an interview with Graham Kill
Graham Kill became Cloakware's CEO when Irdeto acquired Cloakware in late 2007. Avi Dines from Schwartz Communications asks Graham about Irdeto's plans for Cloakware.
Avi Dines (AD): Why did Irdeto acquire Cloakware?
Graham Kill (GK): Irdeto identified software security as an area of interest and importance a few years ago when we developed one of our future scenario sets. In 2003, Irdeto became a Cloakware customer when we started licensing the Cloakware product. At that time I approached Cloakware's shareholders to acquire a minority stake in the company as we felt it important to reinforce that license for a technology we considered so fundamental to Irdeto's business. Selling an equity stage at that time was not part of their plan, so we had to wait patiently until 2007. In late 2006 we made entering this field an explicit part of our strategic objectives for 2007 and we were pleased that we achieved that through the acquisition of Cloakware, rather than one of the less attractive alternatives.
Irdeto has a lot of experience in security, and in significant segments of that market we are seeing a shift towards software-only implementations and towards interoperable solutions. These solutions have many benefits; for example, since a software solution can be downloaded, it is more flexible and renewable. Acquiring Cloakware creates a significant strategic advantage in the Conditional Access (CA) and Digital Rights Management (DRM) markets, providing a wider range of solutions, credibility and differentiation, all of which are beneficial to winning business.
Also, as the Cloakware technology has the potential to be a fundamental enabling technology across many verticals, it is an ideal way for the wider Irdeto Group to be able to explore new areas for potential expansion.
AD: Are there overlaps in the markets the two companies address?
GK: Yes, Cloakware is already very well regarded in the DRM and CA markets. We both work with numerous consumer electronics device manufacturers, so there is synergy there. In addition, Cloakware is active in Enterprise and Government markets.
AD: Irdeto is not seen to be active in Enterprise and Government markets. Why are these markets of interest?
GK: Cloakware's role in the enterprise market is very similar to what Irdeto is doing in the broadcast industry. Irdeto manages the access credentials of millions of customers through the CA system. This is similar to what Cloakware provides in terms of managing access credentials - or passwords - in the data center, just in a different market space.
The Enterprise and Government market that Cloakware is targeting is in the identity and access management (IAM) space, managing privileged and application-to-application passwords in organizations' data centers. Cloakware was the first to offer a commercial solution to solve this security challenge. They also have the most scalable product, so that it can be deployed by international organizations with data centers around the globe. There is only three percent penetration into this market, so there is a tremendous growth opportunity and we plan to pursue it aggressively.
I'd also like to mention that Irdeto has had successes in the Enterprise and Government markets. We have contracts with the Department of Defense and NASA, among others. We welcome the application of Cloakware's core content protection technology and skills to new markets.
AD: Since you have more experience in the content protection business, will you be more focused on DRM and CA than on the Enterprise business?
GK: When Cloakware launched their Enterprise product, there were no other players. Now other companies have emerged, validating the market. Even in the short time since the acquisition, Irdeto has already made a direct investment in Cloakware's Enterprise business. There is a huge upside and we believe that with investment, Cloakware can continue to dominate the large scale implementation segment of the market. The Enterprise business was part of the value of the company that we paid for and we intend to work our investment hard in that area in order to get the return we are looking for, so Enterprise is a firm part of our Cloakware plans going forward.
Of course, we also plan to leverage Cloakware's technology and experience to further expand Irdeto's position in DRM and CA.
AD: Is this a merger?
GK: No, it is an acquisition of 100% of Cloakware. However, Cloakware will continue to operate as a separate company with me as the CEO. As a matter of fact, Cloakware currently works with some of Irdeto's competitors - and I encourage this as it's important to growing Cloakware's business, as we want Cloakware's technology to be as widely deployed as possible.
AD: Will anything else change at Cloakware?
GK: Cloakware will receive increased investment in all aspects of its business, including R&D, sales and marketing, and an opportunity for global support from Irdeto's offices around the world including Bejing, Singapore, Moscow, Sao Paolo and Korea, among others.
In addition, prior to the acquisition, Cloakware was VC-backed. As an Irdeto company, they will have greater strategic direction, a long-term planning focus, improved capitalization and increasing investment, and will be able to plan over a longer term to commercialize new solutions they have been developing. This is in stark contrast with several of their competitors, who are still VC-backed.
AD: Will Cloakware move to Europe?
GK: Cloakware's heartbeat is in North America. We are a people business, we are not about physical assets, so most of the Cloakware team will continue to be based in our Vienna and Ottawa offices. Of course, we expect there will be expansion in other regions and in time there will be Cloakware people located worldwide.
AD: How will the two companies work together?
GK: Cloakware is strong in North America and parts of Europe. Irdeto has hundreds of customers in EMEA and AsiaPacific, and offices around the globe as I mentioned. It only makes sense for us to assist in Cloakware's international expansion, and to exploit opportunities where our technologies are complementary.
AD: Often acquisitions fail because of culture clash. What makes you think this will be successful?
GK: Irdeto has been a Cloakware customer since 2003. At the time, we found the technology to be the most mature on the market, the most advanced, and they had reference clients. Since then, we have fostered an excellent working relationship, and they have been very responsive to our needs. As a result of this successful customer relationship, Irdeto already knows the Cloakware team and understands that we're culturally compatible. Via the acquisition, we're excited to be participating in Cloakware's growth and future success.