JAA'S Analyst Blog - Current Posts

Since the relaunch, JAA's traffic has been really growing, as is our following, and your support is greatly appreciated! For those who have signed up for the blog via RSS, we hope you continue following, and sharing with others is also appreciated.

You should also know that the majority of JAA's thought leadership is published on sites other than this blog, and the best way to follow my broader coverage is to subscribe to my monthly newsletter.

A short note for navigating this section - scroll below for the most recent posts, and then for more, click on the Blog Archive box, where you can view all of my posts, going back to the beginning in March 2005.

Being shut down with a head cold for a few days will put a damper on things, but I'm definitely on the mend. Haven't been able to follow things much lately, but good news seems to come in cycles, and I'm seeing one now. Last week I talked about the new CEO at Metaswitch and how that's lining up nicely with a bigger growth story they seem to be managing very well.

There was a second good news item last week from XConnect, another company I've followed closely for a long time. Being an Advisor, I've deliberately held off blogging about this, and don't want to give the impression I'm sharing anything sensitive or a scoop ahead of the pack. Am just treating this as a straight up news item, and I think it speaks for itself. As announced, their 2009 revenues doubled, and traffic is up 81%. The metric I look
at with even more interest is customer acquisition, and they added a healthy 63 new service provider customers last year. The peering market is still advancing slower than anticipated, and the revenues are still fairly small, so doubling sales is not as impresssive as it would be in a more mature market.

That aside, XConnect is on track for a strong year. The press release notes the addition of a London POP, and money in the bank to support expansion via last year's $10 million Series B raise. Like many companies focused on the long term migration from TDM to IP, XConnect is riding on some big trends that will play in their favor over time, with the most recent being the explosion of mobile broadband (and with it, more and more wireless substitution), and the adoption of HD services. It's early days for HD voice, but just like with HD TV, once you try it, there's no turning back.

XConnect is far from a household name, but they're a leading player in their space, and I know their time will come. The company got some nice recognition along these lines month, being named a Red Herring Global 100 Winner. This may have been the first a lot of people heard about them, but those of us following them more closely, it's hard not to argue that their prospects are looking good.

Tomorrow I'll continue the good news theme with Part 2, and a bunch of news from another company that's driving IP to the masses.

MetaSwitch and XConnect are very different companies, and normally have no reason to be featured in the same place. However, I've followed both for a long time, and both have recently had some good news to report. Occasionally I'll do a post like this, where this is the only common thread. In this case, I wouldn't say it's a big trend, but the economy is still weak, and signs of life are noteworthy. The big deals - like Cisco/Tandberg or Avaya/Nortel - get all the headlines, and smaller companies like MetaSwtich and XC fly low on most people's radar - but that's my bread and butter - and I'm here to tell you these companies are doing alright.

Let's start with MetaSwitch. There's a lot going on here, and it's all good - and these things always seem to happen when I'm away and too busy to blog about! Well, better late than never. Aside from being one of the most stable, straight-up companies out there, I can't think of any other private company in our space that reports its financial results. Talk about transparency. Of course, it helps when you're growing and making money. As reported in their update, revenues have now broken the $100 million mark ($113.7), and operating margins remain north of 20%.

The closest thing to this would be Mitel, who just reported results, including a hefty loss. Although private, Mitel's base of shareholders exceeds the threshold required by U.S. securities regulations for reporting purposes. To be fair, the loss is mostly a one-time event reflecting the Inter-Tel acquisition, and revenues were slightly up. Hopefully, they'll be in the black soon.

The main difference between these two private companies is that Mitel has to report these results (which I'm sure they would have preferred not to do), whereas MetaSwitch does so by choice. Both are reasonably large companies, and I see MetaSwitch as a yardstick for smaller vendors to follow to show that you can be profitbale as you get larger, and that's worth waiting for, especially to make your investors happy. I can't really say whether smaller companies prefer to remain private or to go public once they get big, but my gut says private ownership is the way to go.

Aside from the good financials, the company has done some rebranding, incorporating the Data Connection name under the MetaSwitch Networks brand. This is part of a bigger process announced at last year's Forum, whereby the carrier systems and network equipment operations have now been consolidated into a single entity.

In terms of broadening their reach, I'd like to add they've done some interesting things this year, showing a willingness to try new things. Most recently, they were the lead sponsor of the Latin America Summit at the re-launched VON event in Miami; and earlier this year they were a sponsor of eComm in San Jose. They've also re-tooled their website, which includes blogs from some top executives, which is always good to see. And if you're going to Supercomm - John Lazar will be speaking, they'll have a new booth to showcase the new branding, and you can find me hanging out with them at their House of Blues party Wednesday night!

Onward to XConnect - another company with strong U.K. roots, by the way. Their most recent good news came in the form of a $10 million funding raise, which will enable them to fulfill their 2.0 roadmap, branded "Interconnect 2.0". Basically, it's a two-pronged plan, whereby 1.) they seek to build a global ENUM-based peering federation - the Global Alliance", and 2.) their service reach will go beyond voice to encompass multimedia communcations.

The latter is really the ultimate goal for peering, where all forms of IP traffic - voice/data/video - can connect directly between any two networks, and essentially dispense with the need to traverse legacy networks. It's an ambitious agenda, and XC is not alone in recognizing that peering has been slow to catch fire in the core market of wireline VoIP services.

The economic rationale has simply not been strong enough yet for mass adoption, but XC is trying hard to change that. As such, peering needs to move up the value chain, particularly to handle video, and as the mobile world moves to 4G, LTE, etc., to address wireless traffic. These are the real growth areas for communications, and as these types of traffic begin to seek end-to-end IP routes, the value proposition for peering becomes stronger.

XConnect has been moving towards wireless for some time, and last month announced a partnership with GSMA that positions them well in this market. It's basically an interop arrangement between XC's ENUM registry and GSMA's PathFinder ENUM registry, a centralized database for mobile operators to translate phone numbers into IP addresses. PathFinder is managed by NeuStar and extends to fixed networks too, but the main idea here is to broaden XC's reach to mobile operators.

To conclude, both companies are showing signs of growth in the IP comms market; with MetaSwitch posting profits and strong revenues, and XConnect raising new money. Both can be done by having the right vision and ability to execute to plan. These are easier said than done, and you don't have to look far to find good startups struggling to raise money or good companies getting acquired for all kinds of reasons. While Cisco, Google, Avaya et al will continue to get bigger at the top end, there are still good stories to be told at the mid or lower levels of the market, and I'll continue talking about them as they pass my way.