Category: application software

Undressing demand for wearable technologies

Ben Kolada

Contact: Ben Kolada

Still in the fad phase, wearable technology is gaining market interest, driven by new devices being introduced both by tech companies and old-school consumer goods firms. The advent of these new Internet-connected form factors, such as ‘smartwatches,’ fitness and health devices, will spur the creation of new application markets in the technology industry.

Demand for wearable technology is specifically being seen in interest for an Apple iWatch, a smartwatch that many expect will be released later this year. According to a recent report by ChangeWave Research, a service of 451 Research, prerelease demand for the iWatch already matches what the iPad and Intel Mac saw before their respective debuts.

The likely launch of the iWatch and overall emergence of new wearable technology devices, such as Google’s Glass, Nike’s FuelBand, Jawbone’s UP and various devices from Fitbit, will create new markets in application software. For example, there’s already an investment syndicate, called Glass Collective, made up of VC firms Google Ventures, Andreessen Horowitz and Kleiner Perkins Caufield & Byers, that are ready to fund companies building new ways to use Google’s Glass device.

Our senior mobile analyst, Chris Hazelton, believes these devices will create extremely tight bonds between users, the cloud and very likely new technology players. For example, unlike smartphone and tablet apps that are used infrequently or once and discarded, Google Glass apps will be persistent, following and advising a user throughout their day.

If you already own a wearable tech device, or are planning to buy one, let us know what you think of this sector and which applications you think will become most valuable. You can tweet us@451TechMnA or contact us anonymously.

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From partner to parent

Contact: Tejas Venkatesh

Intel has quickly moved from Mashery’s partner to its parent, buying Mashery just six months after entering into a reseller relationship with the API management startup. The deal could help further propel growth of Intel’s datacenter group, one of the company’s growth centers.

Contrasting total revenue in the first quarter, which declined 4%, Intel’s datacenter group saw its revenue grow 7% compared with the year-ago period. Its datacenter business makes semiconductors and software to be used for servers and storage inside datacenters.

APIs expose information and data to customers and partners where and when it is needed via applications, websites and any number of on-premises or mobile devices. The proliferation of SaaS offerings and the need to link them with on-premises software has caused an explosion in the number and type of APIs. Thus, managing them while ensuring security and scalability is becoming extremely important. The API management market is relatively new, and Mashery was one of the first out of the blocks. With Mashery’s assets, Intel now has API management technology, which is required for both cloud and mobile device integration.

Intel already sells a combined product, Intel Expressway API Manager (EAM), which combines Mashery’s API management technology with its own security capabilities for API execution. Intel’s EAM can securely expose and scale APIs by enabling the controls needed for compliance and data protection.

This isn’t Intel’s first acquisition in this sector, but is likely its largest. Though financial details were not disclosed, we understand that Mashery generated about $10m in revenue last year, and was set to double this year. We haven’t yet pinned down the price paid, but rumors so far peg the deal value at north of $100m. Intel had previously picked up API security capabilities with the small acquisitions of Sarvega in August 2005 and Conformative Systems in February 2006, yielding software designed to take better advantage of its multicore processor architecture.

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A big market for small IPOs

Brenon Daly

Contact: Brenon Daly

The IPO market is getting bigger by going smaller. Investors have shown they are ready to step in and buy shares of unprofitable companies that are still only generating revenue in the tens of millions of dollars. That has drawn a number of companies onto the IPO path that might have been termed ‘sub-scale’ in the recent past.

Consider the offerings – both planned and actual – from Rally Software Development, Marketo and ChannelAdvisor. All three companies finished 2012 with less than $60m in sales. Further, all three companies continue to run in the red – deeply in the red. (For instance, Marketo lost $34m in 2012 on sales of $58m. Rally doesn’t even turn an operating profit and ChannelAdvisor still runs at a negative ‘adjusted’ EBITDA.)

Not that the diminutive size or red ink hurt Rally on its Friday debut. The agile software development shop not only bumped up the size and price of its offering, but then shares, well, ‘rallied’ in the aftermarket. The stock changed hands at about $18 in mid-session trading, after pricing at $14 each.

When Rally set its range last week, we noted that the small-cap company wouldn’t necessarily be trading at the discount that typically gets assigned to that class of stocks. On a back-of-the-envelope (not fully diluted) basis, Rally has secured a valuation of roughly 6x trailing sales and 4x forward sales. With a healthy multiple like that, it’s small wonder that other small companies are lining up to hit Wall Street.

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IntraLinks finally gets to use its deal room

Brenon Daly

Contact: Brenon Daly

Although IntraLinks is well-known for its ‘virtual deal rooms,’ the company itself hasn’t spent much time in them. That changed on Thursday. After being out of the market for more than a decade, IntraLinks announced a double-barreled deal, picking up two online deal-sourcing platforms, MergerID and PE-Nexus. (And yes, the company did use its own deal room to run the process.)

The addition of the two sourcing platforms makes sense as a way to increase the number of transactions that get executed in IntraLinks’ core deal room. In fact, the company had added sourcing and networking features around the end of 2011, but had only attracted a few hundred users. MergerID and PE-Nexus dramatically increase the number of potential participants, with the two firms having attracted, collectively, some 5,000 firms representing about 7,200 total users.

Further, the two platforms serve very different markets. MergerID – divested by the FT Group’s Mergermarket division – focuses on midmarket deals, primarily in Europe and Asia. Meanwhile, PE-Nexus (as its name implies) largely targets US private equity shops from its Florida headquarters. IntraLinks has indicated that it will pick up 11 employees from the two firms, and we understand that very little revenue will be added from the two subscription-based services.

More broadly, IntraLinks’ move fits with the strategy and recent performance of its business. The M&A unit, which represented 42% of total revenue in 2012, was the only one of the company’s three divisions to post growth last year. The 9% increase in its M&A-related revenue in 2012 helped bump up the overall top line at IntraLinks during what was – by design – a year of stabilization and investment.

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Tableau’s IPO ‘book’ is tech’s next bestseller

Brenon Daly

Contact: Brenon Daly

The prospectus a company files with the SEC in order to go public is nothing more than a book. And like other books, some of them languish on the shelves, collecting dust. Most attract only a little interest, with a handful of curious readers cracking open the covers. But every once in a while, a book so compelling comes along that it literally flies off the shelves. Readers can’t wait to get their hands on it.

Tableau Software, which revealed its IPO paperwork on Tuesday afternoon, is the tech industry’s next bestseller.

The data-visualization vendor had been expected to put in its prospectus about now. If anything, however, the anticipation has increased for Tableau’s offering because of the financials in its filing. The company doubled revenue in 2012 to $127.7m. Last year’s growth rate is notably higher than the mid-80% range Tableau put up in the two previous years, even though it is operating on a much larger revenue base. Its sales in 2012 were nearly 10 times higher than in 2008.

And unlike other hyper-growth tech vendors, Tableau turns a profit. Even on a GAAP basis, the company has been in the black since 2010. It has an accumulated deficit of just $1.5m. That’s pocket change compared with most other IPO wannabes, some of which have burned through tens of millions of dollars – or even more than $100m – to make it to the public market.

When Tableau does hit the market in about a month, we figure it will command a valuation of roughly $2bn. That would put it, rightfully so, on the same shelf as the bestselling IPOs from 2012: Workday, Splunk, Palo Alto Networks and ServiceNow. On average, those companies trade at about 20x trailing sales.

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Microsoft gives Dynamics a social boost with Netbreeze acquisition

Contact: Brian Satterfield

As more customers flock to social networks to deliver their feedback, Microsoft follows on the heels of several of its CRM rivals by buying its way into the social media monitoring software sector. The software giant, which established itself in the CRM market a decade ago with two significant acquisitions, has reached for 14-year-old Swiss software provider Netbreeze.

Announced in conjunction with Microsoft’s Dynamics Convergence 2013 conference, Netbreeze adds social media monitoring and text analytic features to the company’s CRM offering. A blog post on the Microsoft Dynamics website indicated that Netbreeze’s native support for 28 different languages was a key driver in the transaction.

Microsoft made inroads into adding social functionality to Dynamics with last September’s $1.2bn acquisition of enterprise social networking software firm Yammer. The company’s moves come after two of its major CRM competitors had already been active in the social media monitoring sector.

Salesforce.com’s activity in social software dates back to 2009 and includes the $326m purchase of Radian6, still the largest deal we’ve seen in the space. Meanwhile, Oracle followed suit last summer when it picked up both Netbreeze’s US-based rival Collective Intellect and similar social marketing automation software vendor Involver.

Consolidating the Google Apps ecosystem

Ben Kolada

Contact: Ben Kolada

The Google Apps ecosystem saw continued consolidation on Wednesday as UK Google Apps developer and reseller Ancoris announced that it was acquiring Appogee for an undisclosed sum. Google and other enterprise apps providers are using resellers to target the SMB market, a strategy that has spawned a plethora of application systems integrators. Consolidation in this sector has taken off in the past few years and is providing extremely fast growth for some companies.

Application software OEMs, such as Google but also including salesforce.com, have focused their efforts on targeting the enterprise segment, and instead have used resellers to penetrate the SMB market. Meanwhile, cloud services are now affordable for SMBs, and millions have migrated away from their old premises-based systems to modern cloud services.

VARs like Ancoris and Cloud Sherpas add functionality to the apps they resell, such as multiple domain setup, administrative capabilities and more fleshed-out instant messaging capabilities. Essentially, they’re making paid Google Apps more suitable for SMBs by answering shortcomings not addressed by default by Google.

Increasing adoption of cloud services combined with consolidation has played out particularly well for Cloud Sherpas, which has acquired eight companies in the past two years, including two so far this year. The company’s CEO has publicly said he expects revenue to break $100m this year, up from about $75m last year and less than $1m in 2009.

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Lexmark’s Perceptive continues its buying spree

Contact: Alan Pelz-Sharpe

Perceptive Software, the document and content management division of printer giant Lexmark, continued its M&A spree Tuesday with the acquisitions of San Francisco-based Twistage and Seattle-based AccessVia for a combined total of $31.5m. Lexmark has now spent more than $600m buying software companies since it started its M&A machine in May 2010 with the purchase of Perceptive Software.

Twistage provides a cloud-based video ingestion and management system, and AccessVia sells retail industry point of sale-focused printing (signage) software. Both acquisitions come as a bit of a surprise because, previously, Perceptive had focused on building out document-centric case management and pure-play document management functionality, which extends Perceptive’s own heritage of providing document and form management capabilities to legacy business applications such as JD Edwards, PeopleSoft and SAP.

Twistage and AccessVia appear to take the firm in very new directions because they both could be described as providing Perceptive with more input and output options. Quite how these will be integrated – and leveraged by the firm – is unclear right now. We believe that Twistage mainly brings technology and AccessVia a substantial customer base, and will watch closely to see how this all pans out. But it’s likely that new industry-focused applications and solutions will come from a combination of these and existing technologies.

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What else will VMware sell?

Contact: Tejas Venkatesh

VMware is selling SlideRocket, the presentation creation and collaboration startup it acquired two years ago, to ClearSlide as it refocuses on its core business. The deal comes at a time of refocus for the virtualization giant, which in 2012 saw its growth rate decline to 22% – a full 10 percentage points lower than the previous year. (It also recently revealed plans to lay off some 900 employees.) As VMware returns to its roots, other assets that it acquired in recent years could also end up on the chopping block.

The company’s focus in the near term is on its Pivotal Initiative, which brings together a number of ‘big data’ and cloud assets that EMC and VMware have acquired and developed to capitalize on the impact that cloud computing is having on emerging markets such as application development and big data.

Meanwhile, the focus placed here will come at the expense of some of VMware’s noncore assets. In its Q4 earnings call, the company said it would deemphasize SlideRocket as well as ‘other products’ not central to what customers value from VMware. That could mean that some outlier assets, such as Socialcast and Zimbra, may be available for sale. Any divestitures at VMware would also be eased, politically, by the fact that acquisitions were done during the tenure of former CEO Paul Maritz, who moved from the top spot at VMware to run the Pivotal Initiative last year.

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Taking advantage of the times

Ben Kolada

Contact: Ben Kolada

While the real estate industry overall is still hurting, M&A in the construction and facilities management software space is growing. Driving deal flow is the same factor that depressed the real estate market – the macroeconomy. Companies are continuing to seek new ways to cut costs, and increasing facilities’ efficiency is becoming a popular option. Growth, alongside fragmentation in the facilities management software sector, is leading to increasing consolidation.

Similar to trying to squeeze additional productivity out of employees, companies are now trying to squeeze additional efficiencies out of their facilities. In fact, as IBM stated in its acquisition of TRIRIGA, property and real estate are the second-largest costs to a business after employee compensation.

As a result, many vendors in the facilities and property management software segment are experiencing significant growth. Accruent, which claims to be the largest facilities management software provider, expects to grow revenue approximately 50% this year. (However, we’d note that M&A has helped the company’s upward revenue trajectory. Accruent has announced four acquisitions since 2011.)

The sector’s growth potential has even attracted some of the largest acquirers. IBM paid $108m for TRIRIGA in 2011 and last year Oracle acquired Skire’s assets. Beyond growth potential, vendors will consolidate the fragmented market, and acquire to add complementary offerings to their portfolios. Accruent, for example, bought Evoco in part to add construction management software to its existing facilities management software products.

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