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Monday, June 7, 2010

Sonic Foundry: Customer Insight into How/Why Organizations Evaluate (and Choose) Mediasite

We wanted to share a brief update on Sonic Foundry (SOFO). In our 5/1 post, Sonic Foundry: Déjà Vu as Pot of Gold Remains Around Corner? we relayed management guidance calling for large deals to begin boosting results this summer. As we await confirmation that the Mediasite franchise is scaling to plan, some of best fodder to provide us comfort comes from customer commentary. In addition, we can also look to event capture activity highlighted in Sonic Foundry's spring newsletter:

Recent events webcast by Sonic Foundry Event Services
- 2010 Virtual Symposium: Education for Everyone - Expanding Access through Technology
- Bersin & Associates' IMPACT 2010
- InfoComm 100
- National Multiple Sclerosis Society & American Academy of Neurology

On the customer commentary front, we can look to this recent Webinar:
  • Evaluating Lecture Capture Total Cost of Ownership. Get an inside tour of the objective process University of Toledo created to evaluate lecture capture solutions. See how they weighed different methods of course capture, what criteria they used to compare vendors and how total cost of ownership became a key component in guiding their selection.
In the Webinar, Deirdre Jones of the University of Toledo shared a number of slides, as well as supporting documents, explaining what the university was seeking in a lecture capture system. Please see links in the Webinar to download primary supporting attachments - we include several snapshots below.

"Business requirements" (click to enlarge):
"Vendor Questions and Answers":

Excel spreadsheet of "Mission Related Features":

We share the Webinar and her extensive due diligence materials to illustrate the myriad institutional requirements for large-scale, enterprise-grade rich media capture solutions. Considering all of the necessary front- and back-end features in the proper context helps an organization answer the question we presented in January, Who on Earth Needs Mediasite..., and brings us back to our original thesis from May 2009:
  • (1) Sonic Foundry/Mediasite is far along the learning curve with (2) intellectual property protection, and (3) very satisfied, captive customers that face high switching and search costs. Points (1) – (3) are both related to and strengthened by (4) economies of scale and (5) leading market share.
Specifically, recall the "background" we shared related to point number three:

(3) very satisfied, captive customers that face high switching and search costs


  • Information technology purchasing cycles can be long and, in higher education, are typically very long. Institutions want to make certain that a solution provides (1) attractive returns on investment, (2) properly integrates with and augments existing systems, and (3) includes reliable customer support as well as a credible roadmap for future development. Benefit to long sales cycle: once a solution is in, it typically stays in.
  • Aside from initial capital investment in the solution and recurring maintenance costs, customers invest time and resources in solution management, operation, and training.
  • Given upfront and ongoing hard and soft costs, institutions find comfort in numbers – as the reference base grows, institutional buy-in becomes easier.
The bottom-line is that understanding how a potential solution meets current and future institutional needs is critically important. Via the Webinar, we were happy to hear that -- following a thorough evaluation process -- Mediasite met/meets these requirements for University of Toledo. We've seen the same results elsewhere, both in education and in government. Recall The Uniformed Services University of the Health Sciences (USUHS) decision last fall (we relayed in September):
  • USUHS has determined that Sonic Foundry is the only reasonably available manufacturer to meet the government’s requirement:
  • USUHS has determined that the Sonic Foundry Mediasite RL Recorder is essential to the Government’s requirements and market research has not produced any other companies’ products that meet the agency’s needs.
Per an earlier post where we mentioned some similarities to Philip Carret's water meter thesis, there are many reasons to view Mediasite as an long-lived appliance that becomes an integral, mission-critical system within an organization. We also relayed this sentiment in comparing Mediasite to a jet engine last year. Finally, when reviewing potentially competitive solutions to Mediasite, we continue to see apples and oranges.

While weak education budgets remain a noteworthy risk factor, we think evidence points to continued Mediasite adoption, revenue growth, and -- importantly -- positive earnings and cash flow.

Happy investing,

Jeffrey Walkenhorst

Disclosure: long SOFO.

© 2010 Jeffrey Walkenhorst
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  1. Jeff,

    Slightly Off Topic: Have you ever looked at Jacada Software? Symbol is JCDA. They are not cash flow positive and not profitable yet, but they are close. The stock is trading at about a $17 million market cap and they have about $22 million in cash. They are targeting cash flow break-even by the end of the year and they have had about a $2 million a quarter burn rate.

    Following in theme of micro-caps I thought I would ask about JCDA. They have a real business and a new mgmt team that joined last April. They just landed DTV and it looks like it is a $2 million deal to start. They are doing about $20 million a year in revenue.

    Thank you and great blog.


  2. Hello Jim,

    Thank you for bringing JCDA to my attention. I only looked briefly, but per Yahoo Finance, the company has $8 million of cash and a negative TTM operating cash flow of $12 million?

    Latest results confirm the cash position:

    Thus, cash burn appears a key risk factor to monitor. You need to gain comfort that the business can scale, reduce burn, and - ultimately - achieve AND sustain positive cash flow. Will the business be bigger, better, stronger in three to five years? I will keep an eye on the company.



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