Sheridan Nye 's Blog


Cortana gives Microsoft a voice in mobile

29 May 2015

Microsoft has announced that it will make its virtual assistant Cortana available as a mobile app for Android and iOS, as well as on its own Windows Phone.  The app is designed to act as a mobile companion to the main application installed on the user’s PC.

Cortana and its associated apps will initially be available for Android as part of a pre-release, desktop version of Windows 10. Microsoft will release the latest and highly-anticipated version of Windows possibly as early as 3Q 2015.

The Cortana announcement is another bid from Microsoft to extend from its PC home territory into the mobile phone domain. Having tried the OS route with Windows Phone and the hardware route with the Lumia brand, Microsoft now sees Cortana as the bridge that will entice consumers to access Microsoft services from their mobile devices.

This move acknowledges that all services now need to be effortlessly multi-screen and accessible and synchronised from the cloud. Cortana for Android and iPhone will lack some deep native features of the dominant smartphone platforms. Nonetheless this is Microsoft recognising that it will not achieve a significant footprint through its earlier acquisition of Nokia’s handsets.

However, beyond the gadget-freaks and early adopters in enterprise, the mass consumer market is yet to be convinced by virtual assistants. Microsoft, Apple and others need to persuade the ordinary consumer that a vocal electronic companion can add value to their day – which might not in fact be complex enough to warrant a dedicated assistant. They also need to head off privacy concerns about yet another application that is designed to collate information 24/7.

If the trade-off between time-saving convenience and creepy intrusion is handled carefully, Cortana could give Microsoft the information it craves about the consumer. The company urgently needs to join the ranks of the gatekeepers of Hyper-Scale Predictive Intelligence. Amazon knows what we buy; Facebook knows who we know; You Tube, Netflix and iPlayer know what we watch; Linkedin knows who we do business with; mobile operators know where we are; Google Maps knows where we are and what we’re looking for. All generate profiles that marketers can use to target the individual or better understand their demographic.

Skype is valuable in this respect and Cortana should prove complementary as it prompts the user to interact with individuals and businesses. It won’t be long before Siri, Cortana and other assistants will use their predictive nous to discreetly, or not so discreetly, suggest products and services we might want to buy.

Nokia takes the helm at Alcatel-Lucent with EUR 15.6 billion buy

15 Apr 2015

After years of on-off discussion and persistent industry speculation, Nokia has confirmed it will acquire Alcatel-Lucent (ALU), its rival in the telecom equipment business, for EUR 15.6 billion (a 28% premium for shareholders).

Subject to regulatory approval, the all-paper deal is expected to close during the first half of 2016. The new Nokia Corp will be headquartered in Finland and Nokia’s Rajeev Suri will continue as CEO at the new company, as will chairman Risto Siilasmaa.

The merger of near-equals will create a company ranked second in the sector with combined 2014 net sales of EUR 25.9 billion and operating profit of EUR 300 million.

Separately, Nokia confirmed it is considering a sale of its HERE in-car navigation business.

A Defensive Play

This long-awaited move is primarily a defensive one. Neither Nokia nor Alcatel-Lucent alone could realistically take significant share from market-leader Ericsson, or fight off aggressive competition from Huawei. This merger inserts Nokia Corp in second place and backs the assertion of Rajeev Suri, speaking at Mobile World Congress in Barcelona last month, that “5G is not a two-horse race and by the way we do not see ourselves at only number three.”

The law of threes applies remarkably consistently in telecom and reducing the number of market leaders in the equipment sector creates a more stable structure from which to invest. Nokia Corp now has a stronger foundation for attacking both its main rivals.

It also needs to meet the challenges of virtualisation in the carrier equipment sector. The migration away from ultra-sophisticated, telecom network hardware to features running in software on commodity platforms has opened the door to new entrants from IT such as HP and IBM. The days of cosy completion on high-end networking features and insurmountable barriers to entry are long gone and traditional equipment vendors must adapt.

Estimated synergies of EUR 900 million from the Nokia-ALU merger in 2019 will help rationalise the cost of R&D. Lower development costs will be essential in the context of emerging approaches to 5G - another technology-led battle with no less than survival at stake for networking vendors.

All or Nothing

The merger almost exactly 10 years ago of French national champion Alcatel with Lucent, AT&T’s former technology arm, largely failed to realise its potential. Nonetheless the company’s customer base in North America now represents its most valuable asset.

The wireless access business is another prize. ALU’s largest segment, wireless grew 3.8% to EUR 4.7 billion in 2013-2014 (at constant exchange rates) mainly on the back of LTE rollouts. Nokia was reportedly also attracted by ALU’s IP router assets with revenues growing 6% to EUR 2.4 billion in 2014.

However, Nokia’s choice to sweep up the whole company, rather than pick off a few growth areas, shows the importance of maintaining a broad networking portfolio. Ultimately the customer base will also need to broaden to include more multi-play and cable companies, large enterprises and what ALU CEO Michel Combs terms ‘web-scale players’, such as Netflix, Facebook and Google.

Challenges Ahead

Mergers of large multinational entities are complex and this one will take over a year to approve as competition regulators around the world – notably in the United States and China – ruminate on the deal.

The French government, however, does not seem to be an obstacle. It already gave its backing to the merger, presumably recognising that ALU was unlikely to thrive in its present form. Nokia emphasised that the new combination would have “a strong presence in France”, nonetheless ALU’s employees are mostly based abroad these days.

ALU had recently returned to profitability but is still chasing positive cash flow following several difficult years of restructuring. Group revenues in 2014 declined 3% to EUR 13.2 billion – IP transport and fixed networks were essentially flat; IP platforms declined 16% 2013-2014 (partly because operators have yet to adopt VoLTE at scale), and managed services plummeted 53%.

During these challenging 3-4 years, ALU has lost some highly experienced staff. Many of these decamped to Huawei, rather than to Nokia which faced its own challenges during the period as it disentangled itself from its lacklustre joint venture with Siemens.

This merger will create a stronger company with resources and growth prospects to attract the best people. But the challenge is to convince employees and shareholders that management will be more effective than at either Alcatel-Lucent or Nokia Siemens Networks, both of which suffered from fragmented governance of merged companies with strong cultures and histories.

Nokia executives are conscious of these doubts and have emphasised that the Finnish company will take charge of the entire entity. The challenge is then, firstly, to ensure that the two separate companies continue to strengthen while the mechanics of the deal are worked out. Secondly, if the deal goes ahead, it must avoid losing any time to rivals as business units are combined and rationalised.

Last word

With combined revenues and market capitalisation to challenge Ericsson, Nokia Corp is a stronger competitor than the sum of its two parts and it estimates it can achieve CAGR of approximately 3.5% for 2014-2019. The timing is also good as both companies have completed the worst of their cost cutting and Nokia has extracted itself from the Siemens venture.

Nonetheless this merger will take time and money to implement and effective management will determine whether it succeeds or fails. The passing of the Alcatel and Lucent names into history will be mourned by some, but ultimately it is more important to enter the next phase of telecom transformation under a single, unified banner.

EE Offers to End Flat Battery Woes

01 Apr 2015

In a bid to keep its mobile subscribers charged up and online at all times, UK operator EE is giving away a portable power-bar that can be swapped for a recharged one at any of its retail stores. All its active customers, fixed and mobile, will be eligible for the service, which promises “never ending power” and an end to flat battery misery.

The bar can be charged in the usual way, or customers can pick up a fully-charged replacement for free as many times as they like. It works with iPhone and other smartphones, and the service is available to contract and pre-pay customers (the latter after 3 months active use) and to non-EE customers for a £20 fee. EE says launch is due “in the coming weeks”.

LTE Drives Power Users

Availability of true mobile broadband, in the form of LTE, has proven to be a self-reinforcing cycle. The positive experience and convenience is encouraging subscribers to do more of their video viewing and social media interaction on the move from their smartphones.

Just two years after launch, EE says video streaming and social media now account for more than 50% of total data use. The operator was first to launch LTE in the UK and intends to have practically all its customers on the 4G network by 2018.

But beyond the initial period of excitement, operators have been unable to charge much of a premium. So instead they will have to derive more value from their role as distributors for content and platform providers like Netflix and Facebook. These customers want their subscribers online 24/7 – yes, in their dreams if possible. So while operators continue to invest billions to reduce the mobile capacity bottleneck, a different part of the chain is now the problem. Batteries.

EE says nearly 60% of customers report that their battery doesn’t last a full day. The consequences are detrimental in two ways. Firstly, content providers lose audience eyeballs when they run out of juice. Secondly, the limited battery life discourages consumers from viewing battery-draining content even when they do have power.

A Lesson from WW1

So the battery can be seen as currently the weakest link in the operators’ business model. Military strategists would call it a ‘reverse salient’. This term was in common use during the First World War to describe a lagging section in the advancing battle line. The lag created a backward facing bulge that held up the advancing troops and required considerable effort to bring in line.

The historian Thomas Hughes applied the concept in his study of electricity systems in the 19th-20th centuries. Socio-technical systems like electricity supply depend on many interdependent components and sub-systems, as well as the cooperation of society to build, use and pay for them. Hughes identified the DC generators of Edison’s day as a profound limitation for the whole system. Progress was retarded until enough people agreed that three-phase AC generators were the more practical solution as they transmitted power over much longer distances.

The reverse salient is more complex than a bottleneck. Whereas the latter can simply be removed, a reverse salient is a system, with interdependencies within itself and with other systems. And the ‘socio’ part of socio-technical means people must also adapt to change. DC generators were not replaced overnight as homes and businesses had to be converted.

And so it seems with mobile phone batteries. Power is not only subject to the laws of physics. People will have to be willing to carry EE’s Power Bar and to pop into retail stores much more often than they have before.

This suggests that these stores will need to become more appealing and less functional than they are today. If the Power Bar succeeds in bringing customers through the doors, they will not want a quad-play sales pitch when they’re already stressed out by a flat battery. 

Could the humble mobile outlet become a place where consumers would want to spend time? For a coffee, a YouTube special viewing, or even a VR experience?
EE hasn’t said much about its plans for the High St. In September 2014, it cancelled its distribution deal with Phones 4U, immediately bankrupting the retailer and then a week later paying the administrator £2.5 million for 58 of its shops (Vodafone bought the other 140).

Retail presence is clearly important for EE and presumably as more than a High-St battery exchange.

Looking at the battery problem from a purely technical standpoint, the solution is ubiquitous and preferably wireless charging – in restaurants, cafes, on public transport. But operators don’t have time to wait for that. EE says it believes it is the first operator in the world to offer a free battery swap service. If it can back this up with innovation in its retail outlets, others are sure to follow.

T-Mobile takes a slice of Apple mania

12 Sep 2014

While Apple commanded the world stage from San Francisco this week, T-Mobile USA was across town to launch its ‘Wi-Fi Un-leashed’ campaign. The scheduling clash with CTIA in Las Vegas (which T-Mobile CEO John Legere dismissed as ‘boring’) was unlikely to have been an oversight. What better way to highlight Apple’s ascent and superior relevance than to summon the technology press to the West Coast? (The clash of the Watch launch with New York Fashion Week was cause of some feather-spitting too, but that's another story).  

T-Mobile cleverly tagged onto the Apple mania by adding the iPhone 6 to its roster of smartphones that support embedded Wi-Fi calling and texts. The operator’s ongoing Wi-Fi strategy, described by Legere as “like adding millions of towers to our network in a single day", gives customers an alternative option when cellular coverage is poor. 

Apple announced in June that iOS 8 would include embedded WiFi calling. Whereas many downloadable apps allow users to make voice calls over WiFi, embedding the feature into the phone’s OS integrates the service into the device. It also gives the network operator a means to control quality. 

T-Mobile says 20 million customers have phones able to make WiFi calls, including iPhones running iOS 8 and Android and Windows Phone models. To encourage the rest to buy compatible devices it is offering a free upgrade to its Jump! plan and bundling a free 802.11ac router to address local Wi-Fi not-spots. 

Hail the uncarrier!

‘Wi-Fi unleashed’ complements T-Mobile’s ‘uncarrier’ positioning with another punchy campaign to entice customers with better coverage and incentives to upgrade their plans. The move is designed to seize first mover advantage in the US mobile market on several fronts.

Firstly the operator is taking advantage of the relatively straightforward option of embedded WiFi calling while the market leaders are focused on VoLTE, which is considerably more complex to implement. WiFi calling is more beneficial to T-Mobile as its coverage, particularly indoors, is less extensive than that of AT&T and Verizon. Sprint also offers the capability, though with less marketing fanfare. 

Secondly, encouraging traffic onto Wi-Fi gives T-Mobile a big increase in the density and reach of its access network, as well as encouraging off-load to fixed-line backhaul that will ease wireless congestion.

The ability to manage the quality of experience, especially minimising dropped calls and managing Wi-Fi to cellular hand-off, is crucial. Third and fourth-place mobile operators often lack technological depth and R&D investment, whereas T-Mobile can draw on the expertise of its parent Deutsche Telekom. Giving away the latest generation ultra-wideband router is also a sensible strategy to increase penetration in homes of the latest generation Wi-Fi standard.

Longer term, T-Mobile is committed to a nationwide VoLTE roll out, which began earlier this year in Seattle. The combination of Wi-Fi with VoLTE, HD voice and data LTE will bring enhanced services such as video calls, group calling and proximity services integrated with social media, marketing and entertainment. However, T-Mobile will have less competitive edge as market leaders AT&T and Verizon can leverage their greater infrastructure reach. 

By linking the campaign to the latest iPhone, T-Mobile manages to promote Wi-Fi calling without drawing attention to its relative weakness in terms of coverage. However, price-sensitive customers may feel underwhelmed. Usage is counted against their voice minutes and messaging allowance, so savings are not what is being ‘unleashed’ here.

Reliability through diversity 

Away from the West Coast buzz, T-Mobile’s Wi-Fi push illustrates the importance of investing in a diversity of network options in order to deliver ubiquitous and reliable coverage. Diversity should be a core strategy for operators as the most cost-effective means to meet ever-increasing expectations of customers.

Combinations of Wi-Fi, small cells, traditional macro-cells and circuit-switched fall-back enable operators to reduce the key metric of dropped calls – arguably of more immediate concern to consumers than rapid call set-up, or even enhanced voice quality.

EE also appreciates the importance of diversity. It has invested in multiple networks to ensure quality of experience through LTE coverage and circuit switched fall back – as much as £275 million in total in 2G, 3G and 4G networks during 2014.  

The UK’s leading mobile operator, which also has Deutsche Telekom as a parent, shares T-Mobile’s nose for first mover advantage. It enjoyed several months’ head-start when launched the UK’s first LTE service and continues to press this advantage. EE will be first in Europe to launch embedded WiFi calling later this year (coincidentally, iPhone 6 is released in the UK this month) and plans to launch VoLTE in 2015. 

The rate at which operators implement VoLTE depends on factors such as the status of LTE roll out and supporting IMS. So how each addresses the voice quality question should inject some much needed differentiation into European markets, at least temporarily.

M-commerce innovation shakes up Kenyan market

14 Aug 2014

A very literal example of an OTT play is threatening to disrupt the Kenyan mobile market. The country’s leading retail bank plans to enhance its MVNO with an ultra-thin SIM offer that physically sits on top of the existing card in the phone. The option of a so-called ‘skin SIM’ is designed for customers who would typically swap SIMs to get the best deals and who are not otherwise able to afford a dual-SIM device.

Equity Bank launched its MVNO on Airtel Kenya’s network last month as a direct attack on the dominance of Safaricom’s M-Pesa in mobile commerce. The bank has provided mobile banking and transfers in partnership with Airtel for some years. The MVNO strategy is overdue as a means to attract subscribers away from Safaricom with a package of voice and data services and low-cost loans and transfer fees. For its part, Airtel needs to attack its rival’s market share – a commanding 75% built up since the launch of M-Pesa back in 2007.

The 0.1mm thin SIM, supplied by Taisys of Taiwan, lets the subscriber retain their existing phone and provider without having to fiddle with multiple cards. Equity Bank believes this simple option will deliver many more customers than if it relied on new sign-ups and SIM-swapping alone.

Safaricom is taking notice. Within hours it appealed to the regulator to outlaw the technology – unproven in the market but ETSI-ratified – on the grounds of compromised security.

Equity Bank’s positioning as market challenger is a neat turnaround from 2007 when Safaricom was the radical new entrant addressing the unmet needs of the unbanked. Back then, the banks were petitioning the regulators to restrict the mobile operator from calling itself a bank.

If the legal dispute achieves only a delay, then the thin-SIM could prove an effective means to reach low-income, mass market consumers with a range of convenient OTT financial services. Both thin and regular cards feature onboard wallet and NFC capabilities for point of sale.

Big data defence

Equity estimates that at least a third of its 9-million mobile banking customers will move to the MVNO and Airtel Kenya’s CEO Adil Youssefi has said he expects to see a 10% revenue lift – the MVNO is leasing up to 60% of the MNO’s network capacity.

The partners have further declared their intension to reproduce the model in other African territories and beyond. But MNOs have tools to counter the thin-SIM attack without resorting to legal defences.

By cross-referencing customers’ calling habits with aggregate traffic patterns, it is possible to predict when a SIM-hopping customer is likely to switch, according to vendors in the emerging field of telecom big data analytics. Timely promotion of a personalised discount could then deter the practice. The operator can maintain its margins by discerning between customers that are clearly unprofitable and those worth incentivising to stay.

The thin-SIM proposition is certainly parasitic rather than ‘SIM-biotic’ for mobile market incumbents. As with other barriers to OTT new entrants, the SIM as exclusive gateway between the consumer device and the network is not as substantial as it once was. 

Oracle adds ‘last mile’ customer service with TOA Technologies buy

05 Aug 2014

Oracle’s plans to acquire TOA Technologies, as revealed last week, shines some light onto an overlooked aspect of digital services delivery that is nonetheless crucial for profitability. Field Service Management (FSM) perhaps lacks the glamour of the latest smartphones and the Internet of Everything. Yet it underpins efficient operations in logistics and maintenance for the communications industry and many other verticals – essentially any business that needs to install or fix things at the customer site. Effective FSM optimizes the margin of each truck roll and can make the critical difference between a successful or unsustainable value proposition.

Cleveland, Ohio-based TOA Technologies (TOA) is a top-10 provider of modular FSM solutions with a track record spanning more than a decade. Its ETAdirect SaaS suite leverages cloud, mobile, social, context-aware technologies and predictive analytics to deliver actionable information in real-time. In practice, this means compiling metrics from everything that happens in the field, including the location, skills and performance of individual technicians. 

The mobile application in device-agnostic HTML5 provides geolocation, barcode and picture capture without the need to download software. As ETAdirect is accessed and managed entirely from web browsers, field technicians and contractors can use their personal devices.

Subject to deal approval, the suite will be integrated into Oracle’s ERP cloud solutions portfolio, specifically Service Cloud. The combination strengthens Oracle’s play in both cloud- and mobile-enabled customer service. With TOA coordinating the last mile, contact centres will be empowered to provide end-to-end support with visibility across inventory, procurement and supply chain operations right through to the customer’s doorstep.

Proven scale
The value of the deal is undisclosed though could be upwards of $150 million, Frost and Sullivan estimates. Privately-held TOA has grown since 2003 to around 550 employees today and raised nearly $100 million in funding, including $66 million series E last year from Technology Crossover Ventures. 

Oracle says cloud architecture and proven scale were key criteria in selecting TOA from among its many rivals in the fragmented FSM market. An illustrative example is energy utility E.ON, which is using ETAdirect to coordinate deployment of 8 million smart meters in the UK. The government-mandated deadline of 2020 challenges all participants to deliver quickly and deploy appropriate technicians trained in electricity, gas and communications. 

TOA says ETAdirect currently has over 100,000 users and scales to handle workforces from 100 to more than 50,000. It claims its routing engine can deploy 10,000 appointments to 1,000 employees in 4 minutes. Telefonica’s mobile operator in Brazil, Vivo, confirmed it took only six months to deploy the solution to support a field force of 670 technicians, most of whom are contractors.

Follow that cab!

Beyond the need for efficiency and scale, FSM is becoming relatively disruptive and introducing new ways of working to field service operations:

  • The ‘Uber-isation’ of field service operations lowers the marginal cost of deployment. Intensive collection of real-time data from the field enables customers to match supply with demand more efficiently. As with the disruptive taxi business model, technicians can bid for work based on their availability and skills. Employers can also increase their reliance on contractors.
  • Customer service over the last mile is increasingly recognised as an upsell opportunity. Armed with appropriate information, the field service technician can suggest service upgrades based on the preferences of the individual customer. The role of the technician is therefore evolving to incorporate basic skills in cross sell and upsell, supported by appropriate triggers from FSM solutions.
  • Field service operations become more autonomous. The combination of advanced, real-time scheduling with collaboration tools allows technicians to self-schedule and could stand in for the central dispatch function in some circumstances.
  • New digital services become more feasible. CSPs have struggled to establish a profitable role as enablers of new digital services such as mobile health and smart grid. Each of these markets has its specific challenges, but the need for efficient home installation for low margin services is a common requirement (TOA Technologies is working with carriers on proof-of-concept showcases under the umbrella of the TeleManagement Forum).  Most importantly, as society comes to rely on these connected services, the ability to meet SLAs and especially respond to outages becomes critical.

 

Vodafone to acquire Ono cable assets in Spain

18 Mar 2014

Vodafone will spend EUR7.2 billion (£6.0 billion) to acquire Spanish cable company Ono, gaining 1.9 million pay-TV and broadband subscribers in 13 of the country’s 17 regions. Vodafone said the acquisition will support its strategy to accelerate growth through converged consumer services. The combination of Vodafone Spain and Ono would also extend distribution and marketing capabilities and provide cross-selling opportunities between the two businesses, the company said in a statement.

As the second mobile operator in recession-hit Spain after Telefonica’s Movistar, Vodafone shares many of its rival’s challenges. The country is Vodafone’s fourth biggest market in Europe by subscriber numbers, which fell 11% year-on-year to 13.7 million at the end of Dec 2013. Mobile service revenue also fell 12% over the same period. Movistar’s figures tell a similar story, though many of Europe’s operators have been impacted by the double whammy of slashed mobile termination rates and handset subsidies.

Spanish operators are seeking a return to growth by investing in bundled and converged services, along with the supporting infrastructure. Vodafone said the reach of the Ono fiber network would complement its EUR 1 billion joint FTTH roll out with Orange, due to reach six million homes and businesses by 2017. Telefonica is also prioritizing FTTH and promoting its Movistar Fusion quad-play service, which recorded 2.9m subs at the end of 2013 and recently added new TV packages.

Vodafone has money to spend following its $130 billion sale of its stake in the Verizon Wireless business last year. Though much of this value was returned to shareholders, the operator retained plenty of funds for further investments. Foreshadowing its Ono bid, earlier this week it announced completion of its Kabel Deutschland buy. The Eur7.7-billion acquisition gives Vodafone a total of 32 million mobile subscribers, 5 million broadband and 7.6 million TV subscribers in Germany. Now that it owns cable assets, Vodafone is also less dependent on unbundled DSL with relatively thin margins from incumbent operator Deutsche Telekom. 

Vodafone’s acquisitions highlight the trend for some operators to force the pace of consolidation and services convergence. Cable TV and quad-pay are a promising means to boost flagging ARPU. Not only is IPTV another revenue stream, but bundling is a way to diversify the offer and head off direct price competition. Creative bundling gives consumers packages of entertainment that are close to personalized offers. Deals for individuals, families and households across multiple screens – home based, portable and mobile – give operators the opportunity to upsell and cross sell and reduce churn.

Telcos have the deep pockets to invest in infrastructure, but must also address several challenges. Firstly, pan-European cable groups are pursuing their own consolidation path through acquisition. Liberty Global took over Virgin Media in June 2013, for example.
Secondly, operators need advanced billing, order management and service provisioning systems that allow consumers to combine complex multi-play packages – including non-telecom options such as magazine subscriptions. This is not easy to achieve across previously separate telecom and CATV entities. Dropped orders, provisioning errors and delays are likely to be determining factors in an intensely competitive consumer market.

Telecom software vendors are rising to this challenge, spotting an opportunity to differentiate by supporting operators’ ambitions. But they can do little to impact the third challenge – how to turn a predominantly mobile phone brand into a dynamic multi-media content brand. Operators will need to buy rights to popular shows and sporting events – drawing on those deep pockets again – as well as develop skills in predicting consumer taste.

VMWare goes mobile with $1.54bn AirWatch buy

24 Jan 2014

VMWare has declared its intention to acquire Enterprise Mobility Management (EMM) company AirWatch for $1.54bn. The move extends the acquirer’s market presence from data centers and desktops into the mobile world.

VMWare is a leading provider of cloud infrastructure and virtualization technologies for computing, storage, network and security. Privately-held AirWatch provides solutions that enable businesses to manage employees’ mobile devices and applications within secure environments. About 75% of its deployments are cloud-hosted.

The deal in cash, instalments and equity is expected to close in 1Q 2014, part funded by $1 billion of debt from VMWare parent EMC. AirWatch will join VMWare’s End-User Computing Group and employees will continue reporting to CEO John Marshall.

AirWatch has grown sharply in the last two-three years and currently has around 10,000 customers worldwide. Founded in 2003, it received its first series A investment of a hefty $200 million in February 2013. VMWare’s bid is believed to be some 50% higher than the implied valuation at that time, which was led by Insight Venture Partners.

Unified desktop & mobile

The profile of the EMM sector has grown with the BYOD phenomenon of employees bringing their consumer devices into the workplace. AirWatch and rivals such as MobileIron and Good Technology compete on their ability to keep up with the frenetic pace of mobile innovation. As soon as new platforms and devices launch in the market they start to appear on corporate networks, creating a security and management headache for IT departments.

The challenge for the EMM vendors is that the likes of Apple, Samsung and Microsoft reveal little about their plans until right before launch. AirWatch therefore depends on its highly skilled employee base of developers, which doubled between 2012 and 2013 to around 1,600.

No corner of the mobile industry is immune from commoditisation and about 30% of AirWatch’s revenue is ploughed back into R&D. Mobile Device Management capabilities such as remote wiping of data have quickly become standard. Today the focus is on management of corporate applications, integration with back-end enterprise systems and innovation to address new demands from the mobile enterprise. In 2012, AirWatch released its enterprise-strength mobile cloud storage. Secure Content Locker is available separately from the EMM portfolio and subscriptions start at $4 per month.

Summary

Though the post-PC world is undoubtedly upon us, the ability to unify the management of desktop and mobile devices will be of great practical benefit for enterprises for some years yet. The high value of this acquisition reflects not only the companies’ complementary fit but also the value lost to other potential buyers by putting a leading EMM vendor out of reach.

VMWare gains:

  • The ability to provide unified mobile and desktop management solutions
  • 10,000 customers with cross-sell potential
  • Scalable EMM solutions and highly skilled workforce
  • An enterprise-strength cloud storage solution in Secure Content Locker
  • A headstart on rivals such as Microsoft, which once again looks to be a laggard in the post-PC environment.

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