Potential VoIP Investments: Part III

This is a continuation of our look at potential companies for our VoIP shortlist. See the initial page here.

Data Connection

Data Connection looks like an interesting company. The company was founded in 1981, is based in the U.K. and their revenues are over $50 million annually. However, the company is 100% employee owned (lucky employees!) and thus would not be of interest for our purposes here.

Digium

Digium is a young company with a very high profile in the VoIP arena. They are still a private company, and according to their founder, Mark Spencer, their annual sales are now about $10 million. Mark Spencer was the initial developer of Asterisk, the open source PBX. See more about Digium and Digium's competition here.

DLink

D-Link is one of Taiwan's leading players in the VoIP phone market. (The other two are Askey Computer and ZyXel Communications) D-Link was founded in 1986 and is publicly traded on the Taiwan stock exchange. Their annual sales are over one billion dollars.

Draytek

Draytek is a small company founded in Taiwan in 1997. They develop broadband VoIP routers and announced plans earlier this year to expand their R&D team from ten to sixty employees in 2005.

Epygi

Epygi Technologies is a privately held company founded in 2000 and headquartered in Dallas, Texas. Founded by Sam Simonian, Epygi designs and manufactures IP PBX's, Voice over IP gateways and Conference Servers. They have over 200 employees. Previously Simonian co-founded Inet in 1989, grew it into a public company listed on NASDAQ and employing 500 people, then sold it to Tektronix in 2004 for approximately $325 million.

Google Acquisitions: Who's Next?

Rich Tehrani has a good article speculating on which companies Google may be interested in buying next. His educated guesses include Skype, Red Hat, Oracle, Adobe and WebEx.

Let's look at Google's acquisition history to date.

Their first acquisition was at the beginning of 2001. They bought the Usenet archive from Deja and renamed it Google Groups. The Usenet archive was started in 1995. It's basically the Internet's largest forum about all conceivable topics. The archive already had 650 million messages when Google acquired it. This archive is an incredibly rich source of information. If for example, you are doing competitive corporate research this should be the first place you go for the latest tips and gossip from people in the know. If you're wondering about the efficacy of a certain VoIP product relative to competing products for example, check out what people are saying here. Or, if you've got any passionate (and also possibly obscure) hobbies, you are bound to find tons of information from people worldwide who share your interests here.

In 2003 Google scooped up Blogger from Pyra Labs. There are probably at least one million bloggers and five million blogs being hosted by the free Blogger blogspot.com service. Blogger is the leader in blogging market share now. There is a lot of potential to create massive revenue generating opportunities with Blogger. (See my previous note on this.)

In 2003 they also acquired Neotonic Software, Applied Semantics, Kaltix, Sprinks and Genius Labs. In 2004 they bought Ignite Logic, Picasa, Zipdash and Keyhole. They also made a minority investment in Baidu.

This year they've acquired Urchin and Dodgeball.

Check out some good analysis of Google's acquisitions by Andrevan and Rifkin.

We are due for a big Google acquisition soon. Most of the companies Google has bought to date have been tiny companies with very bright ideas. Google has scooped them up for cheap. Might they break this pattern by making a large acquisition outside the fold over the next year?

Renehan doesn't agree with me. He phrases it eloquently in his blog. I like his term "brainiac":

"A major acquisition is not afoot. Google has never purchased market-share, and never content. They've always purchased technologies, knowledge, tools, expertise, and brainiac staffs - usually at bargain prices.

But Google recently announced plans to raise over four billion dollars in new capital. Some of this money is bound to be used for acquisitions.

My guess is that at least some of Google's acquisitions over the next year will be based on wanting to diversity their revenue base. Almost 100% of their revenues are now derived from their exorbitantly successful online advertising offerings. Any acquisition or investment in a technology property that ensures their market lead in the online advertising world will continue to be their first priority.

But it would also make sense to try to cash in on their huge new blogger base. The majority of bloggers are young people under 25 years old. These people could make wonderful loyal life-time customers. It would make sense for Google's Blogger to start offering fee-based services to these people as they are ready to go beyond Blogger basics.

This is why I think they may buy a large hosting company and domain registrar in the near future. Perhaps Go Daddy would make a good candidate. Sure this is an unapplealling, low-margin, mostly customer-support and call-centre-based business. Very unlike Google. But there would be so many profitable synergies there for Google. Go Daddy is the world's largest domain registrar company and the third largest web hosting company. They host over four million websites now. According to Rich Miller, "Go Daddy's primary marketing plan could be characterized as selling as many domains as it can, and then upsell shared hosting or dedicated servers to its domain customers."

The Go Daddy Group is still a private company. It's growth rate has been phenomenal. It's been listed as the fastest growing technology company on the Inc. 500 List of America's Fastest Growing Private Companies. The company was founded by Bob Parsons in 1997. Parson's previous company (personal finance and tax software) was acquired by Intuit in 1994 for $64 million.

Everyone speaks of Go Daddy's successful Super Bowl Ad campaigns. But their remarkable growth has probably had more to do with them being one of the most aggressive banner advertisers on the web. They were one of the first to see how cheap CPC campaigns can be, and their online campaigning has been very effective.

Go Daddy is a private company and does not have to release financial figures, but according to Parson's blog, revenues in 2005 should be about $170 million. Profits are probably still slim and Parson may possibly be ready to sell for the right price.

But Go Daddy and Google seem to have very different corporate cultures based on their leaders values and personalities. Major revamping would be necessary. Maybe it would be easier for Google to buy one of Go Daddy's competitiors instead.

Google is also falling behind on blog-tracking services as compared to MyYahoo and MyMSN. Some of the other companies that look like very ripe acquisition targets in this space include Technorati, IceRocket, Feedster, Feedburner and Findory.

Update: in Mid September 2005, Google launched their new Blog Search service.

Linux hype: Part II

You have reached Part II of " An Overview of the Linux IPO and Acquisition Arena: Who's Next?"

This paper was written in June 2000.

See Part 1 here.

Likely Candidates for Acquisition or IPO: Who is next?

Who is next? In the following paragraphs we select a handful of other emerging but still private companies in the open source arena who are ripe targets for acquisition or an IPO over the next year.


Atipa Linux Solutions was founded in 1994. Originally, they were providing mail, web and remote access servers to the rapidly growing ISP market in 1994. Now they compete with others such as VA Linux, Indy Box and Penguin Computing to provide linux pre-configured workstations and servers to a much wider market. In February of this year, they received a $30 million round of venture capital funding. At that time their employee count was 48 and the plan was to expand to 125 people within six months. At that time, they also announced their acquisition of Enhanced Software Technologies, the company which makes the best-selling backup software for Linux and Unix. In April, they also announced they were acquiring DCG Computer Corp, a provider of value-added Alpha and Intel computing solutions on multiple platforms.

Their current mix of revenues is about 50% for hardware sales, 30% for software sales and 20% from services. Like their niche Linux competitors, they are hoping to bring up the revenues from professional services (specifically helping their customers migrate to Linux) up to 50% as they anticipate hardware margins will only become smaller in the near future as the larger hardware companies step in to compete directly in this market.


Covalent Technologies was founded in 1994 by Randy Terbush. Terbush was one of the original eight people who worked to put together the Apache web server. Apache is an open source software development, just like Linux, but the amazing success of Apache has received very little press yet, unlike Linux. With little fanfare or hoopla, Apache has quietly become the uncontested leader (over competitors such as Microsoft and Netscape) in the web server software market. Whereas Linux has only penetrated approximately 4% of the desktop operating systems market, Apache is already the web server software of choice for approximately two-thirds of the entire worldwide web server market.

Covalent began as an ISP and Apache consulting firm. In 1998, they began selling proprietary security software patches for Apache, and this remains their main product offering to date; the Raven SSL Apache extension. In late 1999 they became the first company to offer support services totally focused on Apache. At that time, they also caught the attention of H&Q Venture Associates, who had read an article about them in Forbes, and invested an initial round of $5 million venture capital financing into the twelve person company. These funds are now being used to hire a planned sixty open-source programmers and to develop new Apache enhancements, including credit card authentication and virus scanning software.


CyberNet Systems was founded in 1988 to fulfill research and development contracts, mostly for the U.S. government. They did not commercialize their first product until 1996, and this was a force feedback product that is now used in joysticks. The company's history is in developing products in virtual reality and imaging. They became involved in the Linux arena recently, as a developer of Linux server software, competing with companies such as Cobalt and eSoft. They recently launched their NetMAX line of Linux Internet thin server appliance software products which serve to simplify Linux server configuration and management. Whereas hardware companies such as Cobalt bundle similar software products into their server offering, Cybernet's NetMAX line frees the user to select their own hardware.

In January of 2000 CyberNet announced they would be filing for an initial public offering in the following month, with the IPO scheduled for spring. These plans seem to have been put on hold. CyberNet claims to be a profitable company, but they will likely seek a capital infusion in the next few months in order to compete effectively in this arena.


Loki Entertainment Software was founded by Scott Draeker in August 1998. Before founding the company Draeker was a technology licensing attorney and worked as a technical specialist at Apple and LSI Logic. Loki appears to be the only company which has taken on the potentially profitable venture of porting best-selling computer games to Linux. In 1999 they published eight titles and released several open-source development tools. Their goal is to release sixteen games in 2000, and at least forty in 2001.

Loki's best selling Linux ported game to date has been Civilization: Call to Power, though the numbers are not available and the company will not reveal any details as to their current revenues. However, it does look like the market growth potential is highly positive for them and they can count on a rapidly growing base of linux enthusiasts. Loki has established themselves as a clear majority leader in porting games over to this platform and it is expected they will maintain a growing business as developers if Linux ever supplants Windows as the primary OS for new releases.

Loki has not announced any venture capital financing to date. They are however, increasingly active in partnerships with the larger players. SuSE recently began selling Loki games from their online store. Loki also recently signed with a major distributor in the U.K. and their recent exclusive agreement with id Software to publish the Linux port of Quake III Arena has helped to raise their profile significantly.


Lutris Technologies was founded in 1995 as a consulting company. At the beginning of 2000 they raised fifteen million dollars in two rounds of venture capital financing based on their recent conversion towards becoming a key contender in the application server market.

Lutris is the developer and primary sponsor of the Open Source Enhydra application server. Where Linux is now the top Internet operating system, and Apache is the number one Web Server, Enhydra is seen as the contender for the top application server in the open source community. The company first made the decision to give access to the source code for their server in early 1999 after developing it internally for two years.

MontaVista Software was founded just over a year ago. They are the developers of a Linux operating system for the embedded software market. Embedded devices are expected to be a hot new market in the near future, but it is not clear whether Linux will win out here as the predominant operating system. In this niche, MontaVista competes with other companies such as Lineo, EMJ Embedded Systems, Blue Cat and emWare.
MontaVista received their first round of financing in March 2000, and with the $9 million in proceeds they have begun hiring high profile executives and expanding into foreign offices.


O'Reilly & Associates is a private company which has been around for many years but whose periodic innovative transformations cannot be overlooked in the recent rush of Linux acquisitions and IPO's. Most people in the industry recognize O'Reilly as a leading technical publisher of computer books. The company was founded by Tim O'Reilly back in 1978 as a technical writing consulting company. By the early 1990's publishing had become the core of their business. O'Reilly now employs over 200 people, has international offices and is currently publishing over 120 titles. O'Reilly discovered the web way back in 1993, even before the release of Mosaic. They created the Global Network Navigator, or GNN. Soon afterwards they teamed up with another small company; Spry, to sell "Internet in a Box". By 1995 Spry was sold to Compuserve and O'Reilly sold GNN to America Online.

Book publishing is not a high margin business, but O'Reilly is not likely content to stay a niche book publisher in the burgeoning open-source movement. This was made apparent early this year when they announced the launch of a new online portal known as O'Reilly Network. This portal is now competing primarily with Internet.com and Linux.com (owned by VA Linux) to be the primary online destination for the open source development community. Under the leadership of Dale Dougherty who has been a key visionary at O'Reilly for over a decade, this property is growing rapidly and has added nine affiliates since launching earlier this year. The goal is make it a regular meeting and learning place for technical professionals and to grow online revenues via advertising, product and book sales. No information has been released as to how many unique visitors the network is now receiving, but if this division succeeds, O'Reilly may become a target for acquisition.


Penguin Computing is often touted as the main direct competitor to VA Linux in the linux hardware arena. The founder, Sam Ockman, 26, was one of the initial staff at VA Linux, serving as the Director of Software there before forming his own company. Ockman founded the company with approximately $50,000 and received angel investment in April of 1999.

Penguin Computing seems to be gearing up for an IPO in the near future. They have hired a cadre of senior people in the past six months and now employ a total of eighty people. There is yet no mention of a venture capital investment, but it likely to be offered soon. Sales figures have not been released but the company reported a 400% revenue increase in the fourth quarter of 1998, over third quarter revenues for 1998.


SuSE is one of the major Linux distributions competing with Red Hat, Corel, Caldera, Stormix, Mandrake and TurboLinux amongst others. CEO Roland Dyroff co-founded the company with three other students at Nürnberg University back in 1992. This was only months after the Linux operating system was conceived by then 21-year old Linus Torvalds, who placed it on the Internet for downloading in 1991. SuSE had revenue of DEM 44 million in fiscal year 1999.

SuSE is the leading distribution in Europe but has not yet hit the big radar screen of the U.S. linux market. They only recently launched their U.S. subsidiary in Oakland, California in 1997, but have established an impressive U.S. following since then, enough to win the "Favorite Linux Distribution" award at the Linux World Expo in New York in February 2000.

SuSE received their first venture capital investment in November of 1999. Apax Partners and Intel invested EUR 12 million at that time. By January of 2000, there were rumors that SuSE was in the process of seeking an investment bank to advise it regarding a listing on NASDAQ and Germany's Neuer Mrkt. Given the slump in Linux stock prices since March, these plans have likely been placed on hold in anticipation of stronger markets in the near future.


VMware was founded in 1997 by a Stanford computer-science professor, Mendel Rosenblum, and two graduate students. Diane Greene (Rosenblum's wife) joined them in 1998 and provided funding for the venture from the proceeds of her earlier start-up, Vxtreme; which delivers streaming video over the net and which, after 18 months, she sold in 1997 for a reported $75 million to Microsoft.

VMware released their first public beta product in March of 1999. This software enables the use of multiple operating systems and their associated applications to run concurrently on a single computer. It is different from emulation software in that it established multiple virtual machines on a single computer. Rumored 1999 revenues are about $5 million.

In March of 2000 VMware announced an OEM agreement with Microsoft. By the end of May 2000, they had 385,000 registered users and their product was licensed to 5,000 corporations. At this time they received their first outside equity round, a $20 million investment from Dell, Azure Capital, Goldman Sachs and Chase H&Q. These funds will be used to develop VMware virtual machine technology as a platform for Internet commerce and infrastructure.

VMware does face open source competition to their product; but as of now, their product is decidedly superior to this freeware version. Their recent partnerships with SuSE, TurboLinux and Hewlett Packard increases speculation that they could be near future targets for acquisition.


Appendix A:

Web site addresses for companies mentioned in this report;

Andover.net www.andover.net
Applix www.applix.com
Atipa Linux Solutions www.atipa.com
Caldera Systems www.caldera.com
Chili!Soft www.chilisoft.com
CNET www.cnet.com
Cobalt Networks www.cobalt.com
ConvergeNet Technologies www.convergenet.com
Corel www.corel.com
Covalent Technologies www.covalent.com
CyberNet Systems www.cybernet.com
Dell www.dell.com
EBIZ Enterprises www.thelinuxstore.com
IndyBox www.indybox.com
Internet.com www.internet.com
Lineo www.lineo.com
Linux Mall www.linuxmall.com
Linux Weekly News www.lwn.com
Linuxcare www.linuxcare.com
LinuxCentral.com www.linuxcentral.com
LinuxToday.com www.linuxtoday.com
Loki Entertainment Software www.lokigames.com
Lutris Technologies www.lutris.com
Lynx Real-Time Systems www.lynuxworks.com
MandrakeSoft www.linux-mandrake.com
Metrowerks www.metrowerks.com
MontaVista Software www.mvista.com
Network Engines www.networkengines.com
O'Reilly & Associates www.ora.com
Penguin Computing www.penguincomputing.com
Progressive Systems www.progressive-systems.com
Rackspace www.rackspace.com
Red Hat www.redhat.com
SharkyExtreme.com www.sharkyextreme.com
Slashdot.org www.slashdot.org
Stormix Technologies www.stormix.com
Sun www.sun.com
SuSE www.suse.com
TrueSolutions www.trusolutions.com
Tucows.com www.tucows.com
TurboLinux www.turbolinux.com
VA Linux www.valinux.com
VMware www.vmware.com
ZDNET www.zdnet.com

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The image above is "Penguin Diving" by Artist Unknown

Potential VOIP Investments: Part II

Here we continue our culling exercise of potential VOIP investments. See Part 1 for further info.

ArtDio Intelligent Communications

ArtDio is a private company based out of Taiwan. They began developing VoIP products in 2002 and were active in audio/video accessories and home theatre products before this under the name of KINYO. They develop IP phones and VOIP gateways. It looks like they're a small company from first impressions. We'll add this company to the list for a further look.

AudioCodes

AudioCodes was founded in 1993 and is based in Israel. They have about 450 employees and are a public company listed on NASDAQ. See their stock chart at AUDC. Their products include voice over packet processors, media gateway modules, VoIP and VoATM communication boards, voice services and contact center solutions, analog media gateways, digital media gateways, IPmedia boards and media gateways, IPmedia media servers, and SmartWORKS voice and data hardware integration boards. This one goes on the shortlist for further analysis.

Avaya

Avaya is headquartered in New Jersey and was previously part of Lucent. They changed their name in 2000. They are a large and successful company employing about 15,000 people. Their market cap as I write this is 4.6 billion, and their Price/Sales ratio is less than 1. See their one year stock chart at AV. According to Infonetics Research, Avaya is the leader in North American IP PBX revenue market share, followed by Cisco, Nortel and Mitel. This company will also get on our shortlist. (Are we going to have too many companies on our short list?)

Azatel

Azatel looks to be a small private company located in Vancouver, Canada. They develop media terminal adapters, soft switches, session controllers, H.323 to SIP internetworking, OSP and IPTV/Video on Demand solutions. Azatel also goes on the short list. (Yes, it's looking like its going to be a long short list.)

Brooktrout Technology

Brooktrout Technology is a subsidiary of Brooktrout Inc. which is listed on NASDAQ. See their one year chart at BRKT. As I write this the stock has a market cap of $120 million. Their annual revenues last year were $80 million. They made a strategic VoIP acquisition last year with the $10 million dollar purchase of SnowShore. We'll add them to the short list for further study.

Update: Brooktrout no longer exists as an independent entity. They were acquired in late August by Excel Switching Corp.

Continued in Part III

Sangoma Technologies

It looks like Sangoma Technologies stock is starting its upward climb today. The stock has been in the doldrums for five years. I'm personally hoping this will be the beginning of a spectacular price rise over the next year.

I've been buying their stock over the past two years so I have a lot of personal interest vested in this. (Please see my disclaimer.)

Sangoma is a small VoIP related company that competes with Digium in that amongst other products, they sell Asterisk-compatible PCI cards. Unlike Digium, they've been around since the mid 1980's and they've been a public company (STC.V) listed on the TSX Venture Exchange since 2000.

Their revenues are only about $4 million annually. They have no debt and they have been declaring an annual dividend for the past three years. They have about 26 million shares outstanding and until today, the shares were typically selling for under 30 cents each.

Today there was a cross of one million shares. Someone big may be interested. I believe Sangoma's quarterly numbers are due in the next couple of weeks. I would think demand for their products is rising quite quickly. It could get interesting this month. I'll write more about them in the near future.