investors.
Founder and CEO Jim Higgins launched his wireless, high-speed Internet service in Chico in May 2002. It started with just two employees and one small network working out of an office in California Park. The thirtysomething entrepreneur called the company Digitalpath, and it used a technology all his own, based on modified wireless standards as well as unique network architecture.
Two years later, the company has 87 employees and serves 19 towns in Northern California, with plans to begin branching out to even more this summer, as far away as the Sacramento area and Nevada. Even more impressive, Digitalpath has obtained venture capital funding this year totaling $5.3 million. In addition to the $1.5 million it received in mid-May from EarthLink, this “C Round” of funding included investments from worldwide venture capital company Draper Fisher Jurvetson, that company’s Sacramento affiliate, DFJ Frontier and private, independent investors in Chico and Sacramento.
Digitalpath has also grabbed the attention of AOL, the top Internet player in the United States, and EarthLink, the No. 4 ISP. Digitalpath told the Chico News & Review that it has signed a deal to do a trial with the company starting in July. So far neither company will say what exactly they have in mind if the testing is successful, but AOL currently resells DSL from other companies and also provides content, such as sports games and the AOL homepage, to people who get their broadband from other sources.
EarthLink’s deal with Digitalpath is further evolved. After about three months of testing the local company’s technology, Atlanta-based EarthLink, the third-largest Internet provider in the country, signed a deal in May agreeing to help to market Digitalpath’s service wherever it currently offers the service and wherever it expands. EarthLink will also bundle software with the service, including spam-filtering and anti-virus tools.[page]
“We started examining [Digitalpath] and their technology as well as the customer experience late last year,” said Kevin Brand, EarthLink’s vice president of product management. “We think the technology gives customers a good user experience and are happy to have another option to deliver high-speed service to customers,”
From the sound of things, Digitalpath isn’t planning to rest on its laurels. It’s poised for more growth. “We’re talking with other [Internet service] providers, big and small, about turning service up. It’s an open network—anyone can use it,” said Higgins at the long conference room table in his company’s new Industrial Park office. Digitalpath is one of several business residents in this “mini-mini” Silicon Valley neighborhood near the Chico airport.
Ultimately the company’s goal is to go national; Higgins has made that clear. But, says Marketing Director Dan Mackey, there’s no rush and the company is open to many possibilities. Whether that means getting bought out or going public the company isn’t sure. “We will expand as quickly as makes sense for us from a financial and support standpoint,” Mackey says.
Digitalpath says its recent resources will go a long way in helping to refine and improve its technology and customer service. The company is well aware that some customers are having problems.
“We have thousands that are happy and several that have problems,” Higgins says. The company does not release the number of customers it has or the number who have left—nor does it have to, since it’s not a public company. However, Higgins did say that its churn rate, or number of people canceling service, is “much less” than the rate for cable and DSL, which is often reported to be 3 percent to 4 percent.
The number of broadband subscribers in the United States who want to leave their provider is even higher — as much as 22 percent, according to a December 2003 study by market researcher Forrester Research. These folks cited dissatisfaction with price and customer service and frustration with ads. Forrester concludes, “To combat churn, ISPs need to create stickiness, be flexible and keep prices low.”
Of course, Digitalpath does not know how many of its own subscribers, if any, want to duck out. “The biggest reason customers leave our service,” Higgins wrote in an e-mail message, “is because of moving. Our customer satisfaction level is very high. A large percentage of our customers come to us from DSL and cable every month. We lose a very, very small amount of our existing customers to DSL and cable.”
Digitalpath’s churn rate does not include failed installations. These are situations where people sign up and Digitalpath goes out to install the service but finds right away that it’s getting no signal, so the order is cancelled right off the bat. However, there is a 30-day money-back guarantee, and the churn rate does count people who cancel within that time frame.
In the meantime, the company will upgrade customers’ modems atop their homes, also called “customer premise devices,” with the latest version of the technology if they call to request it. “That will fix the majority of the problems people have been having. I would encourage people who have been with us for a while to call us to upgrade their customer premise device/modem unit,” Higgins says.
To do this, Digitalpath actually plans on flying airplanes above Chico to map out the trees. Trees interfere with radio waves, which carry the signal across the network—a big problem in the City of Trees.
A separate problem with the current technology is that it cannot tell the company if there is a problem until the customer calls, and even then it can be difficult to determine what’s going wrong, Higgins said. To address this, the company points to its recently won venture capital.
“As we get more resources, we get more tools to troubleshoot,” Mackey said. “Chico is our oldest market, and we really appreciate the patience of the customer base here. Because it’s a new technology, it does not always work 100 percent,” he said.
"[When] we see issues with a certain leg of a network … we’ll work to get that rebuilt and issue service credits in the meantime. …We understand that our customers rely on us, and we try our best to give them a good service. We’re working hard to get it addressed and taken care of. Chico has been our test city. So, a lot of our customers have been through the trial with us. … Ultimately we want Chico to have the best technology.”
Having heard about the unhappy customers interviewed for this story, Higgins was concerned. He encouraged anyone with issues to e-mail the company’s tech support at email@example.com and copy him at firstname.lastname@example.org.[page]
“I take customer satisfaction very seriously and will look into any customer concerns personally. I don’t know the exact percentage of customers that are not happy, but I believe it’s small enough for me to look at personally.”
Higgins discussed recently in an e-mail message how he developed the first generation of his technology. “When I invented [Digitalpath’s] technology, I set about 10 to 15 different rules that had to be met in order for the business model to work. Once those core rules were defined I started the analysis of the different types of technology and what I had to work with. I discovered [Digitalpath’s] technology through going through this process. This wasn’t something I just decided to do some day. I saw the need start to build and knew that if I was able to solve this problem it would be a huge market opportunity.”
Since that first incarnation, another version has been built by the company’s research and development team, which is made up mostly of Chico State graduates.
So how does it work? Digitalpath’s wireless technology connects to the Internet with a small modem and antenna mounted on a home’s or business’s roof, chimney or eave, which communicates with a “relay point” located nearby. Digitalpath’s network is built in a tree-like fashion. The network layout includes multiple relay points that transmit information to and from a central gateway, which in turn supplies network access to a T-3 or other high-speed Internet connection.
Attached to each customer’s external modem is a “category 5” cable that goes into the home or business, typically through a wall (much like cable TV), and connects to a power outlet as well as to a computer’s Ethernet/network port. The cord could alternately hook into a wireless router, which would send signals to computers on its network; this allows computers to be truly wireless.
Digitalpath’s approach uses many relay points throughout a community instead of the typical wireless approach, which involves “line of site” tower structures and mesh network configurations. The company says this allows it to provide “deeper” coverage and faster speeds. It’s also economical and scalable, meaning many new users can be added, which the company says allows it to charge less for its service that other Internet service providers.
The company’s service starts at $19.95 per month for upload speeds of 64K to 128K and download speeds of 64K to 384K. There’s an installation fee of about $50. Those who prepay for one year will get free installation and an additional two months free at the end of the year. Other service packages are available for the home for an extra $10 or $20 per month; they come with faster speeds and extra e-mail accounts. One actually has free installation.
Two business packages are also available, from about $60 to $100 per month, which promise throughput that’s faster yet. Actual download times can vary depending on the bandwidth load on the network. All packages offer unlimited data transfer, meaning customers will not be charged if they up- or download a certain number of files. EarthLink has slightly different prices for its Digitalpath service, which it touts as being “25x faster than dial-up,” based on the average speed between a 28.8K modem and a 56K modem. Prices start at $21.95 per month, with speeds of up to 384K. EarthLink does not charge an installation or equipment fee and requires no contract.
As a comparison, competitor SBC offers DSL at $34.95 per month, promising download speeds of between 384K and 1Mbps, or at $44.95 per month for faster speeds. It gives discounts for people who use several of its other services and for those who order online. DSL offers high-speed access over ordinary copper telephone lines. Like Digitalpath, it does not tie up a user’s phone line.
Cable DSL provides broadband service over the cable network. It uses a computer modem and a coax cable connection. It can reach speeds of more than 5Mbps. Pricing is typically higher than for DSL.
For Higgins, low pricing is key, even though he has a hunch he could easily charge more. “There are a lot of places that don’t have high-speed access. We could charge $50 and get that. My goal was to offer broadband at dial-up prices,” he said. Higgins believes adoption of broadband has been slow in the United States because it’s too expensive. While broadband is catching on here, compared with other countries, especially in Europe and Asia, far fewer people have high-speed Internet access.
“The consumer doesn’t want to pay $40 to $50 monthly for service. Digitalpath delivers the same if not better quality for much less. Our signup rates are higher because of this.” In fact, he created his technology around anticipated cost for his business and the customer. “I built the business model first and then looked at what options were there to make the model work. This wireless system has the best cost structure and scales nicely.”
Cost was also a factor in Higgins choice of Chico as home base for his business. “I knew the cost-structure benefits and how to build a big business in a smaller town.” An added bonus is that Chico is just far enough from Silicon Valley and other hotbeds for tech startup companies that it allowed him to build his technology while staying “under the radar of other competitors.”
On the personal side, he wanted to be closer to where he grew up, in Chester; and his wife’s family lives here. He also likes being away from a big city and appreciates the housing costs in Chico. The couple had moved back to the area after living for a few months in Virginia, where Higgins was helping integrate his former company, which was bought up, along with about 20 other companies, by another business. Prior to that Higgins and his wife were in San Luis Obispo, where he launched that business, a dial-up Internet company called The Grid. Now Higgins and his wife now have a 15-month-old boy, and they plan on keeping Chico their home.[page]
One local businessman looks at Digitalpath as Chico’s key to a major tech industry—and wealth for locals.
“I believe legitimately that Digitalpath could be the spark plug for maybe Chico to become the ‘Wireless Valley,’ or something similar to that, if it’s able to fulfill its potential,” said Jon Gregory, president and CEO of Golden Capital Network, the company that hooked up Digitalpath with its investors. “And that’s no small undertaking. That’s why it’s a high-risk business to make it happen. … If it hits just right and you make it through those hurdles, on the other side it’s pretty nice.”
Gregory says Digitalpath’s technology has a “huge market potential” beyond Northern California. “It’s something that can be sold anywhere. A big market opportunity.”
He explains the opportunity like this: Companies like Digitalpath that are pursuing a large market create many jobs and experts who later leave to spin off their own companies. These startups go public or are snapped up by national corporations.
“All of this causes a series of instant millionaires, like Video Valley in Grass Valley.” There is a lot of discourse over bringing Wal-Marts or call centers to Chico, but he says that’s not what will make an economic difference for a community. “I don’t care how many Wal-Marts or call centers or corporations move to your town, they don’t generate wealth; they generate management positions.” Startups going public or being bought out is how economic growth happened in Silicon Valley, he said, “not because a lot of big-box companies moved there. That hasn’t happened in Chico yet.”
But Gregory points to good signs for the company. “Out of the blue in Chico [Golden Capital Network] merged this unique business that raised the first angel investment, did it faster and did it in partnership with one of the leading venture capital companies in the world. It shows that there’s a lot of capabilities here.” (Angel investors are wealthy individuals with no association with venture capital firms, funds or the like. They make investments, often in their own community, based on what they think is a good opportunity.)
“Jim is an experienced entrepreneur, even though by age he’s very young. Certainly there are characteristics to determine whether someone has got what it takes to wants to start a small business and make it a big business. You can see the dedication, commitment and desire to succeed.”
Meanwhile in the future “Wireless Valley,” Digitalpath is not the only company providing broadband service. There are national companies selling DSL as well as broadband satellite, which is quick but is typically too expensive for the average family. Cable broadband does not appear to be available in Chico yet, though there has been chatter around town that Comcast is gearing up to start service.
A new survey from the Pew Internet & American Life shows that 39 percent of all adult Internet users worldwide have access to high-speed Internet connections at home, but only 24 percent of all adult Americans do. For rural Americans, that access shrinks to just 10 percent. High-speed connections decrease in rural areas due to lack of infrastructure, the report says.
SBC says 19 percent of its local and national customers use its DSL service. Other companies lease SBC’s lines to offer DSL as well, but SBC is not saying how available DSL is overall. But to many residents in Chico, DSL feels elusive.
“It’s just impossible getting broadband in Chico,” said Jennifer Meadows, an associate professor for Department of Communication Design at Chico State, who has also edited several volumes of a book about communications technology. “Getting broadband can be a frustrating experience for everybody. I’ve heard nightmares about SBC and heard about people having troubles with Digitalpath. Once Comcast starts, who knows what’s going to happen. I heard it’d be available by last January and even got fliers saying they’d give me a [price] break. Obviously it’s taking them longer.”
In fact Meadows has high-speed access at work and wants it at home, but she had bad luck with SBC, and Digitalpath is not available in her neighborhood. Though she is impressed with the local company, she doesn’t think she would have signed up for the service even if she could get it. For one, she didn’t want the wire running through her wall. “I know some people at work who are very happy and others who they drilled holes in their house and it never worked.
“Personally I think it’s really interesting what [Digitalpath is] trying to do. Any avenue allowing people more access to broadband is wonderful,” Meadows said. “The technology is going to become a lot more important in people’s lives … in terms of convenience and ease.”
She cited home businesses as an example of where broadband can bring economic opportunities. Say, for instance, “you have to talk to a client and be on the Web at the same time. You can’t do that [with dial-up]. It’d be hard to analyze financial statistics on the Web and say, ‘Hold on, I’ll call you back.’ “[page]
Dial-up not only ties up the phone line, but it’s also so slow that it makes certain activities—such as banking, arranging travel, listening to music and downloading video and other large files—too much of a hassle. “It’s so much easier with broadband. Once you have it you can’t live without it,” said Meadows. “You can’t imagine what the possibilities are. It’s still a very young technology, so you don’t know what will come up next. Streaming technology just started in 1995. It was just the radio, and now we have [Apple Computer’s] iTunes Music Store where you can download a song for 99 cents.” Meadows, however, does not believe broadband is a universal need. “I don’t think everybody should get broadband. It depends on your lifestyle.”
It’s a good thing, too, because plenty of Chicoans are stuck with dial-up service. Along with the national companies like SBC, EarthLink, MSN and Yahoo, a handful of local companies provide dial-up service in Chico, including Sunset.net, SaberNet and Shocking.
Sunset.net also resells Digitalpath’s service, but SaberNet has decided not to. Based in Eureka, SaberNet has offered dial-up service in Chico for seven years and has had an office here for four. “We can resell, but I haven’t seen it as profitable for others,” said regional manager Jill Cooper, who moved to Chico from Eureka to help get the local SaberNet office started. “If we add it to the mix, we’d have no control over the equipment.” That would mean that if something of Digitalpath’s broke down, SaberNet would not have the power to fix it, since the technology is not its own. It wouldn’t be able to take care of its customers, she said. “We have a lot of happy customers—and we want to keep it that way.”
The decision not to resell also means that some of SaberNet’s customers have left for the promise of faster connections at DPN. But Cooper says not all of those defectors have been happy with their competitor’s service. “We have had customers who have left SaberNet and have come back. … They [Digitalpath] just haven’t had the reliability. We’ve been down one time in seven years.” In fact, she said two such customers recently returned in one day.
“It comes down to the turtle and the hare thing,” she said. “Digitalpath is cool; it’s fast—if you can get on. Dial-up is slower, but it’s consistent.”
Consistency is just the issue customer John Bollinger has had with his DPN service. He was one of Steve Twist’s neighbors off Bruce Road when he signed up for a year of service, and in that time he has moved and taken his Digitalpath service with him to the Keefer Road area. He’s experienced outages at both locations as well as big fluctuations in speed. But unlike Twist, Bollinger needs the Internet for his work.
“I’m retired, supposedly. But I have this income tax practice. I was having [Internet] trouble during tax season,” Bollinger said. “If I was down, I’d be just an enraged maniac. I use the Internet a lot with my tax software.”
He said he also needs to get online to pay royalties and to do e-filing. “I didn’t have Internet access. … I had to stop my work. … That was constant during tax season. The clients didn’t notice it, but I noticed it because I had to change my work schedule.”
Speed has been a mixed bag for Bollinger. It has ranged from lightning fast, at between 550K and 725K, to a bit quicker than dial-up, at about 83.7K. He reports that such variation can occur within a span of less than five minutes.
Bollinger signed up for a $29.95-per-month package that guarantees a minimum of 128K for upload and 256K for download. It’s $10 higher than the basic plan and offers more speed and two extra e-mail addresses.
“It seems to fluctuate a lot. They say it’s the trees and all that,” he said.
Along with consistency, another of Bollinger’s beefs with DPN is technical support. “Waiting for tech support is a real hard thing. You get in their telephone tree … a lot of times I am on hold for a half an hour … then they have to get back to me when they talk to their supervisor.”
Bollinger has kept detailed notes of incidents. He relayed a recent one that he says is a “classic” example. His service went down on a Friday morning in April or May, so he called Digitalpath to let the company know. Tech support tried several things to get the system working, and when that failed it told him a supervisor would call back.
Just before 4 in the afternoon, no one had called and his service was still down, so he rang them up again. The company said they were working on the problem and that a supervisor would call back. That call came right on schedule. The supervisor said they’d need to set up an appointment to visit his home first thing Monday. Bollinger was without service for the weekend.[page]
When no one showed up by 8:30 a.m. Monday, he called the company again. A technician finally arrived at 9:20 a.m., apologizing, saying he didn’t know he had an appointment. The man worked on the system and told Bollinger he improved the signal by 10 percent. “He left at 10:25. … It went down again at 10:50.” Again he called the company, and was told someone would call back. Someone did at 11:45 a.m., asking if the service was back up again. At the time, Bollinger said, “They’re a new small business. I’d like to help a local business, but it gets to the point where you can’t. … I’m really on the edge. If things don’t go better, I am out of here. They’re forcing the issue.” Things did get better, and he’s sticking with Digitalpath. “Internet service since the last time has been immensely improved. They finally got it corrected,” Bollinger said in late May, “except the speed still fluctuates quite a bit. The other day I saw them working on the repeater site without me knowing there was a problem. I thought that was a good sign.”
Digitalpath said the kinds of problems Bollinger was having—and Steve Twist still has—are very rare for its customers. The company emphasizes that most customers are happy. In fact, like Marty Griffin across town, two pleased customers in a neighborhood in northwest Chico, off Guynn, have had service for about a year and have not had a single negative experience with the company. One family, which houses the relay point for its neighborhood, said speed is far faster than its prior service, dial-up. And one of its satisfied neighbors believes her connection speed is quicker than at work, which she thinks has a T-1 line. There are no long stories about how great the company is. How many ways can someone say the service works, there are no outages and customer service is helpful?
“Usually it either works or it doesn’t. For a small factor, it’s not reliable long-term,” Higgins said. “Problems are very annoying for them and very annoying for us,” he said, explaining that when the service does not work, it costs the company money in marketing and rolling out trucks to make fixes.
“I think what you see is some growing pains in the company. Things I am definitely aware of. We’ll get there over time.”