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Brightcove Acquires Zencoder

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Brightcove's earnings announcement today came with two surprises: a significant increase in revenues and an acquisition announcement. Revenues increased by 41 percent, to $21.6 million, to end the quarter with a loss of $4.3 million, significantly lower than its first quarter loss. In addition, Brightcove announced it was acquiring Zencoder for $30 million.

Brightcove's chairman and CEO, Jeremy Allaire, said the acquisition isn't just about adding a service to its existing online platform, but also as an opportunity for Brightcove's existing and potential customers to use Zencoder as a standalone solution outside of the Brightcove Video Cloud platform.

"Zencoder not only strengthens our Video Cloud online video platform in a key technology area," said Allaire, "but it also signals our expansion into standalone cloud services that developers can use as building blocks for custom systems."

The idea of a standalone service plays to Zencoder's strengths as a cloud-based encoding solution, and a Zencoder blog post announcing the acquisition stated that the company will continue to operate as an independent entity.

"Zencoder will continue to operate as an independent service, but we will do so as a part of Brightcove," the blog post states. "Brightcove is a complementary company in the video space who believes in our developer focus, is committed to standalone API-based services, and will keep Zencoder operating largely as you see it today - only better, and with more resources behind us."

Zencoder had raised $2 million just four months ago, and has over 1,000 customers, only a few of which overlap Brightcove's 4,697 customers. The Zencoder blog post, perhaps in a bid to assure customers that Zencoder will remain independent, assures customers that they won't have to switch services.

"Brightcove offers a full-stack online video platform, but Zencoder customers will in no way have to switch over," the blog states. "Transcoding will remain a standalone service. Over time, don't be surprised if you see more standalone services from Brightcove."

The fact that Zencoder's blog post forecasts other standalone services is a bit odd, but it shows a bit of the trust growing between Zencoder and Brightcove management. In addition, it may show how quickly Brightcove is attempting to diversify in to a larger market share, especially as customers look to build their own standalone video platforms and streamlined workflows.

With Zencoder becoming the Bay Area research and development arm of Brightcove, there's also the question of what happens to the Brightcove competitors that Zencoder currently powers. According to the Zencoder blog post, there will be no intentional change to Zencoder's ability to power competing services and there may even be an increase in powering competitors' platforms.

"Zencoder provides encoding services to several of Brightcove's Video Cloud competitors," the blog post states. "We plan to continue to offer our services to anyone who wants high performance encoding in the cloud. We also believe that as cloud services continue to grow and mature, this will become more and more common."

Whether Brightcove is taking a gamble powering other competitors through Zencoder, or whether it sees this as a flanking maneuver that allows competitors to resell the Brightcove platform, remains to be seen. But Brightcove also gains an HTML5 video player that has several months of testing under its belt, which may be an enticement to competitors -- or select competitors' customers -- to join the Brightcove fold.

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