■Overview of Koss Corp

(2) Network Security Business

The network security business is a business that Koss Corp has been consistently engaged in since its founding, leveraging network technology cultivated since its establishment and centered around the independently developed "Network All Cloud." It is a service that allows the company to remotely control all network equipment from the cloud. Customers can reduce all business burdens caused by network operations, troubleshooting after deployment, etc., aiming for the "cloudification of information systems." It is capable of network integration, with a large number of achievements mainly in hospitals, designing and constructing ICT communication infrastructure networks such as office server and network construction, interconnection between locations, and remote tools for telework. There are direct sales and indirect sales channels in the sales system, with direct sales accounting for around 50% and indirect sales around 50%. Indirect sales also include OEM, where products are sold under a different name as a major vendor product.

The sales of "Network All Cloud" involve receiving device costs in a lump sum at the time of purchase, becoming a pay-as-you-go model thereafter for the company's cloud service usage fees. For customers, all design and construction costs are included in the cloud service usage fee in advance, allowing for cost-effective implementation. The main cost of sales includes labor costs of system engineers, outsourcing costs (dispatch), external outsourcing costs, and the purchase of sales/rental equipment.

Koss Corp's "Network All Cloud" is a service that allows the construction and operation of ICT networks to be remotely managed from the cloud, without the need to dispatch the company's personnel to the site. By outsourcing the operation of VPN*1 routers, firewalls*2, switches*3, wireless LAN access points, and others to the cloud, customers can monitor the status from a Web interface on SaaS. It is used by retailers, restaurants, branch offices, educational institutions, cram schools, medical institutions, etc., with branches nationwide.

*1 Virtual Private Network abbreviated as VPN. It is a virtual private network created on the Internet using encryption technology, etc., to establish a dedicated virtual network.

*2 Refers to a firewall installed at the boundary between internal corporate networks and external networks such as the Internet, a device or software that has a mechanism to determine and control whether communication is allowed.

*3 Refers to a switching hub, one of the devices that relay communication in a communication network, which receives data, identifies the destination, and transmits data to the relevant equipment.

The company's 'Network All Cloud' includes two lineups, the fully managed SASE 'Verona' and the cloud wireless LAN service 'Hypersonix'.

(a) 'Verona'

'Verona' is a service that designs, constructs, and operates Internet VPN services from the cloud. It is used for inter-site VPNs and software VPNs, suitable for remote confidential communication between companies and homes required for telework. Unlike traditional VPNs that required engineers to manually configure devices on-site, 'Verona' can distribute configuration information automatically from the cloud. It can reduce customer operational burdens by enabling automatic distribution of setup information, configuration changes, fault handling, and even firmware updates from the cloud. In addition to the certificate authentication feature that restricts communication to specific terminals usually present in traditional VPN products, 'Verona' also has security functions such as a dynamic port control function that opens communication ports only during communication. It has a new cryptographic communication mechanism in line with zero-trust architecture. The service's demand has been increasing due to the surge in teleworking caused by the spread of the novel coronavirus infection.

'Zero Trust' is an approach to security that involves taking security measures under the assumption of 'trust nothing' rather than categorizing security between internal and external networks.

(b) 'Hypersonix'

'Hypersonix' is a service that designs, constructs, and operates wireless LAN from the cloud. It ensures the comfortable and secure operation of Wi-Fi in multi-site environments such as offices, stores, factories, educational institutions, and medical facilities. An advantage is the flexible selection of multiple devices tailored to specific uses and environments. While most cloud wireless LAN service providers handle only their own single devices, making deployment challenging due to equipment compatibility and environmental reliance, the service offered by this company allows choosing and using multiple manufacturers' devices tailored to desired uses and scales. Additionally, the company has also signed a domestic sales agency contract for the top-ranking US Ubiquiti 'UniFi' series, a global leader in cloud network services. Known for its high price competitiveness and functionality suitable for cloud networks, these devices are used as service-providing equipment by the company. They have also started selling devices domestically.

3. Competitive Advantage

Regarding the company's competitors, in the domestic market, the US-based Splunk stands out. Splunk's product is a tool for processing big data from various sources for data analysis, where log data collection and analysis are only a part of its functions. Therefore, in a simple functional comparison, Splunk's product surpasses that of the company. However, due to its many features, it requires specialized technicians for maintenance, making the operational hurdles and costs relatively high. On the other hand, the company's product, while not having as many functions as Splunk's product, sufficiently fulfills the necessary functions as a SIEM product, making log analysis operation easy and less challenging. Additionally, by specializing in the functions necessary for log analysis, it has overwhelming competitive pricing. To gather user feedback on the product, sales representatives accompany sales agents to explain the products to customers and directly hear user opinions. Furthermore, they collect new needs through post-implementation product support. Within the company, there are regular product specification adjustment meetings among marketing, development, and sales to appropriately reflect user feedback into the product. While Splunk's product targets a minority model of specialized technicians, the company's product follows a general and user-friendly majority model, providing a significant advantage in terms of 'customer operability'.

(Author: FISCO Guest Analyst Ryoji Mogi)