Tuesday, January 7, 2014

Thoughts on Flash Networks' acquisition of Mobixell

This is it. The news hit the press officially today and officiously yesterday through Azi Ronen's blog. Flash Networks has acquired Mobixell Networks. The newly formed company will command a leading market share in deployment in the video optimization segment.

This acquisition is the latest in a long series (see Marlin/Openwave, Opera/Skyfire, Citrix/ByteMobile and Allot/Ortiva...) and there are certainly more to come. If you are a frequent reader of this blog, it will not come as a surprise to you to see further concentration in that space.

Historically speaking, the companies in this segment have been under-capitalized to go after the market opportunity. Start-ups and reboots have been the rule rather than the exception and only recently did medium to large size companies such as Citrix, Allot, NSN, Huawei and Cisco entered the market. Inevitably, an increase in competition, together with a quasi full penetration of tier 1 has led to a price attrition.

Mobixell has been one of the proponent of the price war and while the strategy to acquire market share at any cost has served its purpose, since it has put them in the second place in term of installed base, It has been punishing on their bottom line. The company might have experienced some "investor fatigue" that has led to the historical CEO and CTO, both co-founders leaving the company earlier this year.
As disclosed to my clients, the change of direction would coincide with a strategy change, with an emphasis on profitability, but the company was already committed to a growing customer base that would require more capital to serve efficiently.

The new entity will have  a critical mass of customers in this space and a dominant market share in term of deployments, but not in revenue, as Citrix/ByteMobile still dominates most of the high-margin tier 1 mature operator groups.
No doubt this is not the endgame for Flash Networks and that more consolidations are to be expected in the near future.

Flash Networks' success will now require a large product management undertaking, to digest Mobixell , make the necessary choices between a product base almost entirely redundant and cajole both companies' customers with a roadmap that will be worth waiting for while the products align.

As mentioned previously, between policy management, optimization, charging, signalling management and DPI, there are too many vendors and too many functions with large overlap. Video is no doubt an important element of the equation as it now dominates data traffic but it is a relatively misunderstood technology that requires specialized and costly R&D investment. With so many under capitalized start ups, it is easier to acquire the technology than to develop it in-house. Particularly if you consider that it takes 40-55m$ and 7 years to bring a product to market. Many companies have under-estimated the skill set necessary to operate in video and an acquisition is also the best vehicle to acquire experienced engineers and patents. Full in-depth analysis of the market and the vendors' strategy can be found in the mobile video optimization report and workshops.

1 comment:

Pat Flynn said...

Great insight Patrick!