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Sept/Oct 2009 | Volume 1/Number 5
Publisher's Outlook

The Acme Packet Success Story

By Rich Terhani

Andy Ory has helped lead Acme Packet, an IP communications company focusing primarily on session border control solutions, to greatness. I first became aware of the company during the post-telecom bubble days earlier this decade and from that time Acme Packet has not ever ceased to impress me. The company prospered in a crowded field while most competitors were forced to close down or sell in a distressed fashion to others.

Back then Acme Packet was not the first to come to mind in the field but in many ways they became a successful publicly traded company by making smart partnerships and developing superior products while establishing thought leadership in the field. In a recent conversation at company headquarters Ory, the company CEO, explained how business picked up in October of last year – actually corresponding to the financial crisis in his words. As he explained, after the meltdown, job security became tied to accomplishing goals, better, faster and cheaper.

Most interesting was the comment that those people who aren't leading the transition to IP communications could be considered hitched to TDM. Perhaps a key to the company's success is timing. Ory points out that all mini computer companies

are gone. Considering the company's headquarters is located a stone's throw from where many of the mini computer companies such as DEC and Prime were based, this was a good example of how disruption does not favor incumbents. And it explains why Ory is happy to have launched the company at a time when there was no need to rely on legacy technology. The following important comments he made are certainly worth sharing: "Disruption favors the weak – [it] favors the least amount of embedded assets." "People, money and materials – work against you." "A disruptive event – [whether it is] technology or new market regulation – has to be just right [if it is] too big or small [it presents] a problem."

To explain market inefficiency and how disruptive technology changes this, Ory uses a simple example. He explains that if a company has a supplier relationship with another company it keeps innovation from taking place. For example if a company sells me staplers and a new supplier comes into the market with a cheaper stapler I may just ask my existing supplier for a price break. This works fine until the new supplier comes to you with a new invention – tape. At this point the new supplier becomes the preferred vendor.

And this explains why Acme Packet has reached critical mass – a point where a carrier understands that Acme has become a crucial cog in their network.

Interestingly in our meeting, Ory explained that the reason the company purchased low-end, software-based SBC vendor Covergence (News - Alert) was because they determined they needed a more "innovative" brand as that seemed to be what the enterprise market was telling them they wanted. In other words Acme had become the established player – the incumbent.

Since my conversation the company announced earnings which were up 6 percent sequentially. Company officials said that there were two other "never achieved as much" categories, cash provided

by operating activities of $14 million and cash and equivalents of more than $155 million.

In terms of opportunity, Acme Packet is now the dominant standalone SBC provider and seems to have become more synonymous with the category by the day. As a larger portion of carriers and companies adopt IP networks it seems obvious the necessity for them to consider purchasing an SBC will only grow. And in such a situation and market, it is good to be the leader.

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