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A few months back, I read a great article about the increasing incidence of hacking attacks originating from Romania. Ever clever, I immediately realized that once our retail apparel thesis played out, Eastern European telecom was going to be the next big macro area to follow. I ran a screen using our uber-data source, Capital IQ, to filter down to all the U.S.-listed information technology companies with headquarters in Eastern Europe.
And that's how I ended up stumbling across the fantastical turnaround and now high-growth story of video asset management system titan, KIT digital (Nasdaq: KITD ) -- by searching for ex-Soviet telecoms.
KIT digital is the kind of company that you expect to find headquartered in New York, Los Angeles, or at the very least, Paris. Instead, the company and its namesake, the entrepreneur-cum-turnaround artist, Kaleil Isaza Tuzman, can instead by found in Prague, the capital of the Czech Republic. From there, Tuzman has transformed the company from a headless chicken into what might become the salesforce.com (NYSE: CRM ) of the burgeoning video asset management software (VAMS) industry.
As its name suggests, KIT digital's particular expertise in this $10 billion-$15 billion market is in dealing with digital and Internet video. The company's solutions allow customers like MTV, Verizon, and CNN to create, manage, and distribute the increasing number of videos that are now popping up all over the Internet.
It's a simple thesis, really. Video content is going to increase: everything from more handheld electronic "access points" (tablets and smartphones, for instance) to cheaper and faster bandwidth point to this upward trend in video volume. As it increases, it will become increasingly less efficient for companies to handle all the necessary functions in-house.
Outsourcing like it's your job
Similar to our belief in the need for companies to outsource their specialized printing needs to companies like InnerWorkings (Nasdaq: INWK ) , we think it will only be a matter of time before most if not all companies outsource their video asset management to guys like KIT digital. The company's pedigreed client list already includes tech and media giants like the BBC and Disney-ABC, among many others.
Like salesforce.com, KIT digital benefits from highly efficient economies of scale by offering its products and services in a "software as a service" model that locks in clients for an average contract length of 24 months -- that also gives the company two years to get its solutions entrenched in a customer's operations, increasing the switching costs and deterring existing clients from jumping ship. No wonder customer cancellations have historically been less than 2% per year. That's not bad at all for a company that already has what we estimate to be upward of 40% of the total VAMS market and has plans to hit a full 50% by the end of 2012.
KIT stands for what again?
No KIT digital write-up would be complete without a quick take on its helmsman though. Just over 10 years ago, Kaleil Isaza Tuzman was co-founding an Internet start-up govWorks. Although that company never really went anywhere, it and its founders did become the stars of the 2001 documentary Start-up.com, which follows the company's rise and fall and provides a glimpse at a younger Kaleil.
For what it's worth, I found him to be an energetic, accessible, and relatively down-to-earth character, continuing to maintain a personal website, an active Twitter feed, and entertain interviews with eccentric analysts that other CEOs might not want on the public record. Myself, I like seeing these more personal glimpses of the managers that control and operate the companies I invest in. The Dada Portfolio is going to put $500 into an initial stake in KIT digital and watching to see if the video revolution is for real.