Milestone Group Quarterly: April 2006
Articles
Face to Face:
Woody Hobbs former CEO, Intellisync
Milestone: Tell us about Intellisync and your platform independent wireless messaging platform. You have certainly generated a great deal of interest in your product suite in the mobile communications market.
Hobbs: It was an evolutionary process. Intellisync was one of the top mobile software companies when it went public in 1996 - and was one of the top growth firms on NASDAQ in 2000 but when our team got there in 2002 Intellisync had negative enterprise value and was close to being de-listed. To the original company’s credit, there have only been two management groups and after the year 2000 crash, it is not surprising the prior management got a little bit lost. My new executive team inherited some cash, a good patent portfolio, and employees with lots of mobile experience. The technology was good; but it wasn’t focused on wireless, which was clearly the trend. When we arrived, Intellisync was resting on the basic product, a quality product that still shipped with every RIM Blackberry; but nonetheless product revenue had been in decline for seven straight quarters. In our first full quarter, we posted an increase in revenue and in three and a half years we built Intellisync back from a negative enterprise value to the approximately $450 million that we got from Nokia. The basic strategy was to switch from a wired scenario to wireless. By the time I left, probably less than 10-20% of our revenue was from wired products instead of the 100% when I walked in..
Milestone: You successfully transitioned Intellisync from an OEM and retail model to a carrier and enterprise model. Why this strategy and what was the secret behind your success?
Hobbs: Actually, when I arrived the strategy was to make Intellisync an enterprise-based sales organization. The OEM model was too easily commoditized and prices were starting to hit the floor. The retail market is hard to sell except on the web and we felt that the larger dollar would be in the enterprise. That proved to be true for device management but not for wireless email; even large corporations were buying in quantities of 50-100 and most of the time buying them at the wireless store. We entered the carrier market in early 2004 and by mid 2005 we had about 35 carriers and were by far the largest carrier email solution except for RIM’s Blackberry. We had a number of wireless products developed by that time, but had to make a decision to go after the carrier, an entirely different channel that would increase our sales commitment, and our expenses. We weren’t profitable at the time, so it was a considerable decision on the part of the board to say, “Let’s suspend profitability longer and grab more market share by going into the carrier market.”
Milestone: We think you can segment carriers into being wireless centric and the dinosaurs that are more wireline centric. Do they feel any different in terms of how they think about their enterprise customers?
Hobbs: To some extent a carrier is a carrier. Clearly they think about selling network management to the enterprise, meaning more than the dial tone. They focus on the management of devices and the network to create connectivity across the world. Those things are pretty common from one carrier to the next. What wireless and wireline carriers tend to have in common is that they don’t have a significant expertise with the enterprise. They mastered the consumer sale and they used to, in the old AT&T days, have big phone bills at the enterprise level. Their sales teams have only recently focused on supporting a goal to be the network provider for the enterprise. In fact, that was my hesitation early on in working with carriers, I did not feel they had the expertise. Then I saw that even though they don’t have the expertise, they have the will and they will eventually get it right. We committed systems engineers and sales people to help carriers with their enterprise efforts and using their geographic spread and thousands of sales people we had the best of all possible worlds.
Milestone: Let’s talk about your acquisition by Nokia. This wasn’t just a wireless email deal was it?
Hobbs: At the start, Nokia was very interested in device management. We started out talking about OEM’ing our product and Nokia reselling the product. Eventually they decided they wanted to buy the company, not just part of it. Their email solution was not very feature rich, so they thought they should get the whole thing. We started discussing the whole company, the whole sale, it started last summer and of course it culminated in a deal signing in November.
Milestone: Before the Nokia deal, you signed an OEM deal to embed Intellisync’s platform into Novell’s GroupWise collaboration software. Did that deal help you then ultimately position with Nokia?
Hobbs: No, that was pretty much in the works by the time we started working with Nokia. I don’t think it had a major impact and had it not been done, I don’t think it made the Nokia deal. There were a couple of synergies for Nokia when they bought Intellisync. First, they wanted wireless device management and we had it. The second motive was to improve wireless email. The discussions evolved over time around a benefit to Nokia from the deal giving them a stronger position in CDMA. They were strong in GSM, but they didn’t have enough for a CDMA carrier like Verizon (the world leader). We were deep into Verizon and other CDMA carriers and the deal got them into this space with a great deal of strength. They could then claim that they had the GSM and CDMA, which plays well in places like China, South America and parts of Asia. I think that was a bit unexpected for them, we will see if they take advantage of it.
Milestone: Any special thoughts on positioning the company for a buyer like Nokia? Is it financial, brand, product; all three?
Hobbs: Well, if you position your company for sale to one company, I would say you’re insane. In fact, if you were to ask me before Nokia came around who Intellisync’s most likely buyers were, Nokia would have been pretty far down the list. We were always positioning the company to stay public and continue independently, and looking at what the other players wanted. And by players I mean the hardware companies. At one point you might think Motorola wants something, or another you might be thinking about Nokia. You are looking more at the group of them and what kinds of things do we need to make them all happy. It’s all driven by product development. Marketing isn’t a huge factor, as these guys are huge and they are going to overwhelm your marketing anyway. They all love to see revenue, but the major thing we were doing - creating device independence - was not going to help us with the most likely buyers, Nokia, Motorola, Samsung.
Or so we thought. It turns out that our device independence worked to our advantage. It was the US enterprise group at Nokia that did this deal, because they saw that an enterprise is not going to use Nokia hardware system wide, and they needed a flexible solution.
Milestone: Any reaction to the recent Research in Motion Settlement?
Hobbs: Inevitable. I never thought the judge or NTP would think there would be any advantage to (not settling). I also thought the government would override the order and put a stay on it until RIM could put something in place as a workaround. It was a gigantic tail-chasing exercise, where ultimately, because in the time frame RIM could not get all the patents overturned, they were stuck paying something. I thought maybe it might be a billion dollars. I commend Jim for getting it done for under a billion dollars because I thought that this is what it would cost him.
Milestone: What is the global forecast for the wireless enterprise market and where do you see it in the next three to four years? Which regions are going to be generating the most revenues for wireless over that same time period?
Hobbs: It’s got to be Asia and India that will generate the most revenue because they have a growing middle class. We are talking about a new market of 100 million people (or more) over the next three years with enough money to pay for a cell phone. In some communities behavior will fuel growth. For example, Latin American communities are very social communities and they talk to each other a lot, with a decent sized telephone bill to show for it. With Asia there is a sizeable base of net new subscribers that can be reached for a reasonable amount of money. United States is a data growth area. Raising the average bill is not going to have the same effect as a new net subscriber, which I doubt there are very many of in the US.
One thing yet to happen in the US that might produce more revenue are the fashion phones found in places like Italy. There, people have two to three different phones and depending on their situation, they use a different phone. Some of the technology is not good for that and I have not seen that same emphasis here, that could make a larger than 10% growth in the US but it’s Asia where the largest growth is going to be.
Milestone: A lot of wireless pundits predict that the new devices are ultimately going to cannibalize and replace laptops, this whole form factor debate. Do you see the next generation of mobile devices really replacing laptops and having that kind of functionality?
Hobbs: At Schwab in the early days of electronic trading, we were developing pagers to tell people what was going on in the market. We developed phone-based products, touch tone, PC-based products and, of course, we had the dumb-terminal based online products that were the equivalent of the web today. We had a long running debate as to which of these would really emerge as the right trading device. One day I walked into Chuck’s office and said, “I finally figured out what the ultimate trading device is.”
“What’s that,” he asked?
“All of those and more,” I told him.
You can’t put three billion people into a little box. They want to use many different kinds of devices. But the laptop will remain a solid player. The desktop should be obsolete by now, but it is still around. We all have desktop devices in our house for one reason or another. It should be dead but its not.
Milestone: If you were an entrepreneur starting a new technology company today, what do you think are the hot spaces going forward the next 5-10 years? Where would you plant flags?
Hobbs: I think networking - meaning collaboration and social networking - has got some legs to it. It has been tried a couple of different fashions, the WebEx type thing is a good example. I think that is a big area. It will be easier to share documents, move documents around comment on them and just easier to collaborate and have large formal meetings as well as small ad hoc meetings.
We can sit and draw on the blackboard all of the elements but in reality very few people have easy access to it. It takes a lot of work to put together a good size meeting, especially an international meeting. Of course, there is a mobile element in that, as well as a multimedia element. The closer you get to the feel of sitting across the table from each other, the more likely people will use electronic conferencing instead of actually meeting face to face. I think we are going to get there in the next ten years, though it will take a lot of technology to do it.
Woody Hobbs was President and CEO at Intellisync Corporation, prior to its acquisition by Nokia. Prior to joining Intellisync in 2002, Woody served as interim CEO for several enterprise software and consumer technology companies, including FaceTime, Tradenable and BigBook. He served as the Chief Information Officer and member of the founding management team for Charles Schwab & Company, where he led technology strategy and built the company's underlying processing infrastructure. As a veteran of IBM, he helped create IBM's Focus system, an online credit system that supported over 20 million members.
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