NeoMedia Technologies, Inc (NEOM)

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Must Read DD Racing to the middle
By Kevin Fitchard

May 8, 2006 12:00 AM

http://telephonyonline.com/mag/telecom_racing_middle/


A MOBILE transaction company is a good thing to be right now. Ask m-Qube and Qpass. The former went to VeriSign for $250 million, the latter to Amdocs for $275 million. They are distinctly different kinds of companies but have one thing in common: They each chart out a section of the nebulous middle territory between the carrier, content provider and customer. Every piece of content purchased is a multi-tiered deal with half a dozen parties getting their share, and the industry seems to be realizing that brokering these millions of miniature deals is a very lucrative business.

So why all of the sudden interest? Wireless content is becoming a big-dollar business, said Jay Emmet, president of the Americas for mBlox. Content is moving from the fringes of the wireless services portfolio to take its proper roll as a significant proportion of average revenue per user (ARPU) and a much higher-margin service than voice, Emmet said. For instance, Cingular last quarter reported a 42% increase in data ARPU in just 12 months, coming in at 10.7% of all revenues. Similarly, Verizon Wireless reported 11.5% of all revenues came from data. Most U.S. carriers have either already broached the 10% mark for data ARPU or are nearly there.

“What we're seeing is that there is a significant amount of revenues coming out of data ARPU,” Emmet said. “The companies that manage this space are no longer seen as start-ups with no revenues. They're seen as high-growth businesses. … In a period of three months, almost all of the independent players have disappeared.”

THE NUMBER of companies that offer these types of transaction and settlement services has certainly dwindled, and not just because of the acquisition sprees of companies like VeriSign and Amdocs. There were once several dozen companies staking out claims in this space, but in the last few years, they've been consolidating. Last year, Qpass bought Encorus, a European mobile payments software developer, and content delivery platform company UCP Morgan. In 2004, m-Qube acquired Sharp Robot, a content download provider. And just last month, Wireless Services Corp. bought Mobile Media North America, an off-deck content distributor and marketer.

That horizontal consolidation, however, has been replaced with vertical consolidation. VeriSign made m-Qube the last helping of its two-year acquisition bin, which included ringtone and game publisher Jamba, multimedia message service solutions provider LightSurf and a handful of other companies ranging from peer-to-peer content platform developers to European application service providers. VeriSign's intentions are clear: to turn itself into the most vertically integrated managed solutions provider with a finger in everything from messaging to billing to the actual content itself.

“The choice is clear,” said Vernon Irvin, executive vice president and general manager of VeriSign Communications Services. “[Media companies] can either go to five separate companies and manage those separate relationships or they can go to VeriSign and focus on their own brands and content.”

Amdocs, being more of a traditional billing and back-office vendor, bought a software and platform vendor instead of an aggregator. Qpass traditionally provides the software that carriers use for authentication, settlement, tracking and revenue assurance of new data services — all in a format that links back into existing customer care applications. Amdocs provides many of those customer care applications to carriers, making the acquisition a very symbiotic fit. While VeriSign gained m-Qube's substantial roster of billing relationships with media companies, Amdocs gained Qpass's even more impressive customer base of major carriers. But even though the roles of the companies seemed perfectly defined, Qpass was in the process of expanding its portfolio into more customer-facing solutions. Acquiring UCP Morgan gave it storefront, catalog and merchandizing capabilities and a direct relationship with the content provider.”

“Qpass's technology is very important because our customers want to manage their services in-house,” said Mike Couture, Amdocs vice president of marketing. He added that Qpass does considerable work in managed systems, which fits right into Amdocs's growth strategy. “Payments is a space we've been in, but we didn't have the ability to support the entire value chain from content provider to handset,” he said. “Qpass gives us the ability to bring together all of the pieces.”

Now the industry is eyeing content delivery platform provider Motricity, which lost m-Qube to VeriSign. Motricity has built a sizable carrier customer base for its Fuel platform, counting most of the Tier 1 providers in the U.S. as its customers as well as a handful of Tier 2, mobile virtual network operators and international carriers. But its interest in m-Qube clearly indicated it wanted to move beyond the carrier platform itself and into the actual content transaction. It is, in fact, moving that direction, with or without m-Qube.

Last year Motricity bought M7, which develops community content portals, and it has partnered with payment and settlement software provider Valista to provide an end-to-end wireless retail platform that bridges the gap between the content itself and how it is paid for. Dov Cohn, Motricity senior vice president of marketing solutions development, said that the company isn't actively in the market for a replacement for m-Qube.

“Our strategy is to deliver as much value to our customers as possible,” Cohn said. “If we see a component or components that our customers are asking for, we'll definitely look at it.”

ONE THING ALL OF THE companies involved in this space agree on is that this kind of vertical consolidation will continue. MBlox, Mobile 365, Wireless Services and Valista are all possible acquisition targets, and there are dozens of other regional aggregators and small-platform providers that could be tossed into the consolidation mix.

As for acquirers, it may not be just the billing vendors like CSG and Oracle and the content platform providers like Motricity that are interested. All of the major wireless infrastructure vendors in the last few years have been focusing on their managed/hosted services platforms as well as delving deep into the content space. Nokia went so far as to launch its own content management, delivery and settlement platform, Preminet, which failed to attract much attention beyond a few carrier deals.

mBlox is probably now the most attractive of those targets, having processed 1 billion transactions over short message service (SMS) last year. Last month the company announced it has become off-portal content merchandiser Bango's preferred SMS transaction provider, giving it a leg up in one of the industry's fastest growing content markets. mBlox is resolute in maintaining that it can tackle the market alone as a best-of-breed aggregator, but in an interview last month, Executive Chairman Andrew Bud said it would certainly entertain any offer if the price is right.

If any more companies do seek to enter the transaction space, they will likely have to do it through acquisition. All the established transaction companies have already built up extensive relationships with carriers, third-party content portals and the media companies themselves. But more significantly, transactions are becoming a far more complicated business, said Fran Heeran, vice president of product management for Valista.

The SMS content billing model championed by mBlox and m-Qube is gradually becoming obsolete as the industry is moving toward wireless application protocol (WAP) billing models, he said. While browser-based transactions have been ungainly in the past, the new merchandizing models — rife with promotions, multi-vendor merchandizing and variable settlement terms — is becoming far too complex for a mere premium SMS transaction, Heeran said.

Simultaneously, the technology is becoming more sophisticated, on-deck content portals and better user interfaces are eliminating the clunkiness of the browser buy page. It won't be long before the two trends gel and create a much bigger market for WAP. But those transactions will require a much tighter coupling between the carrier's billing systems and the content provider, with multi-layered rules and restrictions differing from carrier to carrier.

It won't just be content relationships that the transaction companies have over the industry, it will be expertise in the space. That kind of expertise, Heeran said, will make the transaction enabler or software provider a critical requirement for any company that wants to play in the content space.

“The billing guys are looking to move up the value chain, and the content providers at the top of the value chain are looking to move down,” Heeran said. “Everyone is looking to capture more of the value chain,”

It might wind up a race to see which can get to the middle first.

Companies in the mobile transaction space

mBlox - The leading aggregator of SMS transactions in Europe, mBlox contracts directly with content providers like big media brands to provide billing and settlement service for more than 1 billion message transactions a year.

m-Qube - mBlox's biggest competitor, North America's biggest transaction aggregator was bought by VeriSign in March. m-Qube brokers the billing and settlement for dozens of brands such as Sony Pictures, Warner Music and Major League Baseball.

Qpass - Primarily a back-office solutions vendor, Qpass software allows carriers to take many of the billing; value-chain management; content management, delivery and merchandising functions in-house. But before Amdocs announced its planned acquisition of Qpass last month, the company was expanding its business to provide more front-end facing services.

Valista - Another software vendor, Valista also sells its transaction management solutions directly to carriers, but it has ventured into managed/hosted services and has started partnering with content delivery companies like Motricity.

Mobile 365 - One of the big SMS interoperability exchanges, Mobile 365 routes 25 billion messages between carriers each year and has extended the billing and settlement capabilities of that network to include more advanced transactions such as ringtones, games and MMS.

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