INNOVATION INSIGHTS: How a small Brisbane company provided the data link the world's tech giants were seeking

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Everybody is moving to the cloud. From small startups to large miners, the cloud is the infrastructure underpinning not just recent innovations, but also many more to come. It’s also a huge business, with giants such as Microsoft, Google and Amazon fighting for share of a segment that with revenues climbing into tens of billions of dollars.

But while cloud data centres are proliferating, and the likes of Netflix have caused data transfers to explode, the infrastructure needed to connect it all had been overlooked. The ability for the cloud to scale as needed and only charge for what was used – a central component of the economics of the cloud – hadn’t been extended to the network level.

This is where Megaport saw an opportunity.

The company is the brainchild of Bevan Slattery, one of the country’s most successful and obscure tech entrepreneurs. Slattery’s created his first business in the 90s, cloud provider iSeek was sold for $US16 million. He used the money to fund his next project with the Shark Tank’s Steve Baxter. PIPE Networks operates internet exchange points for ISPs, and was acquired by TPG for $373 million in 2010.

Slattery established Megaport in 2013 to bridge the gap between the rapidly expanding cloud sector, with its pay-as-you-go model, and the networks that connected it all. While companies could buy cloud space on flexible terms, there was no way to do the same with the connections to the data centres, which often came with long-term contracts.

“No networking business was offering a type of flexible commercial model that allowed customers to scale up and scale down their network bandwidth based on what they needed at the moment,” says Denver Maddux, Megaport’s CEO.

“The economics of the cloud, the use case of the cloud, had not translated to the network level at all.”

Cloud data centres have experienced phenomenal growth in the past few years. Source: Megaport prospectus

Historically, network connections were fixed, physical and not interchangeable. A new connection required establishing a physical line inside a data centre, or across a city. Customers had to sign up to long-term contracts, there were designated ports and the line was hard-wired or fixed in the ground. Lead times were long and there was no flexibility for changing circumstance.

Megaport, by comparison, set out to offer a software-based solution. In a year, and with just 12 engineers, the Brisbane-based business created a system where customers could create new network connections and configure their service in real time, establishing virtual connections when, where and to the specs they needed. By focusing on software, infrastructure could be as flexible as the cloud it supported.

The idea was to “allow for [customers] to set up a virtual connection from their network to another network in any type of bandwidth increment they want, and scale those bandwidth increments up and down, turn them up or turn them off as they need them. Take on more ports, take on less ports as they want,” says Maddux.

By using a software-led approach, the company established itself as a neutral and independent network provider. The company buys space and bandwidth from multiple vendors in myriad locales and in the process, Megaport has plugged in to all the major cloud providers – Amazon’s AWS, Google and Microsoft.

“The great thing about our software platform is that it allows us to plug in whatever network elements we find that suit our customers the best,” says Maddux.

Megaport is staking out a position in the middle of it all. Source: Megaport prospectus

Its position as a neutral connection with myriad partners, has proven especially valuable. Megaport has become a one stop shop for connecting to the cloud, cementing itself as a valuable partner for the big cloud providers.

“We actually have a platform that becomes the quickest and easiest on-ramp for the enterprise to connect with the cloud,” says Maddux.

“So if you are an enterprise and you are in a multi cloud scenario, you can get one Megaport and you can connect into any of the cloud providers and configure how much bandwidth you want to have.”

The cloud industry is nascent, with the likes of Amazon still experiencing massive revenue growth. Maddux uses this as a proxy for the huge potential upside for the likes of Megaport.

“If you think about Amazon nearly doubling revenues in one year. That is a pretty big jump,” says Maddux.

“This is a young segment, because we are not looking at billion dollar increments, we are looking at exponential increments in revenue.”

Megaport had an IPO in September, selling 20 million shares to raise funds for an expansion into the United States and Europe.

Maddux says the expansion is almost complete.

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