Why did Vivotech Fail? NFC posterchild sell off

Vivotech was founded in 2001 by Mohammad Khan who had earlier worked for Verifone to help them develop their payment automation systems from 1983 to 1998. He also co-founded Verifone’s Internet Commerce Division.The company had raised $96 Mn through investors including SingTel Innov8, Singapore’s EDBI, Motorola Solutions Venture Capital, Citi Ventures (the venture arm of Citigroup), Alloy Ventures, Draper Fisher Jurveston, First Data Corporation, DFJ Gotham, Miven Ventures, Motorola Mobility, NRC and Nokia Growth Partners. Vivotech was acquired by Sequent in 2012. The company also provided software solutions for Google Wallet.

Vivotech offered both software services and hardware solutions:

  • In the software side, the company provided Trusted Service Manager (TSM), over the air (OTA) provisioning and digital wallet software through their Vivonfc Software Suite product offering.
  • Their patented TSM software allowed the delivery of mobile marketing content to the users, like location-based coupons, offers and promotions, through a spam-free authenticated mobile network.
  • Vivowallet software could be used to create a digital wallet in an NFC phone, which can access and securely manage multiple payment, loyalty, and transit cards, coupons, and tickets, stored in the wallet. In the hardware side, Vivotech offered contactless readers and writers.

Despite its initial successes, Vivotech recently had to sell off its operations. The reason as given by the company is that it was unable to generate enough cash flow to meet its operational requirements. This is in spite of raising almost USD 100 mn in funding from investors that included Citigroup, Singapore based SingTel, Nokia and Motorola.

Vivotech got sold in two stages:

Initially, Vivotech sold off its contactless reader business to ID Tech. ID tech is a company that provides automatic identification products. ID Tech acquired Vivotech’s Vivopay trademark, technologies and reader assets through the deal. The company’s self service kiosk, contactless/NFC readers for POS and vending apps were all included in this. The value of the deal has been undisclosed.

The company’s objective was to restructure its assets and focus on providing better software solutions. But the company had to finally sell off its software business too. The buyer for the software business was Sequent, a US based start-up.

Sequent acquired Vivotech’s TSM software. The other assets acquired by Sequent have not been disclosed publically, but there is a strong possibility that Vivotech’s digital wallet software, VivoWallet, has also been acquired by Sequent. Like the deal with ID Tech, in this case also the exact value of the deal has not been revealed.

LTP View: There can be several reasons behind the failure of Vivotech. The strongest possibility is the fact that Vivotech entered the NFC business too early. Established in 2001, they were one of the earliest players in this segment. They operated in this field when NFC-based payment systems were not popular. During the 2000s, smartphones were not as ubiquitous as they are now, and there were virtually no NFC-enabled portable devices.

So the only buyers of Vivotech’s offerings during those periods were banks. Even today NFC Payments are not only suffering but also undergoing sea change.Vivotech may have entered the market at a period when the necessary complementary assets were absent.