As reported in Billing & OSS World by Editor in Chief Tim McElligott, NEC is acquiring NetCracker for about $300 million. And as Tim said, “Given the fate of mid-tier independent software vendors over the last three years – those at the $100 million mark or more – it was a matter of when, not if” Waltham, Mass.-based NetCracker would be acquired. Another great friend and colleague in this business, Elisabeth Rainge, program director of network software at IDC, accurately assessed the deal as having far more to do with the alliance between Alcatel-Lucent and the Cramer division of Amdocs or ALU’s acquisition of Motive than it does the acquisitions of similarly sized competitors such as Granite Systems by Telcordia, MetaSolv by Oracle or Syndesis by Subex.
Absolutely. This deal is another example of a company that has made its mark mainly through equipment and services acquiring a B/OSS leader to stop missing out on major network equipment contracts because it brings no OSS to the table. NEC’s current offerings are a diverse/eclectic mix of networking, PCs and servers, peripherals, storage, semiconductors, home appliances (including home entertainment equipment) and some enterprise software (middleware and ERP). So clearly NetCracker brings NEC an entirely new revenue stream and, well, NEC brings the global reach and financial wherewithal of a $40 billion networking giant with 155,000 employees. And although the companies are in entirely different verticals, regionally it seems to make sense: NEC is strong in Asia and Latin America, while NetCracker’s presence is mainly in North America and EMEA.
Yet “global networking giants” (whatever that term means anymore) have proven time and again that size doesn’t always matter. That “more” can be less. That when these behemoths devour software mini-mites the results have often been a little tough for the market to swallow. Think the former Lucent Technologies and Nortel Networks, to name just two. Lucent’s $2 billion acquisition of Kenan Systems influenced other hardware players like Nortel to similarly bulk up on software as part of an “end-to-end OSS” or “big iron with an OSS portfolio” strategy, but the strategy failed. Lucent sold the Kenan assets (centered on the KenanFX billing system, formerly Kenan’s Arbor BP) in which it had sunk $2B to OSS/BSS provider CSG Systems for just $300 million, and CSG later sold those former Kenan assets to software and systems provider Comverse for $250 million. Nortel sold off its OSS assets to MetaSolv for $35 million, and of course that whole big happy MetaSolv-Architel-Accugraph-Objectel-Lat 45-and-more software family now lives at Larry Ellison’s place.
To understand why this is important today, it is important to understand where NetCracker has been and how it has made its own mark in B/OSS.
In a past life I competed directly with NetCracker. (Or tried to.) I was at Visionael when NetCracker began its rise to prominence. Competitors whispered, “They’re giving away the software to win contracts.” That the company’s core software development was being performed in Russia-as if there were anything wrong with that-and there were murmurs that the company’s Russian connections were a long way from Red Square and closer to business districts of a similar hue. When competitors actually dealt with the above-board aspects of what NetCracker was bringing to market, such as the first fully web-enabled (JSP/J2EE) inventory management solution, I actually had software developers in my own company and elsewhere say things like, “Well, theirs looks better in demos, but ours works better.” Or that the NetCracker was somehow offering a lightweight, bare-bones approach to inventory while “Our solutions are industrial strength.”
To quote Billy Crystal as Fernando Lamas: “It is better to look good than to feel good…and you look mah-velous…absolutely…mah-velous.” The truth is that over the years NetCracker delivered a lot more than sizzle with service fulfillment solutions that are table stakes for service providers: Order management, inventory, provisioning, activation, discovery, reconciliation and design/assign; not only traditional “inside plant” but also outside plant inventory; the related area of asset management that we at MarketPOWER believe most inventory players should address but most do not; telecommunications expense management (TEM), a specialized area of what we term next-gen asset management; and customer impact analysis, which is what vendors mean when they talk about physical-to-logical correlation of service resources and events.
Having watched the animals migrate across the land masses with each new tectonic plate shift in the world’s business markets-“We’re in telecom. Now we’re in enterprise management. Wait, now we’re an experienced provider of solutions to local, state and federal governments”-it has been gratifying to watch NetCracker actually develop some diversity in its customer base. Of course its main bread and butter is and has always been the world’s service providers, today including the France Telecom Group (136 operating companies), Sprint/Nextel, Telus, Cablecom and many more. Yet various agencies of the U.S. government are also customers as are major enterprise IT shops such as The Allstate Corporation, a Fortune 100 company and the largest publicly-held personal lines insurer in the U.S.
In brief, those shopping for inventory, asset management and service fulfillment/application delivery solutions have been presented with a patchwork of multiple vendors and systems integrators in the OSS/BSS space just to cover most of the bases in service fulfillment, and have seen “hot OSS shops” follow a single-market (and/or single-process) focus to their demise. So is it any surprise that both private and public organizations have gravitated to a company with complete solutions, innovative technology and a diversified revenue base that gives one the impression it may actually be around to manage their networks for more than a year or two? And one that is not inexorably tied to network equipment purchases from a single hardware vendor, the infamous “OSS aftermarkets” approach?
The challenge for NEC with regard to NetCracker is simple, really: Don’t screw it up. It started things off on the right foot by announcing that NetCracker will operate as a wholly owned subsidiary of NEC and act as an independent company, retaining its current management infrastructure and entire employee base. That it plans to integrate NetCracker into NEC “at every level” in support of vertical solutions like VoIP and IPTV.
In the words of Peter Falk as TV’s Lieutenant Columbo, “There’s just one more thing that bothers me…” Although he is undoubtedly doing so on behalf of the soon-to-be parent company, the one doing most of the announcing on this was not an NEC executive nor, if one would argue that is due to the Japanese-U.S. language barrier, a U.S.-based NEC spokesperson or a U.S.-based ad agency speaking on NEC’ s behalf; it was NetCracker CEO Andrew Feinberg.
Some of us may have seen this movie before. When ADC Telecommunications acquired CommTech in 2001, it similarly announced that “all hands on deck” would stay on deck. ADC’s track record on this was good: It had acquired both Saville Systems (for its Convergent Billing Platform) and Metrica, whose NPR product had evolved into the performance management solution of choice at networks across Europe, most often deployed jointly with Digital’s TeMIP network fault management platform. In both cases it had kept the companies largely intact. ADC acquired CommTech for $185 million, it said, to leverage our FastFlow product line, which-similarly to the NetCracker suite today-was arguably the industry’s most complete end-to-end service fulfillment offering. The plan was to integrate FastFlow with CBP and NPR to provide, yes, it almost pains me to say it, “A truly end-to-end OSS solution.”
Ten months later all CommTech employees save one were out of a job, ADC had scrapped its grand E2E OSS plans and the hardware giant embarked on a downward spiral of layoffs and selloffs that saw it shrink from 23,000 employees when it acquired CommTech to 4,000 employees a few years later. (Happily, ADC’s employee base has more than doubled to 9,000 today.) The deal fell all the way back to earth when a group led by former CommTech SVP Brian Cafferty acquired the core CommTech products “back” from ADC-for, let’s just say, far less than $185M-and launched Cafferty’s newest software venture, Vero Systems. Here’s hoping this NEC-loves-NetCracker flick has a better ending. Pass the popcorn.
[UPDATE: In October 2008 Vero was acquired by Teoco…after being sued by competitor Telarix for patent infringement of Telarix’s least-cost-routing technology. Cafferty is no stranger to controversy and has now posted not only a notice on the Vero home page http://www.verosystems.com/ about the “meritless lawsuit” by Telarix but also the full text of the Telarix suit and Vero’s countersuit vs. Telarix. It will be both interesting–and instructive, perhaps, to Vero’s new suitor (!) Teoco–to see how this plays out through the remainder of 2008.]
It Was Just a Thought™ 