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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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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