Lifesize Doubles Down on Cloud; Spins Off from Logitech
Jan 27, 2016
Corporate spinoffs can be challenging often entailing a long complex process. Craig Malloy, Lifesize CEO, states about recent spinoff announcement from parent company Logitech, “this is the culmination of two years of hard work reimagining and reinventing our business and nearly a year of working through the transaction”. Its all for a good reason. According to a Penn State study, over a 25-year period, spinoff companies outperformed both their industry peers and the S&P 500 by about 10 percentage points per year over the three years after being spun off.
As we view it, the spinoff will unlock Lifesize’s true potential as a cloud collaboration provider in a market that’s growing like gangbusters. To begin with, there were not many synergies between Lifesize and Logitech. After the acquisition the two remained mostly disjointed from a product development as well as sales and marketing perspective. Over the last few years, as Lifesize moved fast to seize opportunities in the cloud delivery model, the misfit between its B2B SaaS business and Logitech’s retail hardware business became even more glaring.
Its independent status as a SaaS provider gives Lifesize the strategic focus and funding opportunities that it will need in a competitive and fast growing market. According to recent Frost & Sullivan research, the global market for conferencing services stands at $7.3 billion 2014, and is forecast to grow to $9.4 billion by 2019. The total market revenue is split up as follows: audio conferencing 60.2 percent, web conferencing 28.2 percent, and video conferencing 11.6 percent. These breakouts are expected to change dramatically by 2019, with visual (web and video) collaboration revenue exceeding revenue from stand-alone audio conferencing. Hosted/cloud-based video conferencing services are expected to have the highest CAGR of 22.2 percent. As trust in cloud continues to grow, alleviating security and quality concerns, so will adoption of cloud-based video conferencing services. The shift from traditional room-based conferencing to desktop and mobile video is expected to accelerate over the forecast period further boosting the adoption of cloud video conferencing.
Lifesize has received $17.5 million of equity capital for growth, which will allow it to double down on fast emerging opportunities. It is backed by three prominent Silicon Valley venture firms – Redpoint Ventures, Sutter Hill Ventures and Meritech Capital Partners, which have been part of success stories at SaaS leaders like Box, Zendesk and Twilio. This backing provides Lifesize new opportunities to accelerate growth not only through the funding but also through these firms’ expertise in high growth SaaS markets. Lifesize also has an added advantage of reaping cash flow from the tails of its legacy business and associated maintenance contracts, which bring in tens of millions of dollars to support its investment in cloud.
Lifesize Cloud has seen tremendous growth. Over the last few years, Lifesize moved faster than some of its competitors and made bold moves to methodically wipe away its legacy hardware- driven video conferencing infrastructure business while shifting to an overarching cloud and software model. As a result, it went down from 550 employees to 250 and has seen dramatic Opex reduction. In the one and a half years since the launch of Lifesize Cloud, the company has seen impressive growth and customer velocity:
- More than 2,000 paying customers including Twilio, Survey Monkey, Omnicom Group and Evolution Gaming
- More than 100,000 entitled users
- Greater than 1.5 Million minutes of video calling per week
Our analyst team at Frost & Sullivan has trialed the Lifesize Cloud service and has joined many calls. The experience, both over the desktop app as well as Web RTC browser-based connectivity, has been impressive. Lifesize Cloud is winning many customers, due to its reliability, scale and attractive prices that appeal to companies of all sizes. Customers continue to seek best of breed collaboration experiences. Lifesize is inter-operable with standards-based third party conferencing solutions and can therefore play well in mixed environments, which are becoming de facto given the impact of BYO and consumerization.
The cloud collaboration market is heating up with communication giants like Cisco and Microsoft at one end putting a stake in the ground with newly launched cloud initiatives and heavily funded disruptors like Blue Jeans at the other end. We believe Lifesize needs to address several areas including improving market visibility and brand perception. As with the rest of the industry, there is also the immense challenge of managing channel expectations as the business migrates from traditional AV one-time revenue model to recurring subscription revenues from cloud services. The market remains nascent with a host of providers aiming to establish a large customer base. Based on the strength of its offering, we expect Lifesize to become a vendor to reckon with in the cloud collaboration services market.
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