Could This Be The Saddest Technology Story Ever Told?
Aether. It’s just about the saddest technology story ever told.
Management went for
the payout following the IPO and pretty much let the bankers run the show.
During the late 1990’s, everybody was high on supply. (Remember GoAmerica? That
was another disaster.) The tale of Aether is caught up in the numbers game
whereby people would value the stock based on just about anything except actual
top-line revenues. One day, the stock’s value was being based on the numbers of
subs; the next day, valuation was based on the hook-up between e-mail and
wireless. But what were the company’s products and revenue stream? There were
none. (There are still none.) It seems just about everybody forgot this
From the beginning, Aether lacked focus and direction particularly in the
enterprise market. Aether’s big challenge at the end of the bubble was trying to
find a market for its Fusion and Attache products – and that wasn’t so simple.
For the most part, enterprise customers that had expressed interest in Fusion
(including Sun Microsystems, Oracle, IBM, and BEA Systems) ended up scrapping
their wireless plans or staffed up their own operations. At one point during
2001, BEA Systems actually contacted many of the Aether engineering staff hoping
to recruit senior software developers.
As far as
Aether’s future went, by 2003 the company could have gone one of three ways.
- First, close the
Enterprise Solutions Division (ESD), focus on logistics and mobile government,
and continue to tread water as a small/midsize mobile niche player with modest
growth. - Second, keep on chugging.
The company continued lay-off folks and cut costs as ESDs revenues dwindled.
Maybe it could have signed up a couple of hundred more trucks, maybe it could
have persuaded the Akron, OHs, finest to start using its eGov solution. (That
was a neat product, but unfortunately the numbers didn’t go on ESD books.) ESD
could have continued to operate with no technical direction, no focused sales
plan, no planned future release, and no new functionality to implement. - Third,
management could carve up the company, sell it off, and walk away. Maybe the
trucking could go Qualcomm; maybe the ESD to IBM or gets eliminated; maybe
eGov goes to some solution provider.
Of these three
options, the second seemed most likely. However, management never proved its
mettle as being able to effectively run and grow a software business. The
company had good engineers, but lacked sales expertise and people who could
bring in the business.
Ultimately,
management sold off the “Enterprise” division to TCS (an Annapolis-based
wireless service company) for close to $20 million cash. Shortly afterwards, an
entire project team of five engineers jumped ship for smoother waters and left
Aether holding the bag: apparently its final software product was a total
shambles. The main reason any remaining engineers stuck around was because
they’d been slathered with restricted shares and stood to clear a reasonable
amount if Aether got sold. The company’s focus for the past three years
consisted of getting financials in order and cutting costs, which included a
series of deep layoffs. By mid 2004, there was no engineering talent left since
it had all slowly been laid off or jumped ship.
Technology
Aether’s
Fusion product was supposed to take the pain out of writing wireless
applications. A big problem (possibly even the biggest problem) with writing
wireless applications is the awkward adapter layer that lies between the back
office application server and the device. Most of the existing wireless data
networks are low bandwidth, high latency, and error prone. In addition, they
don’t speak TCP/IP natively, so an adapter needs to be written so that the
wireless device can send requests to the application server and have it respond.
There are a finite number of worthwhile wireless networks out there. The goal of
Fusion was to write one adapter for each network, and sell it to folks who
wanted to write wireless apps, but who didn’t want to muck about in all the low
level details (counting bits and packets) of each wireless network. That was the
goal of Fusion.
Now, take Fusion, and all in pieces, to make it easy to synchronize the device
with common back-office productivity applications: Exchange, Lotus Notes, etc.
And that was Aether’s Attache product. Or rather, that was the intention
of Attache.
Attache was originally
supposed to be a totally separate product, but once the Fusion project started
up it was decided by the folks higher up that Attache would use Fusion (much to
the chagrin of the Attache team). Attache provided mobile access to back office
systems: MS Exchange, Lotus Notes and the like. The goal was for enterprises to
buy it and then they would have a wireless solution ready to go, or ready to
customize.
Â
There was probably a limited
market for Fusion and Attache. However, the bigger problem was not whether there
was a market, but more that Aether had little concept of how to market and sell
software products. Aether wiped out all its previous software product lines and
bet the farm on Fusion ultimately leaving it with… nothing.
What Went
Wrong at Aether?
That’s a tough one. If you
asked four ex-employees you’d get six different opinions. Here are a few of my
opinions about what went wrong at Aether:
Dave Oros (Aether CEO) let the bankers run the company. (He’s admitted this in
public company meetings.) At the IPO the bankers gave him a huge pile of cash
and told him that a good wireless hosting company is measured by number of
subscribers. So Dave chased down the Research In Motion deal (in 2000 if I
recall), which was ultimately a bad one.
Then the bankers told Dave
that a good wireless services company is one that is measured by the number of
projects it has in development. So he setup a European partnership with someone
(can’t remember who, offhand) and formed Sila.
Then Aether bought Riverbed for $1 billion and became a software product
company. The secondary offering came and went and dropped more money in Dave’s
lap. The bankers told Dave that a software product company is one that is
measured by its revenues. So Dave went chasing after acquisitions — leading to
RTS, SunPro, and countless other purchases closed. After all the acquisitions
closed, Aether had grown to have around 1,100 employees and had software being
developed in offices scattered from Monterey Mexico, Yakima WA, Marlborough MA,
Boca Raton FL, Fairfax VA, and Owings Mills MD.
Aether made many other
mistakes:
No clear mission. One
quarter it was a WISP; next quarter it was a product company; next it was a
professional services company. Whatever tune the bankers played, Aether danced
to it. Good thing the company had a multi-billion dollar market cap.
Over-estimated the
market. Aether set up huge deals with RIM and BEA Systems (for Fusion
development) that had no escape clauses. When Aether paid out a giant chunk of
change to these folks, and the users never showed up, and Aether took a big hit.
Misjudged the corporate market – part one. The company built software
products based on (what seemed like) little market research, without a clear
understanding of what was the real problem worth solving and where the sweet
spot in terms of functionality and price/performance would be. Engineers asked
where requirements came from, marketing said “trust us” and when it was all over
the sales people asked engineering what they were smoking. I understand this is
life on the bleeding edge, but if you ask your customers what they want, they
will tell you.
Misjudged the corporate market – part two. Wireless solves a specific set
of business problems and not every Fortune 500 company has a need for wireless
applications. One company where one of these problems was core to its business –
Fedex – had already invested in its own wireless applications. Other companies
were interested in wireless enablement, but many didn’t have a compelling reason
to go forward with it.
Misjudged the wireless market. A member of Aether product marketing told
me (in 1999) that by 2002 there would be a 3G network + handsets generally
available in the US. He was waaay too optimistic. However, based on these
projections Aether planned for wireless web browsing and rich wireless
applications. The handsets to support these applications have just not been
arriving in the U.S. with the proliferation of GSM.
Tried to be IBM in R&D. Aether spent tons of money sending people to
standards body conferences (W3C, WAPForum, etc) hoping to influence/gain insight
into the standards. While this was interesting and noble, standards are slow to
be adopted by carriers and handset manufacturers, which put the ROI five to
seven years out from the event.
The only options for Aether
were to find a dance partner or have a big yard sale. Personally, I was pulling
for the yard sale -Â I could have used a new office chair at home.
And Just
When You Thought Aether Couldn’t Be Less Focused…
Â
To round out
the discussion, if this wasn’t a big “mea culpa” then IÂ don’t know what was: a
May 2004 press release stated “…the Owings Mills-based company, which has never
made a profit, announced it has hired investment bank Friedman, Billings, Ramsey
Group Inc. to search for “strategic options” for the company, which could mean
acquiring new business, selling more of its own assets, or some other move to
shore up dwindling sales and continuing losses. ”
Aether was
a company on autopilot seeking a bailout. And then, in a June 8 2004 press
release, the company announced it would build a Mortgage Backed Securities
portfolio. I mean it was one thing to do this, but was another thing completely
to issue a press release about it.
People used to say that all the money was in B2B software, then wireless, but
when the chips are down it turns out the best investment is and always has been
real estate… And it only took Aether six years and burning through $2.1
billion in investor cash to figure this out.
So now Aether planned to
invest this “excess” cash balances in MBS to increase its income on investments.
Not a bad idea in theory. However Aether, being the purchaser would assume
principal risk in exchange for the higher yield on its investment.
The 8K
went on to explain that Aether had “engaged FBR Investment Management, Inc., an
affiliate of Friedman, Billings, Ramsey Group, Inc. to assist us in assembling
and managing a leveraged portfolio of mortgage-backed securities. This is part
of an evolving business strategy that, in the near-term, we view primarily as
representing an opportunity to increase the yield on our excess cash balances
without incurring undue risk (italics mine). Over time, however, this could
become a more significant business activity for us, depending upon our
experience in managing the initial leveraged portfolio…(italics mine)â€
To the
best of my knowledge, Aether was a wireless company with no prior experience
with MBS.
Dave
Oros will find a way to screw this up, I’m sure. Aether would be better off
buying government bonds or getting a big mattress. Hey, he’s already managed to
run a wireless startup into the ground, so the next business shouldn’t take him
half as long to ruin.
Why is
it that being the head of a failed company is a badge of honor? If a mechanic
does a bad job fixing someone’s car, do you refer him to your friends to fix
their cars? No! You tell your friends about him so he has to go two towns over
to find another job. Why doesn’t that happen with senior executives? And more
importantly, how do I become a senior executive?
My kids are so majoring in business and not engineering or science.
Is Aether a Takeout?
Aether is a
company on auto-pilot seeking a bailout. So, I wouldn’t be long AETH unless I
cared to roll the dice on a takeout or some “white knight” funding. That said,
to expect funding from a “savior†seems like a long shot as such white knights
have their own problems these days.
I ran into one
of the senior engineers from Aether about a year ago. He said the company was
“actively seeking a buyer.” Tell me something I don’t know. Anyway, the core
engineers all had to write bios (presumably either to impress potential
acquirers or to make it easier to chop heads off) and they were all swamped.
Obviously it wasn’t sold (it’s hard to justify buying a company with no focus
and products with no real market potential) and with its foray into MBS there’s
currently nothing to sell.
While AETH
could be attractive to more aggressive, smaller cap investors with a higher risk
appetite as an equity story, I wouldn’t bother: ongoing
high cash burn rate; Aether has never been profitable;
new, high-risk MBS business model. The stock has nearly halved over the last 18
months, and since mid-2004 has traded roughly in a $3 to $3.50 range. Although
the stock is low that doesn’t mean it’s cheap. Owning it might pay off, but I’d
rather invest longer-term money elsewhere.
Â
For
the last four years, Aether’s primary line of business has been rearranging deck
chairs on sinking ships. Maybe it can transmogrify itself and build an OK MBS
business so that there’s something worth selling – goodness knows, its wireless
business wasn’t. On the other hand, it’s possible the company could just
gradually fade away.
Will the last person out of the building please turn off the lights?
Melanie
Hollands