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October 08, 2006
OpenPlug's Risky Mobile Ambitions
We took a closer look at OpenPlug’s €15M second round of financing, a deal led by Munich-based Baytech. It is an interesting and risky deal, something that did not really come across in its funding press release, nor via its website.
OpenPlug is operating in the fiercely competitive mobilephone software market - a market that has seen more flops than high flyers. The initial progress looks good. It has grown in four years time from zero to 60 employees in France, Taiwan, and Romania on the back of a mere €3.6M in venture capital.
OpenPlug develops Linux-flavoured software that sits near the real time operating systems that run inside mass market phones.
Its claim is that it enables the makers of cellphones to add a basis for applications that users expect, but without the fussy tweaking and expensive development times that has been the norm in the past. It also enables configuring and adding new apps over the air.
But this strategy means it is playing a linear end game. Either it convinces handset manufacturers of high-volume featurephones, as well as low-cost phone, to adopt its platform, which will enable it to make hundreds of millions in royalty license fees, or it doesn’t. There is no in-between, in our opinion.
Towards that goal, OpenPlug has already won over at least one of the big names. The CEO declined to disclose the name so we couldn't independently confirm that point. But he says that phones running its software are to be shipping by early next year.
It also has strategic partnerships with Texas Instruments (which is the number one chipset supplier to cellphone makers) to pre-integrate its software on their chipsets, and a similar deal with NXP, formerly Philips Semiconductor.
But the French startup is not exactly operating in an uncontested market segment. Other similar platforms exist, such as BREW and AJAR, from Qualcomm and Motorola (through its TTPComm acquisition) respectively, as well as several other US and Japanese software vendors.
Making the whole thing more risky is that the number of handset manufacturers is shrinking and it is dominated by five manufacturers: Nokia, Motorola, Sony Ericsson, Samsung, LG, and BenqMobile. (See Gartner report below). They share almost 80 percent of the worldwide market for mobilephone in 2005. The other 80 vendors share the rest of the market.
With BenqMobile, the old Siemens mobilephone business, on the brink of bankruptcy, and some of the second and third tier handset manufacturers are reportedly not paying their bills with other software suppliers, its target market just got smaller.
OpenPlug has been led since founding by CEO and co-founder Eric Baissus, who along with a team of co-workers spun out of a Texas Instruments’ R&D lab on the Cote D’Azur - it's the TI research lab that develops TI's code for digital cellphones supporting modem comms and low-level handset management, as well as Java, games, Bluetooth, and UI applications.
Baissus is aware of the risks and seems confident of his firm's chances. He told us:
We operate in tough market, with a decreasing number of actors. The stronger will stay in place. We believe that they cannot keep a leadership role without relying on outside firms for innovations [for their product development]. Technology provided by external suppliers, like us, is going to be important for them. We offer more flexibility than our competitors and a faster time to market - once the handset manufacturers have certified our software. For every new model, the lead time gets shorter.
OpenPlug achieved the design-in win and chip partnerships without investing a lot in marketing and sales, so some of the new capital will be used for that. Some will be used to provide support to its customers that expect intensive local support as they want to go to production rapidly. And it also plans to develop some hooks into its software for application developers, a strategy that would give it an even bigger “upside”, say its backers.
Read - Gartner Says Top Six Vendors Drive Worldwide Mobile Phone Sales to 21 Percent Growth in 2005 (gartner)
Read - http://www.open-plug.com/pdf/Open-Plug_Press_Release-USD15_million_series_B_funding.pdf (openplug PR)
Posted on October 8, 2006 08:40 AM | Posted to Wireless | Permalink
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