Last week session border controller vendor Acme Packet announced its latest quarterly results and once again beat both its own estimates as well as Wall Street estimates. I'm not going to get into the details of the quarter except to highlight that the company continues to gain new customers at a remarkable rate and has made the "beat and raise" a normal occurrence for them.
I've had many, many people ask me when this run that Acme has been on slows down, and my answer is it doesn't for several years. In fact, I think it can continue to accelerate for the following reasons:
Massive market opportunity
Acme is riding the wave of the move from circuit switched voice to IP based voice. Simply put, the more communications moves to end to end SIP and IP, the more there is a need for session border controllers (SBC), which is Acme's core product.
One of the bigger fallacies of this industry is that VoIP is well adopted. Now, if you read my research or anyone else's research and look at things like IP line shipments (this number is meaningless but that's another blog), it appears that there is indeed a lot of VoIP out there. However, most VoIP is deployed by converting a corporate phone system to an IP based system, using the corporate WAN for intra-company calls--but any call that goes outside the organization hits a gateway and gets carried over the PSTN. I've got news for you: that isn't really VoIP. Sure, we save a little money on making calls within our own organization and we can extend corporate telephony to places where we didn't have it before (like home workers with softphones) but ultimately the industry needs to promote end-to-end IP both on and off the corporate network.
To enable end-to-end IP, companies need to embrace SIP trunks as a replacement to traditional trunks. I've written a few blogs on why I think SIP trunking is so critical to the growth of UC and I won't get into the details except to say that, as an industry, we will never achieve the full potential of what UC can bring us until we embrace end to end SIP on IP networks.
As a very simple example, a feature like HD audio only works if the IP session is maintained from end to end. If you've ever been on a call that uses HD audio you know how good the quality can be. It's outstanding compared to traditional circuit switched voice. So, if architected correctly, SIP trunking can give better quality and better uptime than traditional telephony, so I find it amazing how lightly adopted SIP trunking is. Additionally, end to end SIP will make all of these CEBP applications that we plan to build much easier to extend outside the organization. In fact, I'm not sure how this would be accomplished if we maintain traditional architectures. Much of the light adoption is due to a lack of education regarding SIP trunking, but that's changing.
My estimates are that SIP trunking is about 5% penetrated in the US and that's a generous estimate; it's about half of that in Europe and just beginning in Asia. To use the baseball analogy, the growth of end to end SIP is in the first inning, so the bulk of growth is still ahead of us.
The growing importance of the SBC
I think this tends to be another misunderstood point. The simplest analogy that I can think of is that the SBC is as important to the growth of multimedia communications as the router was to the growth of the Internet. Wherever two multimedia networks come together--telco to telco, enterprise to telco, enterprise to enterprise--SBC functionality is required. Over time, as multimedia communications expands from voice to video, presence, etc, the SBC will continue to grow in importance. This includes mobile networks as well where the SBC is just starting to gain penetration. In short, in an all IP network, the SBC can handle almost all of the critical functions needed to manage, secure and route multimedia communications, meaning the importance of the SBC will continue to grow from here.
Strong competitive position
Calling Acme's competitive position strong is almost not doing justice to how strong it is. In many ways, Acme's biggest achievement was that they hung around in a market that wasn't going anywhere for years. Along the way the other SBC vendors either got acquired or disappeared, leaving Acme as the last company standing. Now, in fairness to Acme they could have decided to take a different direction during the lean SIP trunking years but instead they stayed true to the mission and are enjoying the rewards of it now.
Logic would dictate there is room for a second vendor in any market, but Acme has a huge lead over whoever wants to claim to be #2 in this space and I think this lead may be too large to be overcome any time soon. Competing with Acme will require a vendor to do something substantially different than what Acme is currently doing.
To understand what I mean by this, I'll refer back to the router market. In the early days of that market Cisco jumped out to a huge lead over everyone else, much like Acme has today. Many other vendors tried to take a chunk out of that business but they didn't make a dent in the monopoly-like share that Cisco had. It wasn't until Juniper came along and built a significantly different router than the existing Cisco ones. Cisco technology eventually caught up to Juniper and has maintained a healthy share lead on Juniper, but Juniper is the only company that’s managed to dent the router share. Right now, if you want to think of Acme as the "Cisco" of the SBC space I don't believe the Juniper of that market exists today.
In summary, considering the competitive positioning and the burgeoning opportunity created from the TDM to IP migration path, the roll Acme has been on is likely to continue for the foreseeable future.
