Video optimization 2.0, market reset

On the heels of broadband traffic management's show in London last week, I thought it was time to take stock of that market segment as most vendors have launched their second generation product recently.

The market leader, Bytemobile (with 55% market share of deployments), started the trend this summer, when launching their new dedicated appliance, the T-3000. While this is not strictly a new version of their Unison product, it is a new computing platform sold as an appliance, departing from the software infrastructure business model. It is a first step towards solving some of the scalability issues experienced by the former solution, that saw dpi, policy, charging, web and video optimization inextricably amalgamated, whether you wanted to use all products or not. It gets rid as well of these expensive load balancers that were a high cost low yield proposition. Bytemobile is not the only one to experience price pressure and to take the knife to load balancing as the bandwidth requirements increase.

Mobixell, with 16% market share, seems to be at last in a position to digest their 724 solutions acquisition. While both product lines were quite complementary and had little overlap, it was a tough proposition for Mobixell to acquire 724, rationalize the technologies and workforce and face the ire of their traditional resellers and OEM (NSN, Huawei, Ericsson...). These were weary to see their supplier compete head to head with them in mobile broadband as Mobixell was rolling out 724 seamless gateway proposition along with their streaming and transcoding platform. The result saw Mobixell practice a tough price attrition in the market, helped by a low cost structure (724 solutions technology comes with integrated routing and inter process UDP-based communication that provides great scalability at low cost). Mobixell announced the launch of the new product release, called EVO, taking some of the computational power to the cloud. While some are skeptical about how much can be accomplished in the cloud for real time video optimization, it certainly is a good step towards cost and CAPEX containment worth exploring.

Flash networks with 8% has been quite busy on the market, silently plowing ahead, upgrading existing customers and winning a handful of deals. They have announced the new version of their product and are as well taking a big step in technology investment in that space.

Ortiva wireless with 3% market share has seen some very good progress this year, bagging some good high profile accounts, nearly tripling their year on year revenue, from an admittedly small footprint. The company has not announced a new version of their product yet, staying on their existing appliance model.

Skyfire labs, with 2% market share, a very innovative start up with a cloud based approach, evolved from their tablet and smartphone browsing app has also been able to grab some high profile tier 1 carrier, together with high profile VAR agreement with infrastructure vendors.

Openwave, with 1% market share, as you know, has had a very busy year on the corporate and financial front (here, here, here, and here), but has not announced much from a product, technology or customer standpoint. They are fighting for their survival and seem to be focusing to a return to financial stability (PS revenue increase, licensing of their patents to Microsoft) before investing further in technology or customer acquisition.

NSN has been developing their homegrown technology, wanting to end the reliance on their traditional partners in the space and came out with a very basic first attempt, focused around loss-less transmission. Nowadays, they are trying to push their "liquid" network concept and seem to be going at it in a fairly scattered manner.

These new product announcements signal, beyond the usual technology investment from start ups and established vendors, a market reaching a level of maturity fast, only 2 years after inception. Some might even say that this segment is commoditized before having really taken off. According to my calculations, this is a market that has generated about $90 millions for vendors this year. We can see from the number of players why price attrition plays an important role, even though traffic is increasing fast. We will see some consolidation and attrition in that space soon, as insufficiently capitalized vendors wont be able to sustain the market growth.

RGB networks, Juniper, Cisco, Huawei, Acision are all active in this space too, while others are preparing to enter the market. The market share are {Core Analysis} calculations, part of an upcoming report on the mobile video optimization space. Details and questions can be addressed here or at patrick.lopez@coreanalysis.ca.

Openwave licenses its patents to Microsoft

In a press release dated November 03, Openwave has announced its 1Q12 results and a licensing agreement with Microsoft in a separate release.

Openwave has had quite a momentous summer , between the unraveling of its relationship with Juniper, the re-purchase of its patent portfolio sold to Myriad group, and the replacement of its CEO (here, here and here). Never a dull moment. Having said that, the portfolio of patents that Openwave re-appropriated is a good representation of the pioneering position Openwave had in the industry in the 90's, with many seminal patents in mobile internet and mobile browsing. It was a good move to get them back, from a company valuation standpoint.

OPENWAVE SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS-UNAUDITED
(In thousands, except per share data)
							Three Months Ended
							September 30,						June 30,						September 30,
								2011						2011						2010
Revenues:
	License						$	9,914					$	10,273					$	12,332
	Maintenance and support							10,671						10,677						13,993
	Services							16,790						14,255						11,203
	Patents							15,021						10						4,000
		Total revenues						52,396						35,215						41,528

While the company results for this quarter seem, at first glance, positive, they actually tell an interesting story. License revenues are still decreasing, (quarter to quarter and year to year), maintenance and support flat vs. last quarter and decreasing vs last year indicate an aging slowly decreasing customer base. The steady increase in services revenues, together with the decrease in license would tend to indicate that the company is milking customs development and change request opportunities, while customers are hesitating investing in the new product range.

Operating Expenses:
	Research and development							9,348						9,836						11,430
	Sales and marketing							8,737						11,509						10,821
	General and administrative							7,786						7,167						6,612
	Restructuring and other related costs							5,072						524						708
		Total operating expenses						30,943						29,036						29,571

Cost of revenue is flat-ish, with the notable exception of cost of services, indicating further the custom development aspect. OPEX remains on par vs. last quarter, despite a $5m restructuring charge, mostly financed by lower marketing and sales expenses.

What stands out, is that Openwave manages to turn a $3m profit in this quarter. It is due to the licensing agreement with Microsoft, whereby they are licensing Openwave's entire portfolio of 200+ patents. Patents revenue for this quarter were $15m+.
It is a good operation for Openwave, to license its portfolio to a presumably non -competitor in the infrastructure space. It brings revenue, maybe some more significant strategic tie-ins in the long term. Unfortunately it does little to Openwave's capacity to recapture market share.
For Microsoft, it is an interesting move. I suspect many of the patents will be quite liquid, when it comes to the next round of litigation. Interested to see how Nokia/Microsoft/Openwave can take on Apple and Google for the mobile internet supremacy.