Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

{audio:0:01:22} I run a hedge fund of eight to 10 investments; very long duration, thinking like a fractional owner of the business with plans to hold for quite some time. One of the areas I spend some time on is the Microsoft ecosystem. It is well-publicized that, for every dollar of Microsoft revenue, you have $8 to $9 of ecosystem revenue, and I have primarily spent time in the distribution partners. I had owned Crayon Group and Rhipe, which is how I got to know LiveTiles. I owned Rhipe for some time, and they bought InSynergy, which was Karl and Peter's former business. Ultimately, they took the proceeds from the InSynergy sale and IPO'd LiveTiles as a separate business, which has had an interesting history since.  

{audio:0:02:50} During Covid, everybody focused on peer-to-peer communications rather than corporate to employee internal comms. The angle of engagement from corporate to employees, how that would shape up as it is still in the ramping up phase, is interesting to me. I am trying to learn about that but have been doing my best to get my arms around the space. I know you have a lot of experience with Microsoft and anything in this space you are dancing with the bear so to speak, so it is definitely one of the forefront risks in my mind. 

{audio:0:03:46} People are generally confused about what an intranet is, especially when you say that now and then it's trying to be re-branded as employee experience. You have Microsoft coming out with Viva and, at the same time, people on both sides saying that it's just Microsoft repackaging a bunch of crap as a different thing; did they actually fix any problems? Tracking through the history of SharePoint to SharePoint Modern, obviously there was a lot there which made the intranet-in-a-box features irrelevant, so what is the actual value proposition now? I would love to get into that and hear about your experience at Valo, how you view the space and your history in broad strokes, then we can dive in?

{audio:0:04:52} To start off, it is good to meet you and I am happy to try to help you out. You have the right question but nobody knows the truth and there are many different viewpoints to it. Everybody claims to know what is happening but, in the end, I don't think anyone does. I come from a very different place to other people you might talk to in the Microsoft space. My background is with business processes or process support, which is how I entered the SharePoint scene, building a process support system for building construction companies. This included document management and processes, then information management type of entity, like a product on top of it; it was a different technology which was ported on SharePoint. I have been a business director, delivering intranets or information management. 

{audio:0:06:17} Back on SharePoint 2007 there was already a SaaS based packaged social intranet solution which was very affordable in Finland. I worked with Carl Biven later, who had the first IPR for that. The evolution has gone different ways because, at that time, that package failed because people in the SharePoint scene wanted all the rights for themselves. Valo was founded for that reason and I always contemplated joining or competing with them. I have seen the history from that perspective. Many packaged intranets in the Microsoft space are built as in-house products that are more cost-effective implementations on top of SharePoint, then somebody decided to productize it in order to scale. Today there are hundreds of intranet-in-a-box solutions.

{audio:0:08:06} They built a project but then turned it into a product. Finland has a population of five million and are big in the Microsoft scene but have little money, so it's a very cost-effective packaged solution. The biggest project, back in the day, had revenues of €1 million, but three years later they paid €200,000 and even corporates paid tens of thousands for their intranet. The consultancy business was declining and Valo was first to scale this up by building a network for their partners. For an investor like yourself, companies who are in the business of saving money is not always the best place to be, because the only way to make money is to scale it up. 

{audio:0:09:45} Now that Microsoft is growing the space and are more advanced than before, the niche for these packages is reducing. For a company doing it through their partner network, it looks like there is unlimited scalability, but the challenge is that the partner has up to 10 different options, and in the end, are playing the game of how to make the highest revenue. 

{audio:0:10:31} One option is out of the box SharePoint and more companies are going in that direction. It becomes more about quality partners and how committed they are. You know more about LiveTiles than I do but, as an expert in the field, I was looking at it and they were different. Their number one product is the LiveTiles intranet hub. Others build hubs or dashboards, and all of a sudden LiveTiles is selling a hub. In the end, there are limited ways to solve the problem of a communications hub. Some companies are integrating business processes or solutions which is an interesting area. I was pushing Valo in that direction but the employees who came up with intranet are challenged at looking at things from a real business process perspective to understand how the company is run, but the technology would be super useful for that.

{audio:0:13:01} Did Valo have subscriptions or did they sell their customers a license?

{audio:0:13:12} They have three models. You could buy a one-time license; a one-time license plus an evergreen subscription to keep that license; then a real subscription-based model.

{audio:0:13:50} One of the main questions is how sticky some of these deployments are. LiveTiles are pushing to enterprise level customers who have over 100,000 employees and where implementations could take several months. You don't always get the best price per user on those agreements, but when you go through large deployment, how do you think about stickiness? Once you do adopt an intranet product, how easy or difficult would it be to switch back to Microsoft SharePoint?

{audio:0:14:56} It depends a lot on how the product was built. Of course, companies are going for enterprises because that is the space which remains. No enterprise can simply use SharePoint out of the box but it remains the most affordable way of building an intranet. It is not always in the best interest of the channel partner, but it is the same channel and, in the end, they make their money with consultancy. 

{audio:0:15:49} Valo was ridiculously cheap for a small company and it was clear you should use them. Enterprises adopt a viewpoint of a five-year intranet life cycle. If you have a good solution, it could stay green and you could bring in new features. I don't know how many of these are SaaS based solutions but if it stays fresh, I don't see a reason to get rid of it. They stay fresh because there is so much competition and you are tested several times a day to ensure you are up to date and can support the end customer.

{audio:0:17:27} After Nadella joined Microsoft, they are having a good run. It used to be easy to be better than SharePoint but it is getting tougher daily. SaaS businesses calculate return on investment using three years, for example, compared to licensing or subscription, and I don't see those flaws being different in this scene from that perspective. LiveTiles claim to have 62 million annual recurring revenue, but it is hard for me to believe they have 62 million license deals which are still valid next year and would enter their bank account even if they stopped selling, then they would have a high valuation.

{audio:0:18:55} This has been a recurring theme as I've talked to people at competitors who have not come across LiveTiles as much in deals. Of that claimed 60 million of revenue, 15 is consulting professional services revenue, so let's call it 45, but even that is a lot.

{audio:0:19:34} Their intranet is based on technology they purchased, so the technology is there.

{audio:0:19:44} They purchased Wizdom and CYCL AG and the original LiveTiles product is totally sunsetted and almost irrelevant. The entirety of the business today is products which they acquired over the past three years.

{audio:0:20:14} The original LiveTiles designer product has almost zero revenue. All their users and real engineering talent have effectively come from their acquisitions in the DACH region. They have had success by having a strong front line worker platform where only a half or a third of employees are licensed Microsoft users. They have a platform where for those who are licensed, their intranet will look the same as those who are not, and the field workers will have a mobile app which will flow seamlessly. What do you think about that?

{audio:0:21:38} One of the key areas Microsoft want to win this year is front line workers. Viva didn't work but I don't know how far it has advanced from the summer. It has significant flaws in terms of actually supporting enterprises for front line workers.

{audio:0:22:37} Viva connections come with 365 but the headline pricing on the others is $9 per user per month, whereas LiveTiles have 2.7 million users paying $1 per month.

{audio:0:23:03} Front line workers is an important selling point for intranet providers to attract companies or differentiate themselves. I don't know how LiveTiles have implemented it but it becomes challenging because the main data repository should not be in SharePoint if you are using non-licensed users for your front line workers. If you do not have it in SharePoint then you are not fully Microsoft integrated. In a way, that could be a good thing from a stickiness perspective, that the data resides elsewhere and is somehow replicated, but the challenge is how well you integrate with Microsoft Teams. 

{audio:0:24:11} If you have a totally separate UI from Microsoft Teams or Microsoft, you will always go head-to-head with Teams which aggregates the work. That is Microsoft's strategy and it is the starting point for your daily work. You can bring your intranet to your Teams but it's a totally different thing than using Microsoft technology and building that out the same way as a SharePoint UI. LiveTiles builds their UI into SharePoint but how they do that remains a gray area to me.

{audio:0:25:04} You are probably better suited to answer that question than I am. 

{audio:0:25:13} I would answer that question easily but I'm not at the technology level. Quite frankly, it's not the first time I've been thinking about how to get around it. Back in the day when mobile apps were bad, Valo had were ground breaking and made money with that but then they changed their investment strategy.

{audio:0:25:56} Knowing what you do about the Microsoft ecosystem and their priorities for Viva, how would an intranet software provider add value today? Would it still be cost-based? Or if you were running R&D on some of these Teams or trying to direct spend, if you will live and die in this space by outrunning or being more agile than Microsoft, that is the only reason you will survive long term, how do you do that?

{audio:0:26:43} That is a valid question for many teams out there. Today, the value is created on a different level in the Microsoft ecosystem. One of the areas you can differentiate from Microsoft is by being personal with employees. Microsoft is always thinking that somebody would write to the AD or they would use a search engine to solve that problem or AI will do it for you. If you can build an engine where you can know an employee is doing projects, he would usually use this type of dashboard. Simply ask them what they are doing. 

{audio:0:27:56} Netflix offer recommendations based on data which was gathered somewhere. Microsoft serves a billion users and, if you only serve three million, you can be way better at the use cases you work on, instead of focusing on everybody on the planet. The need for intranet will survive. It was supposed to die 10 to 15 years ago but so far there is no better solution for communications people who simply want to tick the box. That is the dilemma. I'm not sure if it's too late, but there was good branding a few years ago when these products were getting much attention. That was the right moment to offer them to enterprises with the help of an intranet package. You would have several solutions from different places. 

{audio:0:29:48} Yes, not a marketplace the way Microsoft does it, but offer recommendations and take a commission. The marketplace problem with Microsoft is knowing which one to pick. Your intranet provider is not the best one to ask because they use the one they know, not the one which is good. In that sense, a marketplace but build up the value of your intranet package with other things rather than coding it yourself. It is similar to a brand; putting your label on it would have been an option, but nobody went down that road. LiveTiles did try. 

{audio:0:30:50} It is part of their problem.

{audio:0:30:53} That didn't work out too well but they were trying to build everything themselves. The next opportunity, from my perspective, is that after this employee experience comes, the same thing will happen with employee as with customer. Employee experience turns into employee success. Employee experience is ensuring employees bring their best to a company. How they use their potential is a different story, and that is part of the employee success. So you turn your intranets into solutions that guide your users through the journey of what the company is looking for from their employees, to succeed with minimal effort. It is not about the links you have to 55 different applications, but the mechanism of managing the organization, especially during this time of hybrid work. 

{audio:0:32:20} I am not sure how intranets help the hybrid work scenario, only that they claim to bring those workloads into one place. Microsoft Teams does a better job with that than using your intranet front page. That flow would work in a way but taking it to the next level so that you connect the dots. Microsoft is building many cool feature sets, but how can a company manager utilize or structure them to see what is happening in their organization. You basically move those water cooler discussions to a digital format but structure them slightly differently. I believe these companies have an opportunity in that communications and business have a common platform called Microsoft Teams. Intranet-in-a-box solutions can be utilized for real business intelligence, as opposed to only business processes to manage travel. A business process is, how do you make more money with your company or serve the end customer more fluently. The technology is there, but the thinking is not. 

{audio:0:32:20} If somebody can turn their company to that kind of thinking, that would be a game changer and something worth investing in. These companies which already have a good name with communications would provide value and that would create a business initiative behind it. Pricing becomes a problem because it's the same technology so why is it five times more expensive for business owners to buy? That becomes a branding issue more than anything else. I even considered starting my own business to build on that, and if I had known what happened to Valo, I might have done it.

{audio:0:35:42} From that perspective you might want to look into a company called Fingertip.

{audio:0:35:48} Okay, I have never heard of them.

{audio:0:35:50} They are a tiny player from that perspective but it might be what the futures looks like when these things get together. They do business leadership using intranet technology.

{audio:0:36:18} There has been so much evolution over the past just few years that it is hard for investors to figure out what the end state is and who will be relevant. One of the big changes in how I view LiveTiles is that they have given up on the intranet as a place and realized that forcing employees to go to a page is not working. You cannot force internal comms and say, here's your relevant news, but interestingly LiveTiles have the ability to push messages to Salesforce, Slack and Teams.

{audio:0:38:05} I have not seen LiveTiles but I have never been against them. I know the company history but they should look into their web page and no longer talk about hubs if they want to do that. They need to build the information where the person is and what is relevant for them. That makes more sense but turning it into significant revenue is a different question. Are you familiar with Smarp?

{audio:0:39:01} No, how do you spell the company name?

{audio:0:39:08} Google uses Smarp, who are outside the Microsoft ecosystem with their own technology. They struggled until Covid but then boosted out. They say they are not an intranet solution but ensure communications work. They might have a similar approach but they began with social media feeds to engage people and ensure internal communications work. An investor would benchmark against them if LiveTiles went down that road, but they would no longer be Microsoft dependent and will compete against or extend Microsoft instead of sitting on top of them. There are different strategies for different players but a smart strategy would be to build better widgets than Microsoft. Today, you have to run and you see many companies being acquired. Suddenly they integrate with larger storage because maybe intranet-in-a-box has a separate use case.

{audio:0:41:51} Are you looking at LiveTiles in particular? What is your interest in them?

{audio:0:42:03} I have the most history with LiveTiles who are the only public competitor because every other relevant intranet software competitor is private. There are at least 20 relevant competitors including BZ, Valo, Igloo and Interact. LiveTiles is the only public player but it's about understanding their financials as they are trading close to one times revenue and you have to break down how much of that is subscription.

{audio:0:43:08} The annual recurring revenue they claim means their trading value is totally off from that perspective, so there is something odd with the numbers.

{audio:0:43:38} Yes, hence the interest on my end. Sometimes the market is right and other times it is wrong.

{audio:0:43:51} It's a very challenging market to churn the company to find the gold nugget. Those companies have value but there are so many that it is hard to take a significant chunk of the market, unless you concentrate on a certain segment which is lucrative, but with my knowledge, I wouldn't know which one to attack.

{audio:0:44:30} They are commoditized products, to some extent, but there is a benefit in going with someone who has already done Nestlé's implementation – especially if you are another 100,000-employee business – versus going with BZ who has never done that. How much does already having a roster of customers they have acquired, grease the wheels on your acquisition of the next incremental customer?

{audio:0:45:24} How much do LiveTiles build or make their own implementations because they have a significant partner base?

{audio:0:45:34} They are largely doing their own implementations, which is why 15 million of that 60 is consulting project oriented. In these intranet projects, if you have 100,000 employees those revenues never stop. You implement it but there is always something to fix or integrate with that many employees touching the product. It is hard to wrap my arms around an intranet as a product because it means something different to every customer and is implemented different for every customer.

{audio:0:46:37} Customers make it complex; the autonomy of decision making makes it complex. One day somebody will come up with a real packaged SaaS intranet the same way CRM used to be. The problem is that there is not enough buying power otherwise that would have already happened. Communications is always the last to get the money, but LiveTiles' problem is more of a scaling issue. It is a good thing that it's sticky – every five years you buy your own or a new intranet – but it means you have to talk to many people to get new intranet cases. The people who have time to do that are local partners who have a connection to Microsoft. 75% of intranets are built with SharePoint so the local guy goes to the local partner and asks how to build an intranet, and if LiveTiles is not one of those options, they are out of the game. 

{audio:0:48:15} In a way it is good to implement your own thing and sell your own products, but how to be present to the customer when they buy their next intranet? All local implementation partners use the same keywords as packaged intranet providers so it is not easy to stay an optimized company. Valo hired many MVPs and made a name by using the community through the IT Pro track. All the IT pros would know that Valo was an option to try. When the communications purchased it the IT department would help them, and Valo was on the shortlist.

{audio:0:49:35} LiveTiles claim to have 200 channel partners but it is unclear how many are dedicated to the product. I would love to see them grow through that because it's a way to easily leverage and build scale, but it will take some re-working of incentives. This has been helpful; I appreciate you sharing your thoughts and batting some ideas around. For somebody who is not steeped in this space and spent many decades here, it is hard for me because the Microsoft world in general is complex.

{audio:0:50:32} Tell me about it, and now that they bought a game company for 68 billion; it will get worse every day.

{audio:0:50:43} It's a fun thing to think about and it's very much a people related investment so my questions are equally about whether I can trust the team there, so I am trying to spend as much time as I can with them and other people.

{audio:0:51:06} It is hard to see behind the scenes, even being in it and strategically looking at it. I haven't seen LiveTiles competing against myself but they are US which is a big enough reason because the US market is huge and you don't happen to be there. I know a lot of their revenue comes from the DACH market because that is where the technology was from, and they have transported that to the US market which is their home ground. 

{audio:0:52:04} The DACH market is populated with many options such that partners have nine to choose from. I heard a rumor that LiveTiles was not in the US market and were losing their grip, but that was a person inside Microsoft. If you have a good enough connection with Microsoft, you can get some money from there. Back in the day, SharePoint was the number one story for Microsoft and internet providers were getting a lot of support from Microsoft. Since they are boosting Teams to be number one UI, SharePoint will be a technology but will buyers buy anything relevant to SharePoint or will they buy Teams which has SharePoint capabilities? People no longer talk about SharePoint; they say I'm going to my Teams, which also has intranet, but developers know it is SharePoint. They don't give a shit; they go to Teams and all of a sudden, SharePoint loses its business value.

{audio:0:53:51} Yes, that's a relevant question I'm thinking about; Teams as the new intranet.

{audio:0:54:00} Technically, it's not and the guys are correct with that, but the user doesn't care.

{audio:0:54:10} That's also part of Viva but the user doesn't care what technology lies beneath. SharePoint is a tab in Office 365 but nobody will tap it because everybody hated SharePoint but we had to use it. I would much rather use Teams; I'm talking about Microsoft consultants who say they have their documents in Teams. They never had one document in Teams, it remains in SharePoint, but you have a new view to those SharePoint documents inside Teams.

{audio:0:55:04} Some of the consultants are confused by that.

{audio:0:55:07} This has been super helpful; thank you for spending the time.

{audio:0:55:15} Can you remind me, Smarp and Fingertip were the two?

{audio:0:55:24} Yes, fingertip.org. I had a chat with their founder and all of a sudden, somebody was talking the same language. They are using those workloads to develop management layers. They did that before in the Salesforce ecosystem but converted to Microsoft Teams which is where they are currently pushing hard. They are not big players so don't get confused, but in terms of what's happening in the scene and social apps, they are taking it to the next level compared to what most intranet providers are doing. 

{audio:0:56:27} That will be interesting for an investor and Gartner is seeing that arising and Microsoft is doing social apps. Salesforce acquired Slack to have a social layer on top of their business processes. Maybe a small company could build on top of that and make it more use case centric. For example, how to manage hybrid work and see your decisions. There are companies in that scene who are already connecting the dots so that it is simpler for companies to manage themselves.

{audio:0:57:41} I will definitely follow up on some of those, thanks for sharing your insights.

{audio:0:57:51} If for some reason you want to know more, I would be happy to try to fill you in. Good luck with your task, it is not a simple one.

LiveTiles and The Intranet-In-A-Box Market: Competitor Perspective

Former Chief Growth Officer at Valo

inpractise.com/articles/livetiles-and-the-intranet-in-a-box-market-competitor-perspective

Executive Bio

Former Chief Growth Officer at Valo

Interview Transcript

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