I can't say whether you are right or wrong. Time will tell.
When talking about moats, Warren Buffet often uses Coca-Cola as an example, asking the question - "If I gave you a billion dollars, how much disruption could you cause Coke? How much disruption were Pepsi, with all their resources, able to cause the Coke franchise?"
So there are moats and then there are MOATS.
The main thing to understand is that Buddy isn't just about OHM. There are three key pillars to the business model:
1 The Cloud-based purpose-built Buddy Platform.
2 Parse on Buddy
3. Buddy Ohm. Ohm is the first iteration of a franchise product. There will be more iterations as the franchise grows to meet specific customer demands.
A while ago I asked Dave to explain how the three pillars worked together. The following is his reply, with apologies to those who have seen it before. I know, repeating things again, but for the sake of clarity and for those new to Buddy who may have missed it:
"The difference between Buddy Platform and Parse on Buddy. For the purposes of this conversation, let’s call the Buddy Platform, the “Buddy IoT Cloud”. And let’s call Parse on Buddy the “Buddy Mobile Cloud”. The Buddy IoT Cloud is a product that takes data from large numbers of (non-mobile) connected things, processes that data and makes it available to a particular customer with particular needs. In the case of Thor, they’re an enormous manufacturer of caravans & RVs. Those products are all becoming connected and they want to 1) understand particular information about their fleet in-market, and 2) provide particular data back to their customers (can’t go into any more detail than that I’m afraid). In other words, they have a large number of devices that speak a particular language, generating data in a particular way, and they want to manipulate that data to do a particular thing (or two).
"The Buddy Mobile Cloud is a pre-configured library of cloud interfaces that developers of mobile apps and lightweight IoT devices can use to “drop-in” cloud based functionality without having to write it or maintain it themselves. There’s next to no customization – we provide a given set of libraries for functionality that is pre-defined, and developers use that to make their mobile apps work without having to build the cloud pieces themselves. We provide a fixed set of ways to get at some basic levels of data about their apps and how they’re being used (and more are coming in the next SDK release) but that’s it. It’s very focused at mobile app developers and IoT hobbyists, and it’s an a la carte set of services for that audience.
"Customers of the Buddy IoT Cloud are large enterprises, with particular needs, and for which there is a meaningful amount of customization or “hand-holding”. Those are US$1MM+ deals and will be smart city infrastructure deals (only) moving forward. Anyone can sign up to use the Buddy Mobile Cloud – and we have lots of new accounts created daily. We’re growing the number of devices using the Buddy Mobile Cloud by more than 110,000 daily right now.
"As for the value of data – consider this. One hedge fund told us that the data they buy has a US$10MM per week positive impact on their profits. There is HUGE value in data if appropriately applied. An organization spending $1MM to turn their data into a useful asset may find that to be only a fraction of the value they realize. It all depends on the organization, the data and how they use it.
"Okay, we can go back to normal names now – Buddy Platform and Parse on Buddy. The point is, they’re different beasts that target a different customer, but both tie in very closely to our mission of democratizing data and making it useful, valuable and meaningful.
"The reason I’m only looking to do 2-3 deals a year on the Buddy Platform is because they’re complex deals to do, with long sales cycles and substantial effort to close. They’re worth it – as Thor has demonstrated – but they’re also meaningful work. You must remember we’re only a small team (25 right now, but with plans to grow to 30), and so taking on any more than that (in addition to Parse on Buddy and Buddy Ohm) risks offering a second-best product to our customers, which we won’t do. If we can close two to three of those sorts of deals this year, then that provides impetus to hire up and keep growing that product/business line. Hiring isn’t fast, closing those deals isn’t fast. That’s okay – we understand the business, and feel very good about it so far – but that’s the reason we’re setting reasonable and manageable expectations.
"All of our existing customers on the Buddy Platform – that are not smart city infrastructure customers – are being migrated to Parse on Buddy. The Buddy Platform is becoming entirely smart city infrastructure focused. Thor is a customer of the Buddy Platform, but so is Buddy Ohm. I can’t speak to whether our relationship with Thor will grow, but I can say that their needs don’t suddenly stop the day we finish this initial project, and that we’ll be working hard to grow our business with Thor. They’re a great customer and we really enjoy working with them, so let’s hope there’s more there in the future.
"Buddy Ohm has gotten a lot of the airtime lately, but Parse on Buddy is growing rapidly and the Buddy Platform is driving significant revenue with line of sight to continued growth. While Buddy has narrowed our focus to smart city infrastructure across the board, I’m really pleased that we’ve diversified the product line into three clear revenue drivers, each with healthy opportunity before it. Of course, it all depends on our ability to execute – but frankly, that’s what I think we do best. I don’t expect the team to stop doing so either – so let’s see what the coming few quarters have to hold."
In a very short space of time Parse on Buddy has arguably become the pre-eminent Parse Server Platform in the world, with 30 million+ devices already connected, growing at 100,000 devices per day - developed with significant in-house technical assistance from Facebook and enjoying Parse Push Notification Server (PPNS) technology licensed exclusively to Buddy by Facebook and not available on any other online platform.
So there's at least one moat right there.
I'm sure if you look closely at the business model, read through all the updates and webinars, you will find others. In a Round One pre-listing funding Microsoft invested in Buddy. I think I am right in saying they remain invested. To my mind, that's another type of moat - backing by one of the world's industry giants.
Dave has always said no single company will dominate IOT. There will be plenty of business for everyone. That's not just his opinion, you can read it any respected IOT research paper you care to look at. IOT is simply too big and growing too fast for that to happen.
Buddy is in the Smart City Infrastructure vertical. In many respects they have what is close to a first-mover advantage. Is that another type of moat? I think so. I believe the partnership with Digicel is another moat in the Caribbean/Central American/SEA markets.
It's probably safe to say there will be more Digicel-type partnerships - thus more moats.
In Dave's own words, "We’re all committed to growing Buddy into a very meaningful global player in the IoT space. We’re not looking for a quick-sale, we’re not looking to take the business private and sell it off, we’re looking to become a bedrock of both the Australian and US Pacific Northwest tech industries, and be a globally important company in the space we’re in."
Such ambition will inevitably require establishing MOATS. To my way of thinking, Dave is in the process of doing just that.
I note your sentiment of "a promising year or two coming up" - possibly you think the same?
With my apologies for the long-winded reply.....
BUD Price at posting:
13.5¢ Sentiment: Buy Disclosure: Held
