It turns out that building a successful TV software business is hard, and as a general rule, cable set-top companies just aren't any good at it.
In the latest sign that maybe set-top vendors should stick to their knitting, Arris Group Inc. (Nasdaq: ARRS) has announced a plan to sell off its Whole Home Solution (WHS) platform to software specialist Espial Group Inc. The deal includes existing infrastructure, client and server software for the platform, and a team of employees located primarily in Kirkland, Wash. Espial and Arris also plan to sign a reseller agreement, and the companies say they will continue to work together in supporting the platform on Arris set-tops and gateways. (See Espial to Acquire Arris TV Software Platform.)
It would be easy to look at this deal in isolation and not read too much into Arris's decision to rid itself of the WHS platform. But let's take a little walk through history, shall we? And let's specifically examine the evidence of a wasted opportunity.
Before Arris was the set-top juggernaut it is today, it competed with Motorola in the customer premises equipment (CPE) business. Towards the end of 2009, Arris acquired Paul Allen-backed Digeo for its set-top portfolio (hardware plus software), and then roughly 18 months later, Motorola rounded out its set-top product line with the acquisition of Swedish company Dreampark and the DreamGallery TV software platform. At the time, both companies hoped to further not only their hardware sales, but also to develop a significant presence in the TV user interface business.
Motorola and Arris enjoyed some success. Motorola won Shaw Communications Inc. as a customer for its DreamGallery software, and Arris built up a solid customer base for its WHS solution, including the Moxi software that it acquired from Digeo.
Still, software wasn't really a strength for either company, and when Arris and Motorola merged in 2013, the new Arris entity didn't capitalize on its TV software assets the way it might have. The focus for Arris was far more on the massive market share it had accumulated in the set-top hardware market, and on the network and cloud business it was (and is) hoping to grow.
Fast forward to today, and DreamGallery has virtually disappeared from the map, while Arris's Moxi software is under serious pressure from TiVo Inc. (Nasdaq: TIVO) in the fight for Tier 2 and Tier 3 service provider customers. Meanwhile, in the retail and over-the-top video space, companies like Amazon.com Inc. (Nasdaq: AMZN), Apple Inc. (Nasdaq: AAPL) and Roku Inc. are pouring resources into their video platforms. Arris has invested too, but not in application platforms or user interface software. Instead, Arris continues to spend money in the hardware business, most notably with the purchase of Pace this year for $2.1 billion. (See Arris Consummates Pace Deal.)
Given that Arris hasn't managed to build a blockbuster UI product, there is a lot of logic in the company's decision to offload the Whole Home platform. However, the deal with Espial also emphasizes just how much of Arris' business is tied up in set-top hardware. (See Set-Tops Are Cash Cow in Arris/Pace Deal.)
And that emphasis comes at a time when many people in the industry are calling apps the future of TV.
UPDATE: Digital ad company Watchwith also just announced that it's acquiring Arris's automated video metadata platform. More software out the door.
— Mari Silbey, Senior Editor, Cable/Video, Light Reading