TECH DEALS: Instagram lives the start-up dream

The billion dollar payday for Instagram is the stuff dreams are made of and is good news for our home-grown social media hot shot Kondoot. Meanwhile, AT&T and AOL quit living in the past and Twitter gets angry.

Instagram lives the start-up dream and latest on Kondoot

We start with Facebook, which has pulled off its biggest buy to date with the $1 billion buy of mobile photo-sharing sensation Instagram. Facebook’s head honcho Mark Zuckerberg isn’t exactly a big spender so there’s presumably enough here to convince Zuckerberg that Instagram is worth the billion dollar price tag.

The biggest incentive for Facebook is that by bringing Instagram under its wing the social network has effectively absorbed one of its number one threats. Instagram is much more than just a photo-sharing service it is a social network that is not only wildly popular but is importantly a competitive mobile-only social platform, which has so far had little problem in raising funding. Last week, All Things D reported that Instagram was close to wrapping up a $US50 million Series B round led by Sequoia Capital at a $US500 million valuation. With interest at Instagram hitting fever pitch, Facebook may have decided to make a pre-emptive strike

The deal is also good news for Instagram because while it has more than 30 million registered users, it has no business model nor has it posted a single cent of revenue. The thing to watch now is how the likes of Twitter, Google and Yahoo will respond to the deal.

Home-grown talent 

Instagram’s billion dollar pay day is the stuff start-up dreams are made off and don’t be surprised if the deal revives talk of the social media bubble, where valuations are thrown out the window.

Outfits like Instagram are not alone in riding the social media wave. Australia has its own contender that is turning heads across the globe. That contender is Brisbane-based Kondoot which is forging ahead with its $10 million capital raising plans. The live video social network has secured the services of KPMG as its corporate advisor.

Kondoot  announced its plans to raise the dough last month and I recently caught up with the co-founder Mark Cracknell to discuss what led to the move and where he hopes Kondoot is going to be in a couple of years from now.

Last year, Kondoot raised about $800,000 and later completed a remarkable $3.2 million funding in the United States. According to Cracknell, the experience with VC funds in the US was an eye-opener and prompted the latest capital raising initiative.

“We did talk to a few VC companies and found that the level of control that they wanted was something we were not comfortable with, they wanted an awful lot of control,” Cracknell says.

Faced with that scenario, Cracknell says tapping the rampant interest among Australian investors was a much better alternative. For the time being a listing is not on the cards but that could change especially if the Facebook IPO goes according to plan.

What’s really exciting about Kondoot is that there is no other social live video network out there that comes close to matching its buzz and if the Instagram example is anything to go by then it’s only a matter of time before a market heavyweight comes knocking.

Cracknell says that while he isn’t expecting a billion dollar buyout offer from the likes of Google just yet but there has been a number of strategic partnership approaches which are under review.

The Instagram deal shows that the big boys are willing to pay top dollar when it comes to integrating new functionalities and the immediate challenge for Kondoot is to translate the positive buzz in the market into a competitive social platform.

It’s a challenge that Cracknell is well aware of, hence the focus on staying “ahead of curve” and working on a fast development time, introducing new features and increasing its geographical reach. 

Like Instagram Kondoot is yet to be profitable but it does have a sound business strategy that is underpinned by a paid broadcasting model, where users can charge viewers a fee to watch a conference or a concert and Kondoot takes a 20 per cent cut. Cracknell adds that there is also an option where users can record the said concert or conference and sell that to interested viewers. For the time being advertising is out of the picture mainly but there is strategy in the works.

“We recognise that advertising is not where the money is. Almost all sites advertise and almost everyone struggles to make revenue from it,” Cracknell says.

“The alternative is you end with advertising that is very instructive and the last thing you want to do is destroy customer experience.”

Interestingly, Cracknell reckons that mobile gaming could become a bigger revenue driver for Kondoot in the future. However, the real game for Kondoot is, as Cracknell describes it, to “stay ahead of the curve”  not only build a stronger global presence but also ensure that it is still the talk of the town when the likes of Google and Facebook decide to take a look.

 AT&T and AOL quit living in the past; Executive exodus at Yahoo, RIM

There were also a couple of other big-money deals in the US that have been overshadowed by the Facebook/Instagram deal. One was the AT&T’s $US950 million deal to sell a major stake in its Yellow Pages business to private-equity firm Cerberus Capital, while the other was AOL’s move to sell its portfolio of 800 patents or so to Microsoft. In a way both deals are about shedding a legacy. In At&T’s case the move exemplifies its determination to turn away from traditional businesses, while AOL is finally cashing in chips in the only currency that seems to matter in the tech space, patents.

Meanwhile, it’s been an eventful start to the month at Yahoo and while the web-pioneer’s patent brawl with Facebook is getting serious, most of the attention has centred on the latest round of bloodletting at the company, with 2000 employees getting the sack. This is the sixth round of layoffs at Yahoo in the last four years and the first under the auspices of new CEO Scott Thompson, who is facing the herculean task of making the company relevant again.

Thompson’s main priority is to turn Yahoo into a nimbler and more profitable beast and that’s almost certainly going to see more jobs lost. The slash and burn is also seeing the ranks thin out at the executive level with news that Yahoo's chief product officer, Blake Irving, has resigned. Irving joined Yahoo when Carol Bartz was still running the show but has now decided to move on. According to All Things D’s Kara Swisher, the move isn’t entirely unexpected given that Irving’s division has borne the brunt of the latest job cuts and probably doesn’t fit into Thompson’s vision of Yahoo’s future

Elsewhere, a corporate exodus of sorts is also apparently under way at Research in Motion (RIM) with The Wall Street Journal porting the departure of Alistair Mitchell, a vice president of the BlackBerry Messenger department, and Alan Brenner, a senior vice president at the company.

Dell’s cloud moves

Moving to the cloud computing and virtualisation space, PC giant Dell has been hogging the limelight with its acquisition of Wyse Technology and Clerity Solutions. Both acquisitions are a clear sign that Dell is serious about preparing a bulwark against the terminal decline in PC sales.

Wyse provides thin-client hardware and related software tools for virtualised and web-based computing environments.  Thin and zero-client devices are alternatives that help companies move to virtualised environments and the cloud, in other move away from the traditional desktop PC model.

Now, it’s not every day that you are going to see a PC vendor spend millions to buy virtualisation technology that detracts from its core business but there you have it. Dell has so far expended a fair amount of energy to develop its virtual desktop product portfolio internally but the acquisition of Wyse will no doubt speed up that process.

The move also helps Dell catch up with the competition Hewlett-Packard (HP) which got the jump on Dell in the thin-client market a couple of years ago with the acquisition of Neoware. The thin-client market makes up anywhere between five to 10 per cent of the desktop PC market and former Wyse CEO John Kish has told Business Insider  that Dell is now slowly filling that gap.

The death of the PC era may not be imminent but things aren’t as healthy as they used to be and Dell boss John Swainson is keen to ensure that the company has a substantial arsenal of cloud, services and software portfolios to be ready when things eventually go belly up. Desktop virtualisation isn’t about to make the traditional PC obsolete just yet but it pays to be prepared.

Twitter gets angry; Anonymous attacks 10 Downing Street

In security news, Twitter is fighting back against spammers with the social network taking five websites to court over their alleged involvement in creating and providing tools for spammers.

The defendants listed in the suit filed in the U.S. Federal Court in San Francisco are TweetAttacks, TweetAdder, TweetBuddy, James Lucero of justinlover.info and Garland E Harris of troption.com.

Twitter said in a blog post that it was taking the attack to tool providers that wilfully create tools “that enable others to propagate spam on Twitter."

"With this suit, we're going straight to the source. By shutting down tool providers, we will prevent other spammers from having these services at their disposal. Further, we hope the suit acts as a deterrent to other spammers, demonstrating the strength of our commitment to keep them off Twitter."

Hacker collective Anonymous has reportedly turned its attention to the UK with a distributed denial-of-service (DDOS) attack against the websites of 10 Downing Street and the British government's Home Office website. According to Sophos’ Graham Cluley, the bold move has apparently been launched in support of Pentagon hacker Gary McKinnon and TVShack's Richard O'Dwyer who face extradition from the UK to the United States.

Finally, US-based security vendor Kerio Technologies has reached a distribution agreement with Sydney-based IT solutions distributor  Digital Techniques. Under the terms of the agreement, Digital Techniques will promote and distribute the hardware and software appliance editions of Kerio Control, a UTM security appliance, and Kerio Operator, an IP voice system. The hardware versions of these Kerio solutions were previously unavailable in Australia.

Wrapping up

In other news, IT and business services provider Logica has signed a five year managed services contract with Queensland Rail worth $33 million to transition and manage their newly-established ICT infrastructure platform.

Rio Tinto has signed communications integrator, Orange Business Services, to deliver network and security services to its sites across the globe. The new five-year deal will see Orange provide WAN services including satellite access and network management, secure internet gateways and traffic optimisation to more than 280 Rio Tinto sites. Orange will also support users in both global offices as well as remote mining locations such as Canga East in Guinea, Ulaanbaatar in Mongolia and Almaty in Kazakhstan.

Meanwhile, the Australian Customs and Border Protection Service has selected ASX-listed Objective Corporation to implement its enterprise content management (ECM) platform, Objective ECM 8. The three-year agreement is worth approximately $5 million initially, with the option to extend the contract up to a total of nine years. Objective was selected after an extensive public tender process which began in early 2011.

National furniture retailer Super A-Mart has signed a $3.6 million three-year contract with Brennan IT for a hosted managed service including servers, a national private IP network linking all 40 Super A-Mart sites and a fully managed print service. Super A-Mart currently has over 50 servers on Brennan IT’s private cloud (Infrastructure-as-a-Service) platform, hosting the company’s business critical systems such as payroll, e-mail, file and print, BI, Sharepoint, store rostering and other critical business applications.

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