Risk of NeuStar Going Even Further Astray

Implications: 1.      It might not be that extreme of a statement that all NeuStar executives have to do is sit back --kick their feet up -- and receive checks from the core business, LNP. 2.      Instead, the company is getting into new ventures that do not necessarily have a clear direction.   3.      NeuStar should just sell its FollowAp business, but given the current mindset at the company, the idea will probably not even be entertained.  

Analysis:  NeuStar’s new president and COO, Lisa Hook, spent a good deal of time trying to get AOL into all kinds of businesses that tended to be sophisticated and leading-edge, but their levels of success left something to be desired.  Also her stint as head of SunRocket was hardly remarkable.  With the AOL layoffs and its headquarters moving to New York, Hook is bringing lots of people formerly with Time Warner’s Internet division to NeuStar.  

Neustar has become one of the few places left in the Washington, DC area for the high-tech crowd in the commercial sector.  People formerly with Sprint and Network Solutions are flocking to NeuStar.  They all have a vested interest in making sure that the company finds new products to provide additional revenue.  Whether or not they make sense strategically for NeuStar or whether they will make money in the long term, does not seem to be a pressing matter.  It could also be argued that establishing partnerships and developing new software products are generally done better in Silicon Valley than in northern Virginia.  

It is not easy to understand why NeuStar bought Followap in the first place.  It is way outside NeuStar’s area of expertise and it is one the most challenging aspects of the firm right now.  While some inroads have been made with Followap, there does not appear to be a groundswell of demand coming up for the service – to essentially interface all these different IM systems.  In a lot cases, people are quite happy in a closed system anyway.  From the standpoint of wireless carriers, a lot of this activity is sitting above their networks – it is not as if it has turned into a big application for them.  In addition, there is not necessarily a lot of enthusiasm from the service providers because much of the IM services support many third parties – Google, Yahoo, and AOL, etc.  Most importantly, SMS/texting has become the big data application.   

NeuStar’s UltraDNS opportunity appears more attractive than Followap because the former is similar to what it does in its traditional business – in this case, getting session establishment between the client and the server.   Still, UltraDNS can be a tough sell because it is not critical for a telco to outsource such a service, as is the case with number portability.   A lot of companies will do their own DNS management and naming services has been established as an internal need as long as there has been a public Internet.  Moreover, one is dealing with low bandwidth messages.   In contrast, Akamai, Level 3, or Limelight addresses a specific, significant application pushed by the arrival of Utube and the growth of online video that requires coping with issues like load balancing and latency.