Tokbox: Another WebRTC PaaS bites the dust

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, 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, 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
  • pivot to become a CPaaS.
  • sell (find a big brother with a need for Video only).
  • close.

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 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!

(*) The amount Telefonica paid to acquire Tokbox is not known exactly, but many agree to evaluate it around 30~35M, since at the time, Tokbox had received 26 ~ 33M in funding.

(**) 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.

7 thoughts on “Tokbox: Another WebRTC PaaS bites the dust

  1. Hi Alex,

    according to Telefonica fillings, “on October 22, 2012, Jajah Inc. acquired 100% of Tokbox Inc. for 12 million dollars”. I couldn’t find the accumulated debt at the time of purchase, but looks like Telefonica has made some profit with this deal.

    1. Thanks for pointing it out.
      1. It is likely that the 30+ million number is the total cost of acquisition (in 2012). It includes the acquisition, as you point out, but also existing debt and other depreciation, retention bonuses, and possibly a few other things. Sequoia mentioned to me at a time that they did not really lose money in the transaction, so I can safely assume that, while not being exact, the 30M number is not totally off.
      2. Even if we were to use 12M as a base, and assume that the 35M number is real and comparable (we would need to see corresponding filling to be sure), it’s 20M benefit over 6 years on the transaction only. If the business operation was generating loss, those should be taken into account as well.

      1. In reality the numbers were never the issue for Telefonica (TEF). TEF invests for the long term. Given the short tenure and relatively small dollar figures, the real take away may be that TEF does not believe in PaaS (or even) CPaaS as a business model. Question is will a Vonage discover a path to growth that TEF could not? I doubt it. Most likely scenario is that Vonage verticalizes the various bits into a Zoom like competitor.

        1. Hi todd. Thanks for your comment.
          1. The question in my mind about Telefonica is more: why did they not try to integrate better tokbox with their telco offer. Even thought Eventually they shut down their webrtc offer, I thought that ATT move to tie their phone numbers to webrtc was a very smart move. Only a telecommunication operator could offer such feature, they had their differentiators. Citrix had to register as a telco to be able to do it in the US. There were a lot of things to experiment with, the kind of things we see YTL in malaysia proposing. As soon as tokbox had a media server, there were really two ways forward: the web way (broadcast), and the telco way: SIP connector, IP-PBX, which was in turn allowing leverage of other telefonica techs, and of course co-sales. That never happened.
          2. Vonage bought nexmo several years ago already, and I did not see them “verticalizing” it. Maybe I missed it. I am under the impression that they tried to integrate it and leverage the result as much as possible. It would give hope to observers, to be able to think that the Tokbox acquisition was a strategic decision trigger by a gap analysis of the result of the voyage / nexmo integration, and not an opportunistic acquisition. The truth is like somewhere in the middle.

  2. NTT made our WebRTC platform (= SkyWay in Japan, ECLWebRTC outside Japan) a part of the Cloud Service (= Enterprise Cloud). We consider our WebRTC Platform has much potential for growth and are going to continue to invest in it.

    1. I really like what NTT is doing with Skyway (disclaimer: I like the NTT webrtc team, period, they’re great, even though we used the brand skyway before they did 🙂 ). In this post I was more making point about how WebRTC PaaS did not make a sense **as a stand-alone business**. Making the webrtc PaaS a part of a bigger portfolio, and finding leverage points, is, IMHO, the way to go. I think this is what twilio, and now voyage/nexmo are trying to achieve. NTT is a gigantic company, with a lot to offer to Skyway, and NTT communications in particular seems like the right place to host it. I’m looking forward to the growth and expansion of skyway and of its features which, arguably, lag a little bit behind the other big player’s offer for now. Not a problem in a long term play of course.

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