Celling to the masses..Neomedia
The following is an article from a local business magazine, Gulfshore Business
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Features June 2006
Neomedia Technologies aims at the mobile market
Let’s say the Rolling Stones are coming to town, and you’ve just got to see their concert. You grab your cell phone and call for tickets. Get ready for this: Your cell phone becomes your ticket; after you purchase a seat, a unique code is sent to your phone, which you take to the concert and wave before a scanner to gain entry.
Although this may sound a bit fantastic, it’s already happening in Germany and other countries, and Fort Myers–based NeoMedia Technologies wants to bring this high-tech product and several others centered around wireless devices to the United States.
“Mobile marketing is just about to explode,” says Charles W. Fritz, founder and chairman of NeoMedia, “and the idea is to get it so simple that my mom would do it.”
After surviving the dot-com crash, the 16-year-old firm is going through something of a rebirth. Earlier this year, it acquired five companies and signed a letter of intent to purchase a sixth. Many of these companies have had success with mobile marketing in Europe, and NeoMedia hopes its case studies, campaigns and client lists will help it lead the mobile marketing revolution in America. Executives are also betting that its suite of mobile marketing products will make it a major player.
Calling in Code
Founded in 1990, NeoMedia launched in suburban Chicago, helping companies install and integrate computer systems, servers and software. Over the next several years the business grew, generating annual revenues as high as $25 million.
After NeoMedia created software that allowed a client to print two-dimensional codes (like the ones on the back of many drivers’ licenses), Fritz and a handful of NeoMedia staffers began thinking about ways to connect the physical world to the Internet. But they knew they’d need more money in order to implement a software platform and to file and buy patents.
The company went public in 1996 and raised $10 million. That was good, but not enough, so NeoMedia sought investors and did road shows to share its story. It also established a portfolio of 27 patents, each of which has multiple claims, and created its PaperClick platform, which can be used to connect objects to the Internet via keywords and bar codes. It was well on its way.
Then came the dot-com bomb, and NeoMedia’s funding quickly dried up.
“We had the platform and the patents but no cash,” says president and CEO Charles T. Jensen. He was forced to downsize the company from 150 employees to 13, and he worked with the firm’s chief financial officer to keep NeoMedia alive, developing payment plans with vendors that sometimes included company stock.
“In the case of NeoMedia, the timing was bad, but [management] stuck it out,” says Mark Angelo, president and portfolio manager at Cornell Capital Partners, which has been providing funding to NeoMedia for about the past four years. “They stuck it out when there wasn’t much economics in it for them, when the stock looked terrible, when literally the company car was being towed away. They just kept fighting.”
As NeoMedia worked to emerge from the dot-com ashes, the cellular industry took off in the United States. That was a major plus for the company, which had been trying to determine what device people would use to connect the Internet with the physical world via PaperClick. It had previously experimented with a pen that could scan bar codes, but that still required downloading the scans to a computer. “In the middle of this, the cellular industry introduced the camera phone,” says Jensen. “Our chief scientist said we could use it to accomplish a link to the Internet without sitting at a computer.”
Wireless Warriors
Now back on its feet, NeoMedia has gone on something of a buying spree lately, spending $56.6 million in cash and NeoMedia stock to acquire companies that can help make it a major player in the world of mobile marketing. In February it bought Massachusetts-based Mobot Inc., whose technology works with any camera phone and wireless carrier. Consumers simply snap a picture of an enabled ad and picture-message it to Mobot to receive a prize or some other promotion.
NeoMedia then purchased Munich, Germany–based 12snap AG. Clients for its mobile applications, mobile loyalty and mobile marketing services include Coca-Cola, McDonald’s, Kellogg’s and Unilever. According to Fritz, a European text-to-win campaign that 12snap did for McDonald’s, tied to the movie Monsters, Inc. and packs of french fries, had a 20 percent total response rate and drove sales of fries up 25 percent. “The response rates were phenomenal,” says Fritz, who points out that a direct-mail response rate of only .5 percent is considered good.
The next company to be snapped up was Gavitec AG—mobile digit. The German company provides mobile technology and marketing solutions. Gavitec designs and manufactures code readers for mobile marketing, mobile ticketing and mobile couponing, enabling scenarios such as the Rolling Stones concert ticket purchase and admission.
NeoMedia’s latest acquisition in the world of mobile marketing is Sponge, a London-based developer of mobile applications and content. Sponge recently implemented Europe’s largest-ever on-package promotion for Walkers Crisps; more than 5 percent of the United Kingdom’s population submitted codes found on the potato chip packages via text messaging or the Internet for the chance to win an iPod Mini.
At press time, NeoMedia also had signed a letter of intent to purchase HipCricket Inc. HipCricket licenses software to radio stations and broadcast networks enabling interaction with audiences via short message service (SMS), multimedia messaging service (MMS), interactive voice response (IVR) and e-mail. The nonbinding letter was signed in mid-February; following due diligence, Jensen expected the transaction to close within 90 days at a total purchase price of $4.5 million in cash and shares of NeoMedia stock.
With this new stable of companies, along with its own PaperClick platform, NeoMedia executives believe the company possesses the knowledge and technology to make mobile marketing work for just about anyone. “We now have the whole spectrum,” says Jensen. “A brand can choose any method it wants.”
“We have decided to become the No. 1 player in mobile marketing, using the cell phone as the medium to get to content and connections,” says Fritz. “Our goal is to make it one click and you’re launched.”
Today NeoMedia has more than 180 employees and 600 million shares of stock outstanding. Since its stock was taken off Nasdaq following the dot-com crash, NeoMedia is listed on the OTC Bulletin Board (NEOM.OB). Over the past year, the stock price has ranged from 22 cents to 75 cents, and in mid-April was about 27 cents, giving the company a market capitalization of about $163 million. As Jensen points out, although the stock price is less than $1, the market valuation is high.
NeoMedia reported total revenue for 2005 of $2.2 million and a net loss of $9.1 million. (Company CFO David A. Dodge attributes the loss to the expense of planning, research, due diligence and “continuing to invest in the business” during 2005.) Jensen expects to see substantial revenue increases because of the recent acquisitions. And he points out that Europe is considered to be about 18 months ahead of the United States when it comes to mobile marketing, so this country still needs some time to catch up.
“Essentially, NeoMedia has done some acquisitions that we believe make a lot of sense,” says Cornell Capital’s Angelo. “Ultimately it will lead to some increased revenue and diversification.”
Future Gains
NeoMedia might have all the key components, but will mobile marketing take off in the United States? The general consensus is yes, but there will be hurdles.
Technology and market research company Forrester Research says that, while mobile marketing will get a lot of buzz in 2006, widespread adoption of the practice is still two to three years away. A January 2006 Forrester report states that of 200 million cell-phone subscribers in the United States, only 24 percent currently use SMS, compared with 76 percent in Europe.
One thing companies and advertisers will need to overcome is many consumers’ unwillingness to let their mobile phones become another place where they can be bombarded with marketing messages. When business and technology research firm JupiterResearch conducted an online consumer survey in May 2005, it found that only 1 percent of respondents said they wouldn’t mind receiving commercial text messages on their mobile phones, while 42 percent said they would never want to receive commercial text messages.
“People hold their cell phones as something very private to them,” says Julie Ask, research director and senior analyst at JupiterResearch. “It’s the last phone number they’re going to give out to someone.” Other potential issues will be the charges connected to text messages and consumer privacy concerns. “Marketers and advertisers are going to have to convince carriers that what they’re doing is what consumers want,” Ask says. “Carriers are so protective of customers because it’s very easy to switch these days.”
NeoMedia is aware of these hurdles, and stresses that any marketing it is involved with will be permission-based. “We do not spam,” says Fritz. The company believes that because many consumers purchase bundles or packages from their wireless carriers that include SMS and Internet access, consumers will incur few or no additional charges associated with mobile marketing campaigns.
Despite all these concerns, mobile marketing is something that companies just can’t ignore, because it can help them create targeted, personal and interactive marketing campaigns. “It’s hard to name a company that hasn’t thought about a mobile marketing campaign or dabbled in it a little bit,” says Ask. “Especially with brands targeting a younger audience, in their late teens to early 20s, it’s definitely a part of their marketing [strategy].”
“A lot of large brands want to start to figure out how to do SMS-type marketing promotions,” says Matt Booth, program director, interactive local media for the Kelsey Group, a strategic research and analysis firm. “They’ve seen the success of things like American Idol.” The show allows fans to text in votes.
According to eMarketer, a technology-related market research firm, companies in the United States will spend from $254.8 million to $760.4 million on mobile marketing by 2009. NeoMedia hopes it has positioned itself to get a piece of that pie.
“Anyone who can bring to bear a base of clients and expertise in something like this obviously has a head start,” says Booth. “But the space is so wide open right now, there are so many people dabbling around the edges that it’s going to be a long, long time before any clear winner comes out of it.”
“We think the market [for mobile marketing] is potentially huge,” says Angelo. “I think it’s just a matter of time before that market explodes. The real challenge is, can NeoMedia be in the mix? We certainly think that it can. It’s a challenge, no doubt about it, but we certainly have our money where our mouth is, and we believe NeoMedia certainly has a very good chance of succeeding.”
1. Companies sign up with NeoMedia to activate keywords (such as brand names) or bar codes, which can include those found on most packaging or special PaperClick codes that NeoMedia can create. Pricing for this service varies depending on such factors as the duration and scope of the service.
2. Consumers download PaperClick to their Web-enabled wireless devices. They could get the software for free directly from PaperClick or be instructed how to download it by a company running a promotion. Some devices could also have PaperClick pre-loaded onto them.
3. Consumers use a PaperClick-enabled device either to snap a photo of the bar code or type in the activated keyword.
4. The device’s Web browser launches and connects to a designated server, retrieving a Web page the company has tied to its bar code or keyword.
According to NeoMedia, the applications for the PaperClick software are far-reaching. It can be used by companies to do anything from offering an in-store coupon from a cereal box’s bar code to implementing a text-to-win campaign to creating a how-to video tied to an owner’s manual for a product. Or a television network could provide broadcasts of news or other programs via the cell phone.
“Everything in the physical world has the electronic information somewhere about it,” says Fritz. “[PaperClick] makes the whole physical world interactive.”
Beth Luberecki
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