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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Meraki for more than a billion

Ajit Deshpande - - 0 Comments

Cloud services provider Meraki was acquired last week by Cisco for a cool $1.2 billion. Meraki’s core business is in providing cloud-managed Wireless LANs for small and medium enterprises, but it also offers other enterprise services such as switching, security and MDM. Coming just a few months after Nicira was acquired by VMware (with Cisco apparently losing out in the bidding), the Meraki news suggests an upswing in M&A activity in the networking / infrastructure space.

The Meraki acquisition is interesting on three fronts. First, it might be a good case study in understanding team, market attractiveness and revenue traction as value components for the entrepreneurial venture. Like Nicira, Meraki seems to have a strong management team. However, while Nicira had no significant revenues, Meraki has an annual revenue run-rate of close to $100 million. A billion+ dollars is an excellent outcome for both, however on a relative basis the key inference is that Meraki was able to offset Nicira’s perceived stronger IP/thought leadership position and more attractive addressable market through solid top-line execution in getting to a similar exit valuation. Second, Meraki’s acquisition underlines the growing acceptance of the ‘enterprise services through the cloud’ trend. The days of full-featured, computation-heavy apps installed on campus are probably numbered, with potentially the only issue preventing cloud service providers from complete dominance – limited last-mile connectivity – being addressed by multiple companies including Opus portfolio company SpiderCloud Wireless. Finally, Meraki is proving that lower infrastructure, provisioning and customer acquisition costs now make it feasible to target the huge SMB segment for cloud managed services and Cisco has clearly recognized this trend.

Another billion dollar acquisition in the technology space is in the books – a fascinating outcome for a team that experimented with a host of go-to-market strategies including ad-supported Wi-Fi, retail and the developing world before settling into its current strategy. Hopefully Cisco now holds good on its plan of letting Meraki continue as an independently operating subsidiary.

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A Dish-Google Partnership?

Ajit Deshpande - - 0 Comments

On November 16th, news broke out that Dish and Google were discussing a potential partnership to build out a wireless network to rival those of the top carriers. Dish has for a while been exploring ways to use its satellite spectrum for terrestrial wireless communication. A failed bid for MetroPCS, an ongoing discussion with the FTC for approval and now discussions with Google amongst others, all indicate that Dish is quite serious about its plans.

It is probably not the best thing in the world to be a carrier today. Voice plan revenues which have long been the cash cows for carriers are now being disrupted by the likes of Republic Wireless in the United States and multiple providers in Europe (incidentally, Republic Wireless’ first phone device is from Google subsidiary Motorala Mobility). On the data side of things, OTT players, with Google being at the forefront, are taking the cake all while carriers continue to pour in billions into the infrastructure. And now if the Dish-Google partnership goes through, Google will obtain even greater access to consumers through just about every screen there is – PCs, tablets, smartphones and smart TVs. During 2011, Google had almost $10B in net income on ~$38B in revenues, whereas AT&T had ~$4B in net income on more than $156B in revenues. Now the carriers’ profitability is even further threatened by a potential partnership between someone who has decent wireless spectrum and someone who has the end-devices and $50B in cash. Surely the carriers aren’t happy to hear about this.

What does this mean for Dish? How about becoming a more complete convergent services provider, and how about obtaining a partner that enables it to better mine for more subscribers? And the end consumer gets a lower convergent services bill with possibly increased loss of privacy to Google. The synergies are there, all built around the value of consumer data. Consumer data closes the loop here, and maybe that is the right approach going forward.

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Foursquare takes on Yelp

Ajit Deshpande - - 0 Comments

Last week, Foursquare introduced a new version of its mobile app that now includes a key new rating feature. Using data from its ~25M mobile app users and ~3 billion check-ins worldwide, Foursquare will provide a 1-10 point rating for places and businesses. This feature puts the company squarely in competition with current reviews and ratings market leader Yelp (as well as Google Places).

Foursquare, which was launched in late 2009, brought to prominence the ‘social check-in’ and can arguably be considered the harbinger of the SoLoMo revolution. Like many social start-ups in the pre-Facebook-IPO era, Foursquare focused on member acquisition and rode its mind-share growth to achieve a valuation of more than half a billion. Now, faced with the realities of monetization in a world with publicly-traded Facebook stock, Foursquare’s valuation estimates seem to have stalled, and hence probably the focus on reviews and ratings.

All things considered, Foursquare is a platform, and potentially the play here is to create an app ecosystem on top of the platform to provide SoLoMo services. So how does Foursquare fare in terms value add to the merchant-consumer network? Facebook (including Instagram), Twitter, Google+ (integrated with Google Places and Zagat) and Yelp all have many more consumer users than FourSquare. On the merchant side, offerings such as Square, PayPal Here and CardSpring are tied to the payment process and are likely to create much more stickiness for the respective networks. Given these competitive dynamics, is there really space for both Yelp and Foursquare to thrive as SoLoMo app platforms? Was going from 10M users in June’11 to 25M users in Oct’12 enough of an uptrend to suggest that Foursquare will remain relevant in the face of Yelp’s ability to tap into the public markets? And do either of these companies have the appropriate business model and enough traction to survive as independent entities in the long run? Let the market decide – maybe in a year we will find out whether it gives Foursquare two thumbs up.

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Netflix Part Deux

Ajit Deshpande - - 0 Comments

We discussed back in July that despite Netflix’s announcements of strong growth in subscriber content consumption, the going in the long run would be tough for the company in the face of competition from larger players such as Amazon, Apple and Youtube. Well, Carl Icahn seems to have decided that the time is now ripe to ‘push’ Netflix to think more seriously about its current position in the marketplace and to start evaluating its strategic options. Mr. Icahn disclosed last week that he now owns almost 10% of Netflix, mostly in the form of September 2014 call options. Despite earlier conciliatory comments, Netflix now has shown its true intentions vis a vis Icahn, adopting a poison pill to add to its existing takeover defense provisions (inclusive of staggered board appointments).

So what should we expect from Netflix going forward? If the situation turns hostile, Icahn will probably need another couple years to get his shares and to elect his proxies elected to the board, so that’s probably also the extent of how long Netflix’s end game might last. While an acquisition by Google, Apple or Amazon might make strategic sense, each of these players probably has cheaper ways to acquire Netflix’s 30 million subscribers (Hulu’s 2M paying subscribers and $2B price tag suggest a per subscriber cost of up to $1,000). Rumors notwithstanding, Microsoft might actually gain the most from a potential acquisition of Netflix, getting both a pure consumer focused play as well as a recommendation engine rivaling the best.

A once high-flying company has now become more a symbol of consolidation in the tech sector. As the behemoths continue to add pieces to their competitive war-chests, M&A exits will become even likelier than IPOs, so it will be crucial for early stage entrepreneurs to actively plan for and be cognizant of likely M&A exit scenarios.

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