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NMS and Dialogic followed two utterly different paths in their attempts to succeed in the mobile value added services (VAS) sector. Needless to say, the consequences were interesting. We take a closer look.
most of you have used ring back tones or any other form of mobile VAS (value added service) at some point. There are a number of companies that operate deep in the belly of the telecom infrastructure world, competing intensively to provide you not just the applications, but the underlying infrastructure that enables them to exist.
The segment called VAS Enabling Infrastructure is typically the domain of companies such as NMS Communications, Dialogic and several others. The range of solutions includes hardware cards, software solutions, developer frameworks, programmable switches, software APIs (application programming interfaces), and signalling frameworks. This reflects the phenomenal growth that has taken place in this sector over the past decade.
The VAS enabler market in India
Generally speaking, the pure play CTI (computer telephony integration) cards market is well past its prime and has matured in large Western markets. Companies such as Dialogic and NMS Communications grew significantly during the 90s, as they found their niches as switch adjuncts in the circuit switched world and as IVR (interactive voice response) solutions/IN service environments for both wireless and wired networks. They also dominated the enterprise communications space significantly over the decade in the form of IP-PBX (private branch exchange) enablers, enterprise IVR solutions, ACDs (automatic call distributor) and international IP call back solutions. As large western markets matured, these companies found the nascent Indian market a fantastic opportunity to sell their wares. India provided the most fertile high growth opportunity in the beginning of this decade as the cellular market had begun its hockey stick growth, enterprise communications was all set to kick-off, and the VAS market was just about to bloom.
Consolidation in the mature VAS enabling industry
While the hardware cards business has been growing globally, it is important to note that the sector has seen intense consolidation over the last four years or so. Falling margins, volume driven sales, mature markets, the negotiating leverage of the carriers, and the general health of the application developer sector has resulted in buy-outs/acquisitions in a bid to strengthen market positions.
Some of the leaders in this space have constantly strived to differentiate themselves by attempting to deliver higher value propositions. Companies such as NMS Communications either continuously enhanced product offerings or acquired fine complementary technologies, or both, in an attempt to deliver more.
NMS and Dialogic: a decade of divergent paths
NMS and Dialogic took two different routes along this path. Dialogic was acquired and became a part of a large global corporate-Intel-and broke free again as a part of Eicon in 2006. Under Eicon, it renamed itself Dialogic and attained some semblance of independence. In one big sweep, it acquired Cantata Technology, Brooktrout and Excel Switching to consolidate its position in the base CTI platform, media server, and signalling solutions space.
NMS, meanwhile, continuously attempted to differentiate its solution offerings from the pure play CTI cards suite, attempting to build more media streaming/message handling capabilities by acquiring small technology firms and integrating that technology into its offerings. It had several firsts to its credit, as it built an impressive enabling engine and kept the focus on software-driven innovations to move higher up the value chain in the business. Looking at the nature of transactions from March 2006 onwards, it is apparent that NMS was looking to move away from the hardware business and trying to find a place in the new world of software-enabled VAS. Its acquisition of Openera Technologies, a Bangalore-based IMS (IP multimedia subsystem) client developer for devices, was a harbinger of things to come. Towards the end of the same year, NMS sold off its Access Gate solution to Verso for a relatively small amount of $3.35 million.
In March 2008, Livewire, NMS' mobile personalisation services business acquired Groove Mobile-a leading developer of managed mobile music solutions. This squarely placed NMS Communications as a company with two clear businesses: traditional CTI cards, as well as fast-growing, mobile music and video solutions, targeting a high degree of personalisation of mobile music among mobile operators. The combination of Livewire with Groove was like a young start-up with all the gear and chutzpah to take on the global mobile music market by storm.
Understandably, the company had driven a clear wedge separating the old world CTI cards business from the mobile music personalisation world. This laid the foundation for the final clean up of NMS: selling off the traditional Communications Platform division, thereby eliminating the final trace of its cards and platform division. Dialogic offered to buy the CP division of NMS for $28 million in cash. In all of 2007, NMS had clocked $82.5 million in revenue with a loss of $9.3 million.
Dialogic and NMS adopted two completely different paths for progress, with NMS entirely exiting the legacy CTI player mode and leaving behind a next generation mobile music enabler, Livewire. Dialogic, on the other hand, further consolidated its position in traditional VAS enabling technology. The NMS communications platform business is a well-known brand and has considerable standing globally. Still, the market has severely punished NMS for its strategy by progressively eroding its share price to the extent of attracting a delisting notice from NASDAQ for quoting a sub-$ share price for over 30 days in a row in the week of September 12, 2008. Ironically, it was in this very week that Dialogic made its acquisition announcement.
There appears to be still some level of disbelief in some parts of the industry about these developments-some observers have pointed out that the Dialogic acquisition may not get shareholder approval. In any case, the Dialogic strategy of building up clear leadership by acquiring competing brands seems to have given it a much-needed headway. Since Dialogic is privately held, it is not known how profitable its operations are and how well the acquisitions have integrated so far. From a market perspective, it is believed that the customers will win with a broader range of solutions and complete support coming under one roof.
As far as Livewire is concerned, the proposition is to provide music and video personalisation services to global mobile operators in a ‘managed services' mode. So, in effect, the Livewire product platform will move into becoming an application services business-a real transformation of what was originally a hardware company. A slew of content partnerships are already in place on the music (Sony BMG, EMI, Warner Music, Universal), on the handset side (LG, Samsung, Nokia), and also with mobile operators such as Vodafone, Sprint and Virgin Mobile.
Post-acquisition of the platforms business, Livewire will be the new name of the company, which will focus exclusively on delivering managed music and video services. The reorganised company is expected to generate about $20 million in revenue by 2009, and become profitable and generate a positive cash flow by 2010. For now, it looks like Livewire has charted a new path for itself, leaving behind the familiar old world of CTI/platforms and signalling servers. Only time will tell whether it succeeds.