While many rejoice after Tokbox acquisition today, they do so in the same way France rejoice after the world cup: we won, but we’re not really proud about the way we won. Yes, it’s good to have a high-level acquisition in the WebRTC field, it had been while. But 35 Millions for Tokbox, something is terribly wrong there, and there is nothing to rejoice about. Unfortunately, this was somehow predictable. Let’s look at the details in this post.
“La Haine“ is a french back and white movie whose scenario depicts the life of 3 individuals born in the wrong paris neighbourhood. To describe the inevitability of their destiny, they use the image of a man jumping from the 50th floor of a building and has each floor passes by tells himself “so far so good”. The man might not perceive its upcoming death, but it’s already inevitable.
The same could be said about Webrtc PaaS. While the growth of CPaaS was impressive already in 2015 (see here for several numbers), the growth of WebRTC PaaS (that only propose video and audio over the internet, and do not connect to telecommunication networks like CPaaS), has been lukewarm. In Singapore, the growth of the CPaaS Wavecell was in sharp contrast with the lack of noticeable results from the PaaS Temasys (see here).
NTT admitted publicly that most of the WebRTC PaaS were not making money. Rumors on the street was that twilio never made money from “media-over-the-internet” either, but they don’t need to yet, and can make it a medium to long term play. Again, according to rumours in the ecosystem, agora.io would be the only one profitable.
When a business is not profitable, and not strategic like for NTT, at one point, the end is clear. One year ago almost, we saw a surge in job candidates coming from Tokbox. After investigation, Tokbox would have then be given an ultimatum by Telefonica to be profitable within a year, or else. That year saw a lot of unusual efforts from the Tokbox team, with the introduction of professional services, and other hopefully revenue generating initiative.
Earlier this year, Telenor digital sold appear.in, whose original founder and main engineer had left already to a start a company called confrere, to a small company nobody had heard of before (in the WebRTC ecosystem). Now, Telefonica digital is selling Tokbox to Vonage. It’s not only selling it, but it’s selling it for approximately the same price it bought it (*) ! To add insult to injury, vonage had bought CPaaS Nexmo for 230M a couple of year back. Almost 7 times more. While the remaining Tokbox engineers (**) seem happy for the transition, it is likely to make some CEOs, founders and investors in PaaS less than happy.
The question remains, what is Vonage going to do with Tokbox. They surely got a great team and interesting IP at a bargain here, but how does that complement and improve their offer, and most importantly, how do they plan to make it a revenue generating part of their portfolio. Are they going to merge it into what was Nexmo? Are they going to make it a separate entity. At this stage it is not clear, and existing Tokbox customers are likely writing e-mails to Tokbox right now about that, and/or reaching out to the usual platform developers and integrators capable of providing them with a replacement if need be: Blacc Spot Media, webrtc.venture, or ourselves at CoSMo. Highly successful Nexmo original founders (both CTO and CEO), left Vonage a few months back, so one can wonder if Vonage has enough people with vision left to leverage such a WebRTC gem to its maximum. The brExit is likely to make HR matters complicated as well.
That also brings the question of the sustainability of the WebRTC PaaS Business model. With the most successful PaaS gone for nothing, while CPaaS are increasing revenue, getting funding, and going through successful IPO, the choice for investors is clear. For PaaS, there are still some options left:
- go big or go home, like agora.io.
- pivot to become a CPaaS.
- sell (find a big brother with a need for Video only).
Unfortunately, if you choose to go big, you will face an uphill battle. You might manage to get some of Tokbox customers, but this is a crowded space, and the competition is fierce. Tokbox announcement tells us that PaaS business alone is not sustainable.
If you choose to pivot to become a CPaaS, even if you could it quickly, the rest of the world hasn’t waited for you, and you will need to go against Twilio and other players with either a better tech portfolio, or a more established base locally.
Selling, if you could find a buyer, would be at a loss. Given the Appear.in and Tokbox price references, nobody in their right mind would pay more than what you invested in the business, if even.
As a conclusion, the Tokbox sale is the last nail in the WebRTC PaaS business model. It will define a big part of WebRTC ecosystem for the time to come. I’m a big fan of Tokbox, they have a lots of very gifted individuals in their team, and I’m wishing them best luck within Vonage. I bet many will look very closely at what happens next, as it can move the WebRTC market, both buyers and investors mindsets, in quite a few different directions in the short future. Interesting times!
(**) Some Tokbox engineers, on lease from Telefonica, took advantage of Telefonica restructuration plan a year back to get a package and leave. Most notably, Gustavo Garcia, one of the lead architect, left to house party.