Reprinted from the January 2006 issue of Internet Telephony Magazine.
Last year in response to many requests I started a Top 10 investments list in which I outlined some of the best investments for 2005. Here is an update on last year’s list as well as some new additions. As a bonus I have added some top trends.
Peer to Peer
I led with P2P last year and lo and behold, two out of the three companies mentioned, Nimcat Networks and Skype were purchased for $46 million and over $2 billion respectively. P2P is still a super-hot market. Expect much more activity in this segment in the next 12 months.
There are rumors that some of the interconnection facilities may be acquired soon. These are the buildings that actually allow the physical peering to take place. Telx is a leading voice peering facility. The Voice Peering Fabric (VPF) is a Layer 2 Ethernet exchange allowing VoIP peering to take place as well as the resale of ASP services. The VPF is owned and run by Stealth Communications. As VoIP peering is generally a small part of what Telx does, the more pure play companies in VoIP peering are session border control companies as well as those that do transcoding such as Ditech Communications whose stock has appreciated 50 percent in the last quarter.
Open Source Telephony
This continues to be a rapidly growing space but it is unclear where the investment opportunities are. Companies like Digium or Pingtel are obvious plays but Sangoma, a company making high-end open source compatible hardware, is less obvious. Still, all of these companies are private at the moment which presents a problem for the casual investor. Correction, Sangoma is indeed public.
This is still a hot area and the government will likely be one of the largest purchasers of VoIP equipment in the world. There are a few companies here worth watching such as NET.com and TeleCommunications Systems. The former used to also sell products to service providers but recently changed focus to selling enterprise VoIP solutions. In addition they have had a recent management overhaul. As a result the stock is battered and at a three-year low.
This is still a very hot space and like last year it is the holy grail of service providers. Sales in this space are still brisk and will only get hotter. Cisco recently acquired set-top box maker Scientific Atlanta to further entrench themselves in video and paid just under $7 billion to do so. The IPTV market is also seeing massive growth. I don’t expect either of these spaces to slow for the foreseeable future.
As VoIP gets more entrenched in our everyday lives the consumer electronics market will have more and more VoIP embedded in every day products. I am still waiting for the Apple VoIPod.
The companies that may benefit here are service providers such as Vonage or Skype that can get great licensing deals in place with these companies.
VoIP Chips and HMP
These technologies are actually at odds with one another but there are certain devices where HMP makes no sense and in these areas highly specialized VoIP processors are way to go and represent a great opportunity.
In larger VoIP systems, look to Intel and Aculab as some of the major players in the HMP market. No, unfortunately Aculab is not public.
SIP is hotter today than it was a year ago and TMC is launching SIP Magazine in print this month in order to help educate the market on the tremendous opportunities available in the space. Anything relating to SIP has legs at the moment and service providers and enterprise customers want more SIP products now.
As more SIP products are released, the desire for products and services based on this standard will only grow. Expect companies to make a nice living this year providing SIP trunks for IP PBXs.
That wraps it up for last year’s list. Here are some new thoughts:
VoIP Service Providers
In the past few weeks 8x8/Packet8 worked out a deal to provide VoIP service to BellSouth and their stock price doubled overnight. Then Vonage announced it received $250 million in convertible debt! Whether this makes Vonage a good investment or not is unclear but obviously there are many people who want to back this company at all costs.
I would have to say that the position that Packet8 is in is highly enviable as they are wholesaling their service quite effectively overseas and domestically. In the past six months they have turned me into a believer in their strategy. Prior to this point they were a niche player… Now they are in an amazing position. Yes Vonage is gaining tremendous mindshare and their brand is synonymous with VoIP. Packet8 on the other hand has a low-risk high-reward strategy of growing their wholesale business and reaping the future rewards of someone else’s marketing.
IMS is one of the most exciting technologies I have ever been involved with and it promises to help service providers roll out new services faster than ever before and furthermore allows these providers to make more money from the networks they own. Finally it allows wired and wireless networks to work seamlessly together. At the moment anything having to do with IMS is in high demand making this another investment opportunity for the foreseeable future. TMC will be launching IMS Magazine in print next month.
WiFi Telephony, Dual Mode
These markets will be huge. There is no doubt in my mind. Companies making money here will be those selling equipment as well as service. Even Skype will make a killing as they continue to license their protocol for WiFi telephony phones.
There is additional opportunity in connecting WiFi telephony devices to corporate PBXs. SpectraLink and Symbol Technologies are some of the players in this market.
This market will grow more slowly than expected due to tremendous competition. Corporate
The overall picture for VoIP is very bright. There are few segments of the market that aren’t growing rapidly. If you are interested in hearing more about the financial angle regarding VoIP, don’t miss the opportunity to hear investment guru and CNBC anchor Ron Insana as he keynotes our upcoming Internet Telephony Conference & EXPO this January 24–27. We are truly honored to have Mr. Insana as part of the event and I for one am very much looking forward to his illuminating comments.