Kasenna CEO: 'To Survive is to Win'

MOUNTAIN VIEW, Calif. -- Microsoft Corp.’s (Nasdaq: MSFT) aggressive moves into IPTV have spooked many, including Alcatel (NYSE: ALA; Paris: CGEP:PA), which dropped out of the IPTV middleware market in favor of working with Microsoft as an integration partner (see Alcatel & Microsoft Going Steady and Alcatel's IPTV U-Turn).

This brings up a big question: Is there any room for startups left in the IPTV space?

Not everybody’s quaking in their boots. Mark Gray, CEO of video server startup Kasenna Inc., says his company has plenty of weapons with which to fight the Microsoft machine, including its own content licensing deals and a more open, efficient platform.

In visiting Kasenna here this week, Light Reading found out something else about Gray: He digs motorcycles. He owns two Harley Davidsons, including a gleaming 2003 Limited Edition Road King parked outside the company HQ. As if that weren’t enough, Gray also has a BMW cycle parked inside the company lobby. He says it's been stranded there since he got stuck at work once when it was raining and got a ride home.

Unfortunately, the motorcyle doesn't talk. Kasenna apparently doesn't have a receptionist, and guests are greeted by the motorcycle and a sign directing them to use a phone to find an employee.

Gray may need all the Harley firepower he can get. Since Microsoft has sold SBC Communications Inc. (NYSE: SBC) and Verizon Communications Inc. (NYSE: VZ) on its platform, the IPTV startup world has found itself victim of classic Microsoft marketing tactics. Never mind whether Microsoft's product is ready for deployment (see Verizon Makes Microsoft Video King and IPTV: Microsoft's Window to Carriers).

The most challenging fact for Kasenna: Even though Microsoft TV vice president Moshe Lichtman said Wednesday the product is still two years away from hitting consumers in electronics stores, Microsoft now finds itself perceived as a leader, on the strength on its deals with SBC and Verizon alone.

Gray, who was pursuing his own deal with SBC, says that Microsoft sold its IPTV platform at the “top levels” of SBC on the strength of a demo of the interface, going over the heads of the technical heads who were working with Kasenna. In fact, says Gray, Kasenna staff were at SBC working with engineers the day Microsoft and SBC announced the deal.

Kasenna’s marketing points are: Its video server is widely deployed; it's based on open systems and is more scaleable, requiring fewer servers to support the network; and it comes with a developer’s kit and content licensing deals that allow telcos to quickly build their own customized IPTV services.

Gray, a former Sony Corp. (NYSE: SNE) executive, points to a Kasenna subsidiary, called ViewNow, as one of the pieces to this puzzle. Kasenna bought ViewNow in May 2004 when it had only 10 people. It’s a services company that provides turnkey content licensing arrangements with hundreds of content providers. Gray views content as one of the big headaches of the IPTV business, so this could be a competitive advantage against Microsoft, which has yet to announce a portfolio of content licensing arrangements to go with its product.

Indeed, content licensing is cited by many experts as a key element in the success of IPTV -- especially in the case of video being rolled out by the large carriers (see IPTV vs Me-Too TV and TeleCity Reports Record Q1 ). The reason? Large telecom carriers have little experience with content, and an array of licensing agreements, many of which are exclusive, could provide a barrier to entry for them.

”This is like an annuity on the content side,” says Gray, who adds that ViewNow will take a cut of revenue for content sold through the system. “We have the most integrated solution on the planet.”

So what about Microsoft’s headline deal with SBC? Gray doesn’t think it’s as damning for startups as some have made it out to be. First of all, he says that in addition to the content element, Kasenna has architectural and engineering advantages.

”We’re two to three years ahead of them. The way they’ve architected their system, we don’t think it will be attractive to anybody but the largest carriers.”

That may mean that Kasenna’s strategy will be to stick with the smaller Tier 2 and 3 telcos, including the independent operating companies (IOCs). To date, Gray says, there’s plenty of room in the market to grow. He says the company currently has about $15 million in revenue and has been growing about about "30 percent to 50 percent" per quarter. He expects the company, which has 80 employees (up from 60 last year) will break even by the end of the year.

This year we find out if it's all true. Gray claims the company is close to landing a massive, 50,000 deployment in Asia, and other companies are on the way. He points out that despite Microsoft's appearance, there are now only about three video server companies left in the business.

"In five years we've gone from 50 companies to three," he says. "To survive is to win."

— R. Scott Raynovich, US Editor, Light Reading