Optical/IP Networks

OZ Locks Down $34M

Canadian mobile messaging startup OZ Communications Inc. has grabbed $34 million in a second round of VC funding. While that may seem large, compared to many other wireless ventures, it's becoming more common in the mobile messaging space, where a recent spate of acquisitions and anticipation of major market growth have investors looking for the big score.

The latest round was led by the Caisse de dépôt et placement du Québec, a Canadian institutional fund manager. The firm's major existing investors also joined the round. The Montreal-based firm has raised over $61 million in VC funding since it started in 2002.

OZ says this financing will provide it with the means to continue to expand its mobile messaging offerings and extend its "sales and marketing reach." The firm currently sells mobile IM clients, gateways, and presence servers to carrier customers, ISPs, and handset makers. Some of its high-profile customers include Cingular Wireless , Microsoft Corp. (Nasdaq: MSFT), and Nokia Corp. (NYSE: NOK).

OZ is by no means the only mobile messaging firm fetching the big VC bucks. Mobile email firm Visto Corp. has grabbed more than $230 million in 10 years of operation. Newer, smaller messaging players such as Berggi Inc. are entering the market all the time.

So why is there so much interest in the mobile messaging and email market? Partly because there is a sense that dominant players such as BlackBerry and others are only addressing part of mobile messaging. OZ itself cites a Yankee Group Research Inc. forecast for the consumer mobile messaging segment, saying that it's expected to continue robust growth from over $50 billion in revenues in 2006 to over $67 billion by 2009.

Analyst Kathryn Weldon at Current Analysis says that carriers still see mobile messaging as a way to bolster overall revenues and tap into new market segments. "Wireless data is seen as a way to maintain high growth and ARPU [average revenue per user] in the face of saturating voice dynamics for wireless," she says. "Given the very low penetration of mobile email accounts as a proportion of all corporate email accounts -- about 3 percent penetration -- there is very high growth expected for this segment. "In the consumer space, its a bit different, but the current generation that is growing up using IM and text messaging and simultaneously giving up wireline phones altogether is also going to buy data/messaging services," she adds.

Acquisitions in this space are also driving investor interest. Motorola Inc. (NYSE: MOT) recently bought Good Technology Inc. for its mobile email capabilities, following Nokia Corp. (NYSE: NOK)'s buyout of IntelliSync for similar technology the year before. Google (Nasdaq: GOOG) has also bought into this area with its acquisition of Android, which made software for cellphones.

— Dan Jones, Site Editor, Unstrung

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