Category Archives: Mobile

Facebook Pays 0.085 Instagrams for Parse to become largest Mobile-Backend-as-a-Service (MBaaS) Provider

The leading vendors in the MBaaS space ordered by viability/stability just got shuffled.


My previous post detailed a whole slew of Mobile-Backend-as-a-Service (MBaaS) Vendors who had all raised less than 1M in venture capital and predicted that those small MBaaS vendors would be caught in the “Series A Crunch” This post has turned out to (so far) accurately predict that none of these vendors would be able to raise any more money.

The small ones on my list included: Cloudmine,FatFractalApplicasa (500k)CloudyreciKnodeScottyAppQuickBlox and others

The vendors called out in the “Safe Zone” were  Kii (profitable),  Stackmob (7.5M)Kinvey (7.02M) and Parse (7M). My direct source in Silicon Valley reports that Parse was raising a significant round of Venture Capital when it decided, instead, to take the acquisition offer from FaceBook.

Given the burn rate, organizational size and growth of this space (as well as the validation of the exit potential of this space), the other “Safe Zone” vendors should have no trouble raising additional capital and we should expect to see several announcements of this sort coming soon. We expect those who raised around 7M should have burnt through most of it by now. Linkedin shows a Kinvey of about 20 people, and a Stackmob of about 29 people.

So the list now puts Parse at the top of the vendor viability equation in MBaaS… However, with the Facebook acquisition comes a lot of questions.

Here are the the data points we have collected from reputable sources:

* The rumored amount of the transaction was 85M
* Facebook rep was quoted as saying the sum was “Not Material” (they wont file an 8K with the SEC)
* Total amount of VC raised by Parse was about 7M
* 85M exit is consistent with the kind of returns VC would expect
* I spoke to a VC who was planning to invest in their large B round
* Obviously they didnt raise a round but chose to go with FB
* There must have been other bidders, hence the VC Exit level pricing
* Illiya said that they liked FB the best for executing their plans
* 85M equals 0.085 Instagrams for Facebook
* This price puts them into mixed territory–it’s not exactly an
acqui-hire but also not an instagram either
* Both parties claim that the service will continue uninterrupted
* We’ll see about this
* This is a very different business model from what FB is used to
* Linkedin shows the company to be about 12 people, maybe more

So what does this mean?

1) Validation for the MBaaS space: this will grease the skids for
Stackmob and Kinvey to raise big rounds or to exit at a neighborhood
multiple, say about 40-60M each

2) Further investment for smaller players: I think not. I think the
smaller players will continue to scratch in the desert–however,
smaller players *WILL* experience acqui-hire by bigger players

3) Facebook is probably not sure what’s going to happen, but it seems
sure that MOBILE is a huge deal, DEVELOPERS are also a huge deal and
they are aggressively trying to flip the company in that direction.

4) If Facebook doesn’t squash these entrepreneurs (at 85M in probably
mostly stock, it’s not above company politics) then it puts them in
direct competition with Amazon, Heroku, Google and Apple. Add in
FaceBook Home and also Instagram and it does put them in Google and
Apple Land.

In terms of consolidation: I expect that this will drive some of the big players to make acquisitions, but this was an unusual deal. I would expect some of the smaller vendors to be acqui-hired over the next six months by the likes of Google, Apple, Amazon, Heroku and other big cloud providers. An orthogonal app/platform provider with momentum might also do an all stock acqui-hire like maybe a Yahoo, or an Evernote.

The big message is that the MBaaS space is validated big time and we’ll see a lot more excitement in the upcoming year in the form of financing, M&A and other big announcements.

Disclosure: Miko works for Kii Corporation, one of the vendors mentioned in this article.

Update: This just in… FeedHenry (an MBaaS vendor that did not make my “safe” list nor my “small” list just raised $9M in venture capital. Feedhenry is squarely in the Enterprise market and is focused on HTML5 JavaScript CSS write once run anywhere code not unlike Appcelerator or Sencha. So it appears that the market is starting to segment into consumer facing and enterprise facing MBaaS.

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Series A Crunch Will Wash Out Small MBaaS Mobile Backend-as-a-Service Providers

Apocalyptic for Seed Funded MBaaS Vendors

Have you been reading about the “Series A Crunch“?

Alexia Tsotsis (who should know!) compared the situation now to the famous RIP Good Times email that came out of Sequoia in 2008.

The short version is that the huge influx of Angel and SuperAngel investors has created a glut of seed funded companies, VERY FEW of which will ever get Series A financing. We’re in essentially what Marc Andreesen called a nuclear winter for Series A financing (back in 2008).  


In this article by Sara Lacy of PandoDaily (who knows everyone!) she writes:

Companies we never really got to know are simply starting to fade away. Multiply that by literally a couple thousand, and that’s what 2013 is going to look like in Silicon Valley, and to a lesser degree some other startup ecosystems. “The numbers just don’t add up,” says Jon Callaghan of True Ventures. “There are a minimum of 2,000 companies per year getting funded and coming out if incubators, and there are only 750 VCs that call themselves ‘active.’ But when you look at who is doing at least two deals a quarter, the numbers fall to just 200 firms. Those firms are only going to do a few Series A deals a year.” When you look at the number of firms who invest at least $1 million a quarter for at least four straight quarters, the number drops further: To a paltry 97 firms.


Small MBaaS Players Won’t Be Able to Raise VC Money

lets take a look at the Mobile Backend-as-a-Service (MBaaS) space from this perspective. These are companies that provide mobile developers with APIs and SDKs to quickly drop in cloud services into apps. This means that apps won’t need to write their own cloud backends, thus saving time, risk, and cost and enabling developers to focus on front-end and end user concerns.

Unlike Starbucks drinks, MBaaS vendors fall into three groups, big, medium and small.

The bigger ones: Several vendors that are counted among the MBaaS crowd have raised serious bucks. I count among those companies like Appcelerator which has raised $50.2 M and APIgee at a cosmological 72.1 M. I see Appcelerator as a full Enterprise Mobility player (who got into MBaaS via acquisition of Cocoafish), and you can see from their crunchbase entry that competitors include Adobe SystemsSenchaXamarin. I see APIgee as an Enterprise API Management company which only lists Mashery as a competitor (although 3scale also competes with them and to a lesser extent WsO2) who got into MBaaS through acquisition of UserGrid. So these bigger players won’t have liquidity problems, but they aren’t so much pure-play MBaaS players either.

The midsized ones: So in the next group you see players like Kii(profitable),  Stackmob (7.5M), Kinvey (7.02M) and Parse (7M). I see these companies in the “Safe” zone for the Series A Crunch being that they each raised about 7M give or take. I’m including Kii in this group because Kii does not have to worry about the “Series A Crunch”. Kii is a profitable company which itself has it’s own Venture Capital fund. These companies fit into the “pure play” MBaaS model as well, not having offerings in API Management or Front End Client tooling like Sencha or Appcelerator.

The Small ones: It’s in this last group where you see some serious concerns. Companies like Cloudmine, FatFractal, Applicasa (500k), Cloudyrec, iKnode, ScottyApp, QuickBlox and others  havent raised Series A and may be caught up in this crunch. The lucky ones may be acqui-hired or merged into bigger companies as Cocoafish was by Appcelerator or Trestle was by Flurry. Obviously these are privately held companies, so they may have a huge cash hoard that we don’t know about. But probably not. If you look at it from the Venture Capitalist perspective, the entry price for Series A for MBaaS is $7M given the competition. There really aren’t any firms left who are burning to do a deal in this space who can pull together a Series A like that. I personally know a small MBaaS player who has been out raising money for the past six months or more with no luck.

Small MBaaS Players Run Out of Cash, Try to Sell Themselves

In this kind of environment, it’s hard to see there being enough early revenue in this market to sustain the large number of players. Unfortunately, the buyers may not be there. When polled, some of the top analysts in the space indicate that the consolidation is not going to happen very quickly. Ray Wang, Analyst from Constellation seems to think MBaaS consolidation will take 3 years.

  Michael Facemire from Forrester and one of the leading researchers in MBaaS (due to his seminal report MOBILE BACKEND-AS-A-SERVICE: THE NEW LIGHTWEIGHT MIDDLEWARE?) Is convinced that the bigger players don’t even see the space as happening yet:

Altimeter Group’s Chris Silva chimes in on how the big vendors will offer full stacks but that only the Best-of-breed alt(ernative) vendors will (grow to) be large/successful.:



MBaaS Price War?

Also, the smaller players may feel a revenue squeeze if there is early commoditization, “dumping” by the bigger well funded players or competition from open source.

Stackmob recently announced that API Calls were now free and that they were getting rid of the “Success Tax”. One reading of this move is the start of an MBaaS price war.

There’s a detailed conversation about this topic among top MBaaS vendors here. What does this mean reading between the lines? This kind of pricing doesn’t reap more revenue from hypergrowth apps, rather it grabs revenue from everyone else. Looking at it that way it reads as a serious pivot towards the Enterprise. This becomes clear especially when you go to

I’m not sure what their plan is for controlling cost, will all apps be free forever? When does a successful app become an “Enterprise” then have to be charged under a custom plan. They do seem to be able to derive *some* revenue from “free” apps by charging for things like “custom code”. Questions abound. Still it’s kind of an exciting, if mysterious move.

Some MBaaS Players Will Pivot to Enterprise

I think these companies will have to try to eke out survival through revenue, which means going after revenue share with hypergrowth apps becomes out of reach. You end up pivoting towards the enterprise for more short term, bigger chunks of revenue, but less hypergrowth opportunity. We are already seeing a pivot of a number of companies towards the Enterprise. Parse is featuring on its front page this image:

Stackmob has the phrase “Trusted by leading businesses” on their front page, again lending credence to the Enterprisey feeling about their approach.

Vendor Viability Will Become a Key Criteria For Evaluating MBaaS

What happens when your MBaaS provider goes out of business? What happens if it is acquired and substantially changed by the acquirer? These are serious considerations if you are building apps.

If the industry at large is reasonably self-regulating, savvy developers will realize these concerns and know to stay away from vendors who might not even last the next six months.

The smaller players may try to pivot to Enterprise revenue to try to stabilize their cash flow, but smart Enterprise buyers should exercise caution in selecting vendors who are so unstable. These vendor viability concerns will impact the revenue of the smaller players, leading to a shortened runway.

Still the Future is Bright

Still, this is a tremendous space. One research firm pegged the total market size of MBaaS to grow to 7.7B by 2017.

We are still in early innings in the MBaaS game and we will see a whole lot of shaking in 2013 before the game is through.

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SoftBank Sprint and the Future of Telco

What is Softbank’s strategy with its 20 billion dollar acquisition of Sprint?

As I mentioned in a previous post, there are clearly significant macroeconomic leverage points with respect to Softbank’s strategy


  • Yen to dollar exchange rate is shockingly close to a 10-year low
  • Corporate tax rate in Japan is quite high
  • Bank of Japan prime lending rate is between 0.0 and 0.1 percent
  • Japan networks and mobile user behavior is very advanced

But clearly this is not just a financial deal. So what does Sprint represent to Softbank?

Sprint is the Financial Platform.

If you look at the consolidated revenue chart, below, Sprint catapults the combined entity to almost double Softbank’s previous revenue to $80 Billion USD. This is an absolute revenue engine. The scale synergies are mostly illusory as we are talking about cross border operations, but the combined entity will have a high degree of free cash flow and produce significant leverage in the most important mobile markets in the world, Japan and USA. These two markets have the highest ARPU (Average Revenue Per User) by far of any country. China activates more IOS and Android devices per day than the US, but the installed base of these platforms is still bigger in the US.

So SoftBank gets customer growth in a region with similar ARPU to Japan–but since Japan is saturated, the growth has to come from elsewhere.



So Sprint is part of the financial platform, but for what?

The key slide is shown below… despite being one of the biggest telecommunications companies in Japan, almost 2/3 of the value of SoftBank comes from Internet company holdings. Interestingly, some of the operational synergies are unclear, for example the Alibaba Group assets can’t have much impact in either the Japan or US markets operationally.

This provides quite a deep insight into the mind of Masayoshi Son, SoftBank’s dynamic founder.

As such, the balance sheet of Softbank provides a:

Financial platform for an Internet investment portfolio.



An even further clue is the slide below where the SoftBank chairman shows the ecosystem that SoftBank represent… This is the Internet platform that sits atop the “classic telco platform”.

He does not see SoftBank as a “phone company”. He is reinventing the phone company by layers…

  1. Telecommunications Company layer -> legacy business, provides cash flow
  2. Internet company layer -> leverages the cash flow while providing an ecosystem for driving Data ARPU

So where does this go?

MBaaS: The Mobile App Development Layer

The third layer beyond this is the mobile app development layer. For years, the Internet has been building out a set of services that can all be integrated through simple interfaces like REST. This kind of integration provides a “snap together” model of the Internet that creates a true ecosystem from an apparently disparate “primodial soup” of companies as shown above.

However, all of the Internet services in the world don’t translate into success in the era of the App Store.

There’s a missing ingredient that brings the value of these layers –mobile application developer ecosystems. So where are the mobile developers today?

Mobile developers today are aggregating around a new form of platform known as Mobile Backend-as-a-Service (MBaaS). MBaaS is defined by Michael Facemire of Forrester and essentially it provides a natively pluggable SDK into popular mobile OS client platforms such as Android or IOS that enables mobile developers to instantly inject cloud services into their apps.

SoftBank itself is partnered with Kii Corporation. Kii is the world’s biggest provider of Mobile Backend-as-a-Service MBaaS with 25 million end users served. Developers can connect with Kii Developer Portal and easily add cloud services to their apps.

We are already seeing significant partnerships between independent mobile data cloud providers and major telcos, for example the recent announcement by Twilio to work with AT&T, and the partnership of Kii with NTT DoCoMo.

The telco of the future leverages the financial base of its legacy business to generate an internet ecosystem and ultimately a cloud platform for mobile app development.

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Leverage: Sprint Softbank Japan & Sumo vs Judo

Sumo: how to throw 20B of mass

You’ve probably seen the 20+ billion dollar deal that will leave Softbank of Japan owning 70 percent of U.S. telco Sprint. There are layers upon layers of rationale for any deal of that size, but here are some of the common themes:


  • Yen to dollar exchange rate is shockingly close to a 10-year low
  • Corporate tax rate in Japan is quite high
  • Bank of Japan prime lending rate is between 0.0 and 0.1 percent
  • Japan networks and mobile user behavior is very advanced

A point that doesn’t by itself produce leverage (but creates a strong motivation for overseas expansion) is the saturation of the Japan market and the slower growth there.

This chart from Chetan Sharma (2011) reveals that Softbank is the top carrier in the world with respect to mobile data as % of total Average Revenue Per User (ARPU) and also with respect to total Data ARPU.

As you can see, the top three carriers in Japan are way ahead of the rest of the world in Data ARPU. Amazingly, Japan leads the world in how advanced their mobile user behavior is and how spendy those mobile consumers are.

 K.O. how to lose your leverage

This kind of extraordinary financial leverage has led to another Japanese invasion in mobile gaming, with Gree having acquired OpenFeint (104M acquisition) and DeNA acquiring ngmoco (303M acquisition).The Gree and DeNA acquisitions have been recently criticized for example, Pocket Gamer citing Gree’s acquisition price to be 368 times OpenFeint’s annual revenue. Another concern that was expressed was the culture shock of the Japanese management model.

So the leverage was lost in management and operational integration as well as messy technology and product integration issues.

Judo how to throw from the hips

Good fences make good neighbors. The existence of huge economic leverage is not sufficient to create a good “throw” as we can see from the Gree and DeNA case studies, above.

The Judo throw is simply for the thrower to make the center of gravity of the system (both the thrower and the thrown) the same as the center of gravity of the thrower.

In business operations, this requires good boundaries between organizations, proper management structure and proper API contracts to enforce clean separation of technology concerns.

Kii Corporation’s recent launch of its Mobile Backend-as-a-Service, (picked up by TechCrunch leverages some of these cross-border synergies. The operational approach
is to take a mobile backend that has been serving tens of millions customers in Asia and to open those APIs and SDKs globally. This approach does not presume that mobile user behaviors in Japan are the same as those in the U.S. Rather, it merely takes the cloud power and offers it to the developers of the world. Similarly, the investment strategy of Kii is to invest venture capital in small mobile application developers, which avoids some of the pain of heavy-handed, cross-border corporate takeovers. As with most early stage VCs, Kii gets a board seat, but the company management continues to operate the company, as it should.

But these efforts by Kii not only take advantage of simple economic leverage kept squeaky clean by API contracts and VC term sheets. Kii also adds a layer of cross-border synergy to the mix. Kii partners is a powerful distribution channel for app developers looking to partner with large carriers and handset makers.

So Kii is entering the MBaaS space as its largest provider and as an 800 lb. Godzilla, but formed from the strategic merger of a Tokyo-based company and a Silicon Valley startup. This approach leverages what is best in each region; separates out cultural issues in the apps via a
clean set of SDKs and APIs; separates out cultural issues in management by creating appropriate equity holding relationships (like venture capital); and of course, best of all, creates bona-fide operational synergies between Kii and its app maker partners. These are some of the unique
concerns about operating a cross-border concern like Kii Corporation.

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