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[stockmann]

Repost of Knobias's great piece featuring Modavox earlier this year and a thought or two.

This is a repost of the Knobias piece from earlier this year where they featured an a little unknown company called Modavox. As they sited in their recent follow-up piece, they were certainly ahead of the curve on it. Some of you have certainly already seen this feature but since we appear to be landing on the radars of some new potential investors, I figured I would simply share it with them.

Now more than ever, I particularly like the following comments:

"The size of that market for the niche player who creates brand and has the internal skill and hard equipment and infrastructure to attack it will generate nice profits for themselves while also keeping a toe in all the other areas of the changing world for delivery of content. Companies like MDVX become viable takeover candidates as the space matures."

In light of the You Tube deal with Google, and recent acquisitions made by both Yahoo and Akamai, I agree with Knobias's comment believing Modavox would provide significant value to a host of potential strategic acquirers.

Consider the following, Modavox just recently presented their newest technology to their partner Akamai a few weeks back, just presented their AudioEye technology to the GSA after being only one of a handful of companies invited, just reported profitability and sizeable top line growth last quarter, has patented potentially infringed upon technology by some large media companies, is creating all sorts of new proprietary content and gaining a much larger audience for the Voice America Network with over 5 million unique visitors, and has management owning 35% of the entire company paying themselves only small $60k salaries as they too are betting on the stock for their own payday. All this amongst a host of other exciting things happening at the company, does it not really make one wonder if it's simply a matter of when and not if Modavox becomes that viable takeover target Knobias alluded to if not already?


Searching for the Voice of the Internet (Knobias)

Disruptive technology derives from the Internet. Legacy phone carriers knew that VOIP was on the way and until Vonage started to get sales traction the legacy phone companies didn’t take it seriously soon we will be seeing this with radio and television. There is a sea of change coming, and there is little that the major networks can do other than to snap up small companies who have patent value or internal expertise.

For example, if a company decided it wanted to broadcast the back nine at the 2007 Masters, it could be done better, cheaper and without commercial interruptions. In fact, if they wanted to broadcast it in a large rabbit suit with curse words on their T-shirts, there is little that NBC, Hootie or the FCC could do about it. For now, the Internet is unregulated and anyone can produce content and own the distribution rights.

To get a better perspective, we decided to call the foremost authority on the subject, Mark Cuban. He was at the Mavericks’ game yelling at the ref’s and reminded us between shouts of “Are you blind?” and “You’ve got to be kidding me!” that he pioneered the technology and sold his broadcast.com company to Yahoo for billions in 1997.

We didn’t really talk to him, but if we had, he would probably say that we should look at microcap companies. One company we found is Modavox Inc (MDVX). The company produces and distributes online video and audio through its voiceamerica.com channel. They have survived the boom bust cycle, have lots of skin in the game, and have a unique patented technology that gives them a competitive edge. It’s important to examine disruptive technology closely to understand the true barriers to entry and recognize who will eventually become the name that gathers traction and become a household brand.

Looking ahead, all cars will have wireless or satellite Internet access sooner than later. Once this happens, anyone could access content for communications, entertainment and anything else they would use on their PC. Sirius and XM Satellite Radio know this and are developing content that will increase subscribers.

It is clearly a content game with Howard Stern on one end of the spectrum and an undiscovered Wayne’s World character somewhere in a basement in Aurora on the other end. MDVX has competition on a few fronts versus Yahoo, Bright Cove, Vital Stream, and Microsoft in developing and replacing terrestrial radio networks and the current broadcast networks for Television, but it’s not just about this portion of the market.

CEO David Ide elaborated on this sea of change that is occurring and noted, “We have had many walks down the aisle with multiple suitors who recognize (as legacy phone carriers did with VOIP) that the Internet will replace their product and the customer base will migrate to content and price no matter how they stamp their feet in protest, but we view the niche portions of the market outside the radio turnkey operations we provide as the real key to funding the growth of our business.”

Those areas are very large, and MDVX has produced video for the corporate communications niche since 1997 while positioning to capture this vertical market by providing a professionally produced web based infomercial for companies like American Express who link it to their website for a variety of uses not limited to a streaming video about the company’s products. The applications are really unlimited; from management team bios, to interactive videos for new employees covering everything from company policy to insurance information and where the key to the bathroom is. The size of that market for the niche player who creates brand and has the internal skill and hard equipment and infrastructure to attack it will generate nice profits for themselves while also keeping a toe in all the other areas of the changing world for delivery of content. Companies like MDVX become viable takeover candidates as the space matures.

With automobile products right around the corner and streaming video on cell phones for all kinds of content, the everyday investor may need to look to the future to see what is looming on the horizon, replacing the way consumers will receive audio products and visual content. Visionary companies survive trends and resist the shake outs that close doors, the disruptive nature of the technology upsets the normal behavior of the main street consumer, we are on the cusp of this change and we will watch how Modavox navigates the waters.