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11/15/2006

A GOOD Exit: Good for VCs, Bad For Microsoft

Mobile E-mail middleware provider Good Technology was sold to Motorola yesterday.  I have written about the mobile e-mail middleware market in the past and the vast sums of VC money that it has consumed.  Good consumed the most of anybody, almost $250M and had a long roster of some of Silicon Valley's finest as investors.

As good as Good was at raising money it was apparently even better at spending it.  I got a call in May from a retail broker, of all people, pitching me on the virtues of Good's Series E or F or Z (I can't remember) and this was less than 3 months after they had announced raising another $20M.  Not only was I dumbstruck that a retail broker was pitching Good's stock as though it were the stock de jour, but I was equally stunned that they were out looking for money only 3 months after raising $20M and only 15 months after they had closed another $65M.  I'm no math major, but if you raised $85M in 15 months and are already looking for more, you are probably burning $4-5M/month.  I guess I'll never know exactly what they were burning a month because I declined to go the San Francisco Airport Marriott and hear their pitch with whomever else this broker had rounded up off the street.

Not that it matters either as the Silicon Valley rumor mill (at least the part I am plugged into) puts the exit value at around $500M, give or take some escrow and indemnities here or there, which means that Good's investors actually made out, well ... good, real good.  Of course that could be totally wrong, but it's now being reported by respectable news organizations so it sounds like it is a good number.

A 2X To Be Proud Of

A 2X on $250 in PIC might not seem like much, but from my perspective it is absolutely heroic given that there's a very real chance that Good would have been out of business in a few years if not a few quarters.   No they wouldn't be out of business because they had run out of money (they were apparently too good at fundraising to do that), they would be out of business because Microsoft has started literally giving away the same functionality, the only catch, and it's admittedly a big one, is that you have to have a phone with Microsoft Windows Mobile on it.

Its' Hard To Compete With Free And Easy
I just so happen to have such a phone (the Treo 700wx) and was amused to find when I first powered it up that Good Technology's software was prominently displayed on the phone and offered as a solution for accessing my Exchange server.  So I faced an excruciating dilemma:  I could either A) Pay Good a $30 a software license and then pay my hosting company a monthly service fee of $20/month or $240/year (per phone mind you) or I could B) Get the same exact "push e-mail" functionality as Good offers absolutely free by taking 1 minute to enter my exchange log-in details into my phone.  No software to install, no bills to pay. Needless to say this was not a hard decision.

However if one did not know that this functionality was released by Microsoft in Q1 06 for free and yet desperately wanted "push e-mail" functionality, there's a good chance you would dutifully sign up with Good and pay them there $240/year.  It's not like Sprint, Good or my hosting provider went out of their way to mention this, after all they are all getting a piece of the action and thus don't have a big incentive to point out that I am wasting $270 on them.

I should point out, that since that time (a couple months ago) my hosting provider has actually had a change of heart (most likely prompted by a heart to heart with some lawyers and some very angry phone calls from customers who found out they were duped into wasting $270) and has now posted on their site a comparison of the three push e-mail solutions they offer which you can view here.   For those too lazy to click through, the link is to a page that shows the three push e-mail solutions offered by my hosting provider: Blackberry @ $50 up front and $10/month, Good @ $30 up front and $20/month and Microsoft @ FREE.  Now I am not a market researcher but my guess is that once you explain to people that each service is roughly equivalent, that about 100% of the people who have a Window's Mobile phone will pick Microsoft and a decent chunk of people who own other phones will go out and buy a Windows mobile phone while the rest will resolve to buy such a phone next time they upgrade.

Which brings me back to why Good's exit is so damn good.  To get $500M for a company 6 months AFTER the death warrant for its main product line has been very publicly signed, sealed, and delivered from Redmond, WA is absolutely awe inspiring.

Hello Moto ... Hello
While the exit left me with tremendous respect for the VCs, it also left me wondering what in the world the folks in Schaumberg, IL were smoking.  At first I thought they just were either desperate, drunk, or filled with wild-eye RIMM envy.   Then I figured it was all three, but then I thought a bit more about it and realized that Motorola's purchase really didn't have anything to do with RIMM (despite the fact that every news account under the sun characterized the deal as primarily motivated by a desire to compete with RIMM).  No, what this deal was about was freeing Motorola from Microsoft's potential stranglehold on the OS software for their smart phones

After all, Motorola already knows full well that Microsoft offers the same functionality as RIMM and GOOD for free.  One can imagine that their Microsoft reps trumpeted this fact to them to no end while they were putting the Q together and gleefully told Motorola of their grand plan to destroy both companies through their time tested strategy of giving everything away for free.  In fact, there's a decent (and highly ironic chance) that Microsoft was so convincing that they literally scared Motorola into paying a huge premium for what they knew was dying asset as this was the only way to insure that they would be have the flexibility to compete with RIMM and Nokia (which bought Intellisynch last year) without having to throw itself at the mercy of the merciless Microsoft.

In Linux We Trust
Thus by buying Good, Motorola now has the freedom to develop and ship Linux-based smart phones (such as Ming) that can still play ball with push e-mail (using a familiar "brand" no less) without having to pay a significant tax to Redmond on each phone.  I am not sure what that's worth but I suspect there's a spreadsheet somewhere inside Motorola's headquarters that multiplies that tax by the number of smart phones they expect to ship over the next 5 years and that this spreadsheet was the main one used to justify the deal or at least the main one that Ed Zander, someone who knows a lot about competing with Microsoft, used to justify the sky high price to himself.  Of course, I could be wrong and the folks in Schaumberg could just be filled with blind RIMM envy or drunk or whatever, but I think they deserve the benefit of the doubt.

Whew! That was a Close One
As for the VCs involved, I suspect there are a lot of happy and relieved looks around the Good boardroom these days for no one could see the oncoming train better than they could.   It may not be "Google Style" money, but it's more than respectable and considering the circumstances, downright impressive.

November 15, 2006 in Collaboration, Venture Capital, Wireless | Permalink

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The thoughts and opinions on this blog are mine and mine alone and not affiliated in any way with Inductive Capital LP, San Andreas Capital LLC, or any other company I am involved with. Nothing written in this blog should be considered investment, tax, legal,financial or any other kind of advice. These writings, misinformed as they may be, are just my personal opinions.