Every week the Opus team picks a news story or topic or idea that is relevant to the entrepreneurs and businesses we partner with.

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The Nest Acquisition

Ajit Deshpande - - 0 Comments

Last week saw one of the largest venture-backed private company acquisitions in recent memory, when Google purchased smart thermostat and smoke detector maker Nest Labs for $3.2 billion. As has been widely reported, Nest boasts a rockstar team of more than 300 employees, led by former iPod guru Tony Fadell. The company is estimated to be shipping approximately 100,000 of its thermostats every month, which at $249 per thermostat translates to an annual revenue run-rate of approximately $300 million.

A number of interesting viewpoints have emerged post the acquisition. First, does this represent the second coming of energy technology? Probably not… In many ways, Nest represents the same business approach that has made Apple and Tesla successful – develop a high-end device that offers amazing user experience, and over time build and nurture a loyal, high-margin user base. So, while a case could be made that Nest’s smart learning algorithms offer say a one to two year payback over traditional programmable thermostats, likely that is not the key selling proposition. The key selling proposition is one around design, just like for the iPod. Second, did Google overpay in this case? Again, likely not… Google the company is built around web and mobile driven marketplaces and two sided networks, yet the company has astutely identified the internet of everything (connected cars, home endpoints and the like) as the next secular megatrend, and the way to participate in this megatrend beyond pushing Android OS is to focus on product design, something that Nest Labs uniquely offers today. And along the way, even if Nest can sell its thermostats and smoke detectors into 3% of the United States’ 135 million households, that itself represents between two and four billion dollars in revenues to Google.

The first step towards the Internet of Everything gaining broad-based prevalence is to achieve scale within its infrastructure layer (end-points and their cloud-connectivity), which in turn is a segment that consists of a host of large corporates as well as startups such as Opus portfolio companies GainSpan and Arrayent. Can Nest become the rising tide that lifts all boats within this infrastructure layer? That seems like the bet that Google is making, and if the bet works out then Google’s billions will have been well worth it.

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‘Un-carrier’ Wars

Ajit Deshpande - - 0 Comments

Last week saw a couple of interesting announcements from T-Mobile, pertaining to the US carrier ecosystem. First, T-Mobile announced its preliminary Q4’13 quarterly results last week, which showed the carrier had added a staggering 1.6 million net new subscribers during Q4’13. Net new subscribers added over all of 2013 were 4.4 million. T-Mobile’s total year-end post-paid and pre-paid subscriber base for 2013 was just more than 37 million. Second, T-Mobile also announced that it would offer up to $650 in credits to folks that switched from other carriers to its own services (up to $350 in early termination fees for contract breakage + up to $300 in credit for trading in the user’s old phone).

Over the past year or so, T-Mobile has used some interesting tactics in trying to gain net new subscribers. In Q3’13, the company had announced that it would provide its services without a contract (but with still a pseudo-contract in the form of the user paying the cost of the subsidized phone over a two year period). While the other carriers have responded in kind to these tactics, clearly T-Mobile has succeeded so far. But how sustainable is this success for T-Mobile? T-Mobile currently lags the other three major carriers in wireless infrastructure build-out, spectrum capacity and cash-assets, which intuitively seem to together represent a vicious cycle that might result in increased customer churn and net subscriber losses in the medium term. On the flip side, maybe for a number of urban markets, T-Mobile’s coverage is ‘good enough’, in which case the company might see continued net new subscriber addition due to its seeming consumer-friendliness. Which of these two possibilities get realized will determine whether T-Mobile emerges stronger over the next year or so, or whether its performance relapses into mediocrity.

On a broader note, these un-carrier wars will likely bring other aspects into the spotlight: Should smartphones (iPhones included) really cost $600 each to the end-user? Is there really space for four major carriers in today’s capital-intensive wireless environment? Can small-cells and WiFi hotspots and WiFi calling help disrupt the carrier tiered-pricing model? Clearly, T-Mobile is stirring the pot, so we are in for interesting times ahead!

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Nimble Storage goes Public!

Ajit Deshpande - - 0 Comments

Flash storage has been on the upswing for the past few years. Last week, the technology got a shot in the arm, as hybrid flash-SSD storage startup Nimble Storage had a successful IPO, pricing above its original share-price range and subsequently jumping more than 60% on its first day of trading. The company is currently valued at approximately $1.5 billion.

Nimble Storage’s IPO was in sharp contrast to the IPO of fellow flash storage player Violin Memory back in September; Violin priced in the middle of its IPO price-range, and has fallen more than 70% from its IPO price. Nimble’s thesis assumes that despite all the benefits of flash storage, hard disk drives might never go away, and as such the company has focused on optimizing flash in the context of HDDs providing a bulk of non-performance-critical sequential storage. Violin Memory (as well as Fusion IO and Pure Storage) on the other hand expected Flash to become cost-effective enough to be able to more broadly replace HDDs, which hasn’t been the case so far.  The outcome has been a vast difference in profitability (or loss-levels) between the two companies; Nimble lost $37 million on revenues of $78 million over the twelve months ending July’13, whereas Violin Memory lost more than $119 million on revenues of $87 million over the same period.

This is another example of the complexities of market adoption in the context of technology disruption in a Capex intensive industry. The market’s view right now is a hybrid / transition approach like Nimble Storage, that brings the best of both worlds to storage, has still a ways to go before it makes way for a flash only solution. The longer the market continues to think this way, the tougher it probably gets for Fusion IO and Violin Memory and Pure Storage to keep going!

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Verizon acquires Edgecast

Ajit Deshpande - - 0 Comments

Last week, telecom giant Verizon announced the acquisition of CDN startup Edgecast Networks for a price that is rumored to be in the $390 million range. Edgecast is a six year old, Los Angeles based, profitable startup that has annual revenues of more than $100 million and more than 6,000 customers.

From a monetization leverage standpoint, the CDN business might be one of the toughest out there. As an entity that hosts content and delivers it optimally, yet does not own the content itself, a CDN sits smack in the middle of the Telco/infrastructure vs content owner/OTT debate. CDNs have no subscribers to call their own like the Telcos do, and so their revenues mainly accrue from the OTT players, the largest of which, including Amazon, Google and Netflix, are already building their own CDNs. Against that backdrop, the acquisition of Edgecast works well in that the CDN gets a parent with deep pockets and the telco boosts its content delivery capabilities while getting thousands of new customers. While the acquisition itself was also great for investors ($74 million total in so far), the exit was curious in that Edgecast had just recently raised $54 million, yet despite the money, the revenue growth and the profitability, Edgecast’s acquisition revenue multiple of 2-4x is much lower than market leader Akamai’s own current revenue multiple of approx. 5.5x. The reasons for this could be various: founders wanting to cash out after six years of solid effort, a long ongoing M&A process culminating in a deal, revenue being ‘lower quality’ (read lower margins) due to a higher services component, or just the realization within the company that standalone pure-play CDN wasn’t long term feasible. Irrespective, the field of pure-play CDNs is now a bit narrower, and one more reasonably successful infrastructure exit is in the books.

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Point-of-Sale integrated Check-ins, from PayPal

Ajit Deshpande - - 0 Comments

The payments industry has seen significant evolution over the past three years. Continued rapid growth in ecommerce and online payments, the emergence of payment dongles, and increased focus on in-store shopping experiences have all resulted in significant innovation at Point of Sale for brick and mortar stores. Last week, PayPal, which is a key player in this ecosystem, launched an opt-in mobile check-in service experiment in Germany, in partnership with local tablet-based POS startup Orderbird. With this service, a PayPal mobile app user can ‘check-in’ when entering a brick and mortar store (similar to a FourSquare check-in), at which time the store will be able to provide the user with personalized offers and recommendations based on the user’s preferences.

While still transaction-focused, of all the financial services players, PayPal is closest to being a ‘community’ of sorts, since beyond the transaction amounts, PayPal also has information around the transactional relationships within its individual users. If this ongoing mobile check-in experiment takes off, PayPal will be able to build on this community aspect and learn even more about user preferences, which in turn will open up the world of offers and daily deals for the company. This ongoing use-case is not that different from the FourSquare use-case, however what will make this service truly intriguing is when the Bluetooth Low Energy (BTLE) based PayPal Beacon gets incorporated into retail stores to automate the check-in and payment processes. That is when PayPal will be able to more realistically weigh the revenue benefits to it from check-ins and offers against the increased financial risk from quicker, less validated, check-in dependent financial transactions. That is also when the picture might become clearer vis a vis the value of BTLE (and by association, of NFC) for secure, user-friendly financial transactions.

The ongoing experimental service being launched by PayPal and Orderbird might be a small one, but its implications on the future of brick and mortar payments will probably be significant!

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UnderArmour buys MapMyFitness

Ajit Deshpande - - 0 Comments

Last week, athletics apparel giant UnderArmour announced that it was buying fitness tracking mobile startup MapMyFitness for $150 million. Founded in 2007, MapMyFitness had raised approx. $23 million in venture capital. MapMyFitness currently has a community of 20 million users, of which 9 million are monthly active users. As a smartphone app company with no wearable device of its own, MapMyFitness can currently connect to and import workout data from more than 400 wearable fitness devices, including Garmin, Fitbit, Jawbone and Nike+.

In today’s world, we have hundreds of wearable devices, each with the ability to connect with a smartphone and/or the cloud, and each with its own data silo. Given the significance of this data in the broader context of individual wellness and health, there is immense opportunity for a neutral third party to emerge as an aggregator and repository of data across the device ecosystem. With a growing community of wellness enthusiasts, MapMyFitness was in position to become this neutral aggregator, but now, with UnderArmour (with its own fitness chest band Armour39, and potentially other devices in the pipeline), MapMyFitness is no longer ‘neutral’. Will the MapMyFitness community wane with the acquisition? Likely not, since UnderArmour likely isn’t as polarizing an acquirer in the wearables space as, say Facebook seemed for Instagram (and even there, Instagram operating independently has continued to grow its community). But will MapMyFitness lose at least some of its interoperability with third party wearable devices given its new parent? Likely yes!

We now have two giants going after the tech-savvy fitness enthusiast: Nike, with its fuel band, Nike+ open APIs and its technology accelerators, and now UnderArmour with limited device presence but with scale in mobile and cloud. If UnderArmour plays its cards well with MapMyFitness, then we should relatively soon find out if the best way to build a dominant ecosystem around fitness data is from the wearable device out (like Nike), or from the mobile device in (like UnderArmour).

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Salesforce’s Private AppExchange

Ajit Deshpande - - 0 Comments

The CIO’s life in today’s world isn’t easy. Distributed workforces, mobile/BYOD trends, and consumerization of the enterprise are all making it more and more difficult for the CIO to manage access, authentication and security policies across the enterprise. One way to mitigate this situation is for the CIO to offer employees a custom, internal app-store, which could include apps around ERP, CRM, budgeting, project mgmt. and so on. Such an app-store gives the CIO a single point of control and management. Well, last week, Salesforce announced the launch of exactly such a solution. This ‘Private AppExchange’ platform enables enterprises to create and configure their own app-stores across web and mobile. This Private AppExchange is a variant of the Salesforce AppExchange, which has been around for more than seven years and which currently has more than 2,000 apps. There have been more than 2 million AppExchange app installs so far over these seven years.

Sounds like a great idea. Salesforce brings its cloud cred to the enterprise, helps the enterprise streamline app usage amongst employees, and in the process uses the enterprise CIO as a channel to both grow its user base as well as its app marketplace. If all goes well, Salesforce becomes for the enterprise private and public cloud what the iOS app store is for mobile consumers: a marketplace for secure, out-of-the-box applications.

So what are the challenges? First, most current popular AppExchange apps are geared towards enriching business processes with Salesforce’s CRM data, which for the enterprise is just one piece of the puzzle. For broader scale, Private AppExchange will need to forge deals for apps from giants like SAP, Oracle, Intuit and IBM, which is tough. Second, despite owning a reasonably complete cloud technology stack, Salesforce will still need to prove itself around enterprise security. Salesforce does not have nearly as much control on the user environment as say a Blackberry (with its secure OS) to be able to make it case for being secure. Finally, an app-store or marketplace works best when the marketplace provider itself doesn’t have any apps – a ‘Switzerland’ approach so to speak – yet Salesforce offers CRM and Chatter and ExactTarget and other such heavily used enterprise apps. How will Salesforce attract and retain important outside apps to enlist onto the Private AppExchange given this very apparent conflict of interest?

The Private AppExchange is for sure an interesting undertaking. While it may or may not succeed, one of the key outcomes from it is that startups with targeted enterprise solutions will enlist onto it in greater numbers in order to get to the enterprise. This will spawn more niche enterprise apps, and will further fragment an already crowded entrepreneurial market around BYOD, single sign-on, productivity applications, marketing funnel and so on. That’s the upshot, and its probably not a great one for entrepreneurs.

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Map-based intelligence for everyone!

Ajit Deshpande - - 0 Comments

Last week, Google launched Maps Engine Pro, a cloud-based software tool designed to let businesses organize and visualize geo-spatial data. Priced at $5 per month per user (there is also a free tier for businesses with limited usage levels), this tool allows small and medium sized businesses to create internal- and external-facing maps that utilize its data to make business decisions around asset tracking, sales territories, route optimization and so on.

Geo-spatial mapping and cartography platforms have been around for more than four decades – GIS software company ESRI (which has annual revenues of more than $1 billion) was set up in 1969 and MapQuest has been around since 1967 (in different forms until 1994 when it morphed into an internet browser app). The factors that have rejuvenated this traditional industry over the past decade or so have been the advent of the cloud, mobility, GPS devices, and most importantly the continued evolution of feature-rich and user-friendly Google Maps. In fact, from a data visualization perspective, ESRI, with its desktop ArcGIS platform and shapefile format is still the dominant high-end / desktop player, but on the SMB / consumer / cloud fronts, Google Maps dominates, with 1 billion monthly users and over 1 million active sites and apps using its APIs. In this context, the introduction of Google Maps Engine not only enables Google to better engage its SMB customers for a small fee, but it also drives geo-spatial business intelligence mindshare further towards the cloud, which is Google’s forte and ESRI’s weakness. What this product introduction also means, is that cloud-based geo-spatial business intelligence could become more commonplace going forward, presenting growth opportunities for service and consulting businesses in the SMB segment. For larger scale applications such as in logistics hubs, utilities etc., probably not much should change, with the likes of ESRI and Opus-portfolio company Space-Time Insight continuing to provide customized, centralized, on-premise data visualization systems for such use-cases.

There are a number of inefficiencies in the world that can be mitigated by the proper use of map-based business intelligence – maintenance, logistics, scheduling, tracking, queuing and so on. So far, the SMB world has had limited ability to address these inefficiencies, so let’s hope that Maps Engine kick-starts a movement towards spatially optimized businesses.

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Identity Management from Salesforce

Ajit Deshpande - - 0 Comments

Last week, Salesforce announced the launch of Salesforce Identity, the company’s new cloud-based identity and access management platform that will simplify for IT administrators the process of provisioning and managing companies’ collection of mobile, cloud and on-premise applications. The tool will allow IT departments to manage any app from any device, for employees, customers and partners.

Identity and access management (IAM) is an essential component of any enterprise IT operation. While dominated by traditional players such as CA and EMC, recent trends towards the cloud have enabled niche cloud-based/SaaS IAM solutions such as OneLogin, Okta, Ping Identity, etc. to successfully raise venture capital. At the same time, offerings from larger players, such as Microsoft Azure Active Directory and Oracle Public Cloud have emerged to provide more encompassing IAM solutions across on-premise and cloud infrastructure. Salesforce Identity joins the ranks of this later group. Salesforce Identity goes well with the company’s PaaS pursuits around Heroku, Force.com etc.

Security around access and authentication is in many ways a war of attrition – continually chipping away at risks is key in this space. This in turn implies the need for connectivity between silos around policies, geographies and platforms. Further, in today’s world of the ‘Internet of Everything’, there are many businesses for which IAM constitutes just one piece of a logical layer that also interplays with Physical Security (sensors, surveillance, etc.) to accomplish what is now more generally referred to as Information Technology – Operations Technology (IT-OT) convergence. An airport, a utility, a logistics hub, a distributed enterprise, all have critical need for such a holistic converged IT-OT view (the kind offered by Opus portfolio company Alert Enterprise), for which these entities are willing to pay top dollar.

The end-game is a holistic, transparent, actionable view around enterprise access and policies. Salesforce Identity gets us further along towards this end-game, yet there is a long long way to go…

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Login and Pay with Amazon

Ajit Deshpande - - 0 Comments

Last week, Amazon announced the launch of its ‘Login and Pay with Amazon’ service for ecommerce companies. Purported to be a mutually beneficial initiative for both sides, this service will enable Amazon customers to seamlessly log in and pay on partner ecommerce sites using their Amazon credentials, while giving the ecommerce companies the opportunity to gain new customers from the Amazon user base.

Few interesting points to note here: First, there is clearly a need for a seamless ecommerce experience, with 72% shopping cart abandonment across all devices and 97% abandonment on mobile devices. Second, brick and mortar still accounts for more than 85% of all commerce. Thus, Amazon’s greatest opportunity is in growing both the number of global online ecommerce consumers as well as its own share of wallet with these consumers, and with 215 million users, Amazon brings massive scale in making this transition to pervasive online commerce a seamless one. Third, the whole notion of context relevance should drive people to adopt Amazon Payments as the ‘social login’ for ecommerce, just the same way as FB Connect feels appropriate for discovery/sharing, Google login makes sense during the consideration phase, and PayPal login feels proper for financial transactions. And finally, Amazon Payments provides the company with yet another avenue towards negative net-working capital – this potentially being the key aspect differentiating Amazon Payments from PayPal.

So, we now seem to have taken care of the need for seamless access across the entire awareness / consideration / purchase funnel. Logically, in today’s era of mobility and multiple screens, the next wave should then be around enabling cross-device security and fraud management around this social login based access. Two-factor authentication is already being tested, yet the longer term path around secure ecommerce would need to go beyond that and include wireless carriers, mobile wallets, card issuing banks, and regulatory oversight – exactly the kind of ecosystem Opus portfolio company Payfone is starting to enable in partnership with bank fraud prevention consortium Early Warning Systems. Security  will for sure be the next step around ecommerce, but for now, Amazon continues to wrap its arms around the ecommerce mega-trend, becoming the rising tide that raises all boats…

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