Milestone Acquires Training / Consulting Company

Milestone has acquired [link no longer available] Connex, prompting many to wonder: "Who is that?" And the few who did know them to puzzle "Didn't they already own them?" Hopefully, this is the end of a puzzling conflict of interest 'partnership' that has left many of Milestone's partners and competitors equally confused.

Below is our original 2011 report analyzing Milestone and Connex, followed by an update.

Leading VMS developer Milestone Systems has a training / consulting subsidiary named Connex International. This relationship is particularly interesting because of Connex's aggressive expansion strategy and both organization's vagueness about their relationship. In this note, we examine the subsidiary, its positioning and potential conflict of interest.

Let's start with a review of Connex's positioning:

• Connex offers a broad array of services [link no longer available] including training, consulting services, business intelligence, project management, system design etc.
• According to Milestone, "Connex has established several joint venture-like partnerships with leading security and IT companies and has created a large security industry training and certification business worldwide.  In 2011 Connex will have conducted over 450 instructor-lead training and certification courses in 120 countries and 14 languages for 8 different manufacturers or providers with a combined attendance of over 4000 trainees."
• Connex offers numerous for profit Milestone product training courses. For instance, the 3 day Advanced Milestone training has a list price of $2,995 that includes options for free Milestone software licenses.

Limited Disclosure

In 2010, Milestone issued a press release [link no longer available] saying that it "invested in a partnership with Connex." This release was vague and did not disclose that this was a joint venture, that Connex was a subsidiary nor that Milestone was the majority owner.

In 2011, in a table on page 20 of a required Danish government financial report, Milestone disclosed that Connex International was a subsidiary ("datterselskaber") and that Milestone owned 51% of Connex based on $1,000 nominal share capital. As the document is in Danish and requires purchase of an individual copy, it is difficult to access.

We believe that very few industry people, even insiders, actually knew that Milestone was the majority owner of Connex.

Potential Conflicts

A number of concerns exist with a product vendor such as Milestone being the majority owner of a training and consulting company, especially without full disclosure:

• Favoring Milestone products in training: Connex employees providing training for camera manufacturers may favor or recommend using products from their parent company, Milestone.
• Favoring Milestone products in consultations and system design: Connex employees designing systems may prefer to specify Milestone products.
• Sharing client's information with Milestone: A client providing sensistive information to Connex may have it disclosed to Connex's co-workers at the parent company, Milestone.
• Favoring companies who provide Connex training business: Partners who pay Connex to deliver their training may have an advantage being recommended by Connex trainers or Milestone employees.

We raised our concerns about disclosure and conflict to Milestone. Here is their response:

"Channel competition always exists. Connex is a leading subject matter expert and service provider and as such operates as a supplemental services contract provider agreed on an individual basis with each of its manufacturer, distributor and systems integrator clients. Milestone has stated our 51% share ownership in our financial reporting as required by the regulations that govern our business (the earlier mentioned Danish business accounting act), which is publicly accessible. In the press release from July 6, 2010, we also announced our investment in Connex, and the reasons for it. In most joint venture agreements one of the partners will own a majority of the shares to ensure that any corporate decisions that may become deadlocked between parties can be resolved to ensure the continued operations and future success of the company. Milestone’s motivation to enter into this joint venture was to accelerate the global expansion of open platform education within the ecosystem, and it resulted in investing in a services company that had shown the potential to succeed in this, to give sufficient capital and support to incubate a small company into a value-added global services provider to help achieve our goals for driving IP video in the marketplace (our stated company Vision)."

Milestone has every right to pursue its business model. The main issue is whether they fully, promptly and regularly disclose their affiliation so students, clients and partners can be aware of potential conflict.

Historically, Milestone has been extremely aggressive about avoiding channel conflict and being open. Indeed, last year we cited their openness as a core competitive advantage of the company. Now, perhaps Milestone's strategy is shifting as this year they also controversially entered the hardware business. At least for the consulting/training subsidiary, an easy solution exists: simply refer to Connex as "Connex International, a Milestone Systems company." This would provide full disclosure while leveraging the Milestone name, a well respected global brand in the IP video surveillance industry.

Acqusition / 2013

Now, Milestone has acquired the rest of Connex [link no longer available]. It makes sense for Milestone and also eliminates the confusion / conflict that existed. We do not think this will have any major impact as Milestone will now 'officially' have their own internal training team like most every other large manufacturer.

Other manufacturers, including Milestone competitors, report that Connex continues to pursue business with them, as well as confusion about who Connex really is. With this acquisition, and the resulting clarity, such deals will become far less appealing to most.