TalkingPointz Research: Verizon and BlueJeans

This week, Verizon announced its intent to acquire BlueJeans:

NEW YORK- Verizon Business today announced that it has entered into a definitive agreement to acquire BlueJeans Network, a trusted enterprise-grade video conferencing and event platform. The acquisition expands Verizon’s immersive unified communications portfolio. BlueJeans’ cloud-based video service currently serves a wide variety of business segments from small organizations to some of the world’s largest multinational brands, and has played a significant part in continuing those companies’ operations during the ongoing work-from-home surge.

The transaction will combine BlueJeans’ simple, smart and trusted meeting platform with Verizon’s unified communications as a service business immediately. Customers will benefit from a BlueJeans enterprise-grade video experience on Verizon’s high-performance global networks. In addition, the platform will be deeply integrated into Verizon’s 5G product roadmap, providing secure and real-time engagement solutions for high growth areas such as telemedicine, distance learning and field service work.

Verizon Acquires BlueJeans Network
By Dave Michels, April 17, 2020

1. Overview

1. 1. On April 16, 2020, we learned that Verizon Communications agreed to acquire BlueJeans Networks. 
   2. The WSJ reported “the carrier will pay less than $500M for the Zoom Video Communications Inc. rival.” 
   3. Verizon reports that BlueJeans “will be deeply integrated into Verizon’s 5G product roadmap, providing secure and real-time engagement solutions for high growth areas such as telemedicine, distance learning and field service work.”
   4. BlueJeans was founded in 2009. It has raised $175M. TechCrunch reported that a Verizon spokeswoman confirmed the price tag is less than $500M but did not provide a more exact figure.
   5. BlueJeans is privately held, so terms and its current valuation are uncertain. About a year ago, BlueJeans reported that it surpassed $100M in annual recurring revenue during the fiscal year that ended January 31, 2019. 
   6. There are very likely some significant retention bonuses in this transaction. Verizon has made it very clear that it expects to retain employees, founders, and key leadership. 
   7. The deal is expected to close in May.
   8. Verizon intends to keep BlueJeans intact. It has retained key leadership including founders. All BlueJeans employees are expected to stay. 
   9. There are no immediate changes to partners or channels. 

2. About Verizon

   1. Verizon currently has reseller arrangements with Cisco and Zoom (recent), and BlueJeans. 
   2. Verizon is organized around three major units: SMB, Enterprise, and Public Sector. 
   3. Verizon is a very diverse company. Its primary interest going forward seems to be 5G. The news of the acquisition was covered closely on TechCrunch and Yahoo News — both owned by Verizon. 
   4. Over the past several years, Verizon (like competitor AT&T) made several acquisitions to diversify its portfolio. It attempted to do a joint venture with Redbox and also acquired AOL and Yahoo (rebranded Go90 and Oath) — all of which were broadly considered failures. AT&T made similar missteps (Time Warner and DirecTV), which resulted in a commitment to shareholders that it would stop mergers for three years. 

3. About BlueJeans

   1. BlueJeans was founded in 2009 by Krish Ramakrishnan and Alagu Periyannan. 
   2. BlueJeans is a complete video solution. It has its own clients, room systems, and cloud-delivered services. 
   3. The company does not produce its own hardware. It partners with Dolby Voice for its premium room hardware but also has solutions that involve Logitech, Poly, Cisco, and many other equipment providers. 
   4. BlueJeans has more than 15,000 customers.
   5. BlueJeans was named a "visionary" in Gartner's September 2019 Magic Quadrant for meeting solutions.

4. Dave’s Thoughts

General

1. It is not surprising to learn that BlueJeans was acquired. The company was rumored to be looking for acquisition for at least the past year. 
2. Video conferencing is no longer about small, specialized firms (Polycom, Vidyo, Lifesize, etc.). Instead, it has become the realm of giants (Amazon, Apple, Cisco, Facebook, Google, Microsoft, and Zoom). Services need to be inexpensive and robust, and increasingly are delivered as part of a larger bundle.
3. Most of the video pureplays have been acquired: 8x8 got Jitsi, Amazon got Biba, Enghouse got Vidyo, Lifesize recently merged with Serenova CCaaS, and Vonage got TokBox. The pureplays that remain are Highfive and Pexip; presumably both are for sale. 
4. For 20+ years, video conferencing was for aristocrats. In the past five or so years, it has moved into the mainstream. This is due to broadband ubiquity, video-enabled device ubiquity, consumerization and familiarization, and digital transformation. As video has become mainstream, it has attracted larger providers. 
5. For most companies that want to get into video, acquisition seems logical. Open WebRTC has reduced the barrier to entry, but it’s not a complete solution. It still takes a lot of effort (time and money). 
6. The video opportunity has changed. It’s no longer about cloud-MCU or interop — though demands for both still exist. Last November, when Microsoft and Cisco agreed to support each other’s room systems, was a watershed moment.  
7. There are some complementary aspects to this acquisition. Key assets that BlueJeans brings to Verizon: 
   1. Key assets that BlueJeans brings to Verizon: Development teams in California, India, and New Zealand. Verizon needs new development capabilities for its 5G initiatives. Video expertise: Complete solution for One Talk.
   2. Key assets that Verizon brings to BlueJeans: Sales capability. Huge account base. BlueJeans is an engineering and operations company with about 60 sales professionals. Cash and cash flow. Network services. Telephony: Particularly Verizon One Talk.

8. BlueJeans complements the Verizon SMB unit, especially with regard to adding video to the One Talk offer. However, BlueJeans is a better fit, based on existing customers, for Verizon’s Enterprise group. Verizon is communicating that there is no intent to change its partnerships with Cisco, Microsoft, and Zoom regarding enterprise sales. 
9. Verizon’s intent “to deeply integrate BlueJeans into Verizon’s 5G product roadmap” raises several concerns. 5G networks should be agnostic to applications. It is not clear how BlueJeans can be integrated into Verizon 5G, or if that will give Verizon video services a competitive advantage. This re-introduces net neutrality concerns. (Sore subject: Back in the early teens, Verizon launched a tech news website called SugarString that banned its reporters from covering net neutrality. SugarString closed in 2014.) 
10. Verizon has a bad-timing tendency. From when it agreed to acquire Yahoo to when it closed the deal, Yahoo’s value plummeted. But here, I imagine the opposite occurred. Negotiations were likely underway for months, but in March BlueJeans saw a 300% increase in usage related to the coronavirus pandemic. Most other conferencing providers saw a similar major increase. 
11. BlueJeans does not have a freemium model. Freemium is not the same as a free trial. 8x8, Cisco, Microsoft, and Zoom have freemium video conferencing. A freemium model may be necessary for Verizon, especially in the SMB space. 

Carriers Need Video 

12. For most of 2019, TalkingPointz has presented a Visual-First view of communications. 
13. Carriers are largely built on a foundation of voice/audio and data networking. Video has historically been addressed by providing bandwidth to separate video applications. 
14. Telefonica was early to embrace video with its acquisition of TokBox. It was a very logical fit, but probably too soon. WebRTC wasn’t as mature as it is today. Telefonica let TokBox evolve into a video CPaaS and then sold TokBox to Vonage in late 2018. 
15. WebRTC has (finally) delivered a level playing field in enterprise communications. As carriers need to deliver more than bandwidth, video is a logical capability. Video pertains to more and more communications and verticals, including healthcare, education, and financial services. 

Valuation Considerations

16. Verizon likely paid $400M-$500M for BlueJeans. 
17. BlueJeans claimed a $100M recurring revenue run rate for the fiscal year ending January 2019. Annualized revenue prior to the pandemic is likely around $120M ($10M per month). 
18. BlueJeans saw a 300% increase in usage during the pandemic, but that does not directly relate to revenue. 
19. Presumably, BlueJeans was profitable. It did a big restructuring in December 2019 which involved a layoff of an estimated 40% of its employees. CEO Quentin Gallivan described BlueJeans as a profitable company at that time. 
20. BlueJeans has raised over $175M since its founding in 2009. The bulk of the investments came in the three-year period between 2012-15, when BlueJeans amassed over $150M in funding and saw its valuation more than triple to approximately $727M (according to PitchBook).
21. Customers include Facebook, LinkedIn, Red Hat, Intuit, Zillow, and Nordstrom.
22. Verizon appears to have paid about 4 times revenue for BlueJeans. That’s probably reasonable, but included in that figure are a number of legacy interop technologies that are rapidly losing value. 

Verizon Portfolio

23. The acquisition of BlueJeans could strengthen Verizon One Talk, Verizon’s primary UCaaS offer aimed at SMB. It’s a very clever offer that combines wireless mobility and UCaaS features. One Talk currently does not have viable team chat or video capabilities. The service is primarily sold through its retail stores. 
24. Verizon One Talk competes directly with AT&T [email protected] (powered by RingCentral). AT&T is integrating [email protected] with its wireless network, and the service will include RingCentral Video. 
25. The acquisition could complicate Verizon’s enterprise UCaaS offers. From Cisco, Verizon offers Webex (Calling, Teams, and Meetings) and Cisco HCS. Verizon also offers Zoom Phone and Zoom Meetings, and provides SIP trunks associated with Microsoft Teams. 
26. Verizon offers several contact center solutions for enterprise customers. It is mostly aligned with NICE inContact, but also works with Cisco and Genesys. 
27. Adding BlueJeans to the line card is not significant, as carriers typically offer competing products. However, acquiring BlueJeans is different than adding it. There is usually a competitive advantage to selling internal services (“owner economics”). This can lead to an actual or perceived concern from partners regarding an unequal playing field. Owning BlueJeans can create a risk to partner relationships. Verizon has communicated that it remains 100% committed (for now) to its partnerships with Cisco, Microsoft, and Zoom. 
28. The acquisition gives Verizon a more complete SMB UCaaS offer (voice and video), but it still does not have an internal option for team messaging or CCaaS. 
29. It is not clear at this time if/how the BlueJeans stack would fit into Verizon’s Public Sector unit. 

Final Thoughts 

30. Overall, I think it makes a lot of sense that a carrier should own video technologies. However, this particular deal isn’t the best example.  
31. There are several concerns around Verizon regarding this acquisition: 
    1. Whether Verizon can be successful with this (or any) acquisition.
    2. The depreciating value of BlueJeans’ video interoperability services. 
    3. How Verizon will leverage its own video stack with 5G. Verizon is clearly all-in on 5G, and this acquisition does not clearly fit that priority. 
    4. The impacts to Verizon’s relationships with Cisco, Microsoft, and Zoom. 
32. A native video meeting service would be a nice addition to One Talk. 

5. Related Material

   1. TalkingHeadz podcast with Quentin Gallivan, CEO of BlueJeans
   2. TalkingPointz Research on Magical UCaaS Providers w/o a Quadrant (includes Verizon One Talk)
   3. TalkingPointz Research on Has the Video Interop Cold War Ended? 
   4. Verizon’s press release announcing the acquisition.