Sandvine Sold its Holding in Xerocole to Akamai

Sandvine released yesterday its Q1 results (revenues of $32.4M - here). The release also states that "Net income for the quarter includes $2.8 million of other income related to a gain on the disposition of an investment in a private company".

Sandvine's financial report explains that "On February 27, 2015, the Company sold its preferred share investment in a private company for consideration of $3,057. Consequently, the Company has recognized a gain related to the disposition of its preferred share investment of $2,778. Subsequent to February 28, 2015 the Company collected $2,595 with the balance held in escrow and due August 27, 2016" (here).

According to SeekingAlpha's transcript of the earning call (See "Sandvine's (SNVNF) CEO Dave Caputo on Q1 2015 Results - Earnings Call Transcript" - here) - "approximately $2.8 million of current quarter net income resulted from a gain on the sale of a minority investment in Duracool, which related to a spin out of our 2007 acquisition of Simplicita. Duracool was recently acquired by [indiscernible]".

To be more exact, the name of the private company is Xerocole. 

Simplicita built behavioral advertising solutions and was acquired by Sandvine in 2007, Xerocole was spawn-off in 2010 (see "Sandvine Spins-off Simplicita as Xerocole" - here). Its site explains that its mission is to "simply deliver, for service providers, the smartest and most personal DNS platform on the planet We relentlessly pursue DNS technology and service excellence and perfect how users control the right websites and right time for each. We believe that a great Internet experience begins with great DNS technology and services".

On March 2nd, Akamai announced it has acquired Xerocole (see 'Akamai Acquires Xerocole" - here) - explaining that "Xerocole's intelligent recursive DNS technology was designed to provide carriers with security, speed, and the ability to dynamically and flexibly set DNS policy and user preferences".

Sandvine Spins-off Simplicita as Xerocole

 

3 years ago, Sandvine acquired 2 companies (see "Sandvine Announces Two Acquisitions" - here) for a combined sum of "US$4.5 million in cash, 0.9 million Sandvine common shares, plus a further 0.6 million shares if certain sales targets and business metrics are met in 2008 or earlier".

One of the companies was Simplicita: "..Initial applications of Simplicita’s innovative technology protect service providers’ Domain Name Server infrastructures while enabling the creation of new advertising-based services. Sandvine’s agreement with Simplicita is subject to typical closing conditions and is expected to close by the end of this month.". Sandvine's Search Guide product was the result of the acquisition. 

Last Thursday, on its quarterly results conference, Sandvine announced that Simplicita is becoming independent again, as Xerocole. "As our name implies, we strive to be nimble and reliable in difficult environments. Xerocole's commitment to software quality is the oasis that turns challenges (like network errors) into dependable revenue streams"

During the call, Sandvine's CEO, Dave Caputo, said that the new company will continue Search Guide and will work on other "advertising opportunities". Xerocole will become a Sandvine "eco-system" partner, but will allow Sandvine to partner with other companies in the advertising space. In exchange for the IP transferred to Xerocole, Sandvine got minority equity in the company and will get royalties on future sales. Scott Hamilton. Sandvine’s CFO, said that revenues for Sandvine from the solution were immaterial so far and so are the expected future royalties.

Frank Bergen, Simplicita's CEO who was VP and GM of Sandvine’s Broadband Services business unit is now Xerocole's CEO (pictured on the right with Xercoles's VP of sales, David Rybarczyk during their Simplicita days, manning the same positions).

Xerocole's offering falls into the behavioral advertizing solution category, where the business model is based on sharing advertising revenues with ISPs. While other cases of behavioral advertising were not accepted well because of privacy concerns and no apparent value to the user, this particular solution may be seen as a lighter case as it provides a useful tool when a mistake is made in a website address. Nevertheless, privacy concerns may be valid here as well, so the new name may tell us something about the real challenge..  

See more on this issue in a previous post "Japan - ISPs May Use DPI for Behavioral Advertising" - here.

The solution has synergy with DPI/traffic management systems, which may be use to redirect relevant traffic to the monetization software (which needs to do "Deeper DPI" in order to extract the user's entry and intentions). As such Sandvine now classifies it as part of its "eco-system" Value-added Service, an up-sell that may be deployed with Sandvine’s DPI solution.

Other companies in this space - Paxfire, Barefruit (appears on Xerocole partner page)