The Reinvention of Qpass and the Ignition of Mobile Content

The people who worked for Qpass in the fall of 2002 weren't able to lounge around after Thanksgiving in tryptophan-induced stupors, or lose themselves in the holiday shopping throng. Instead, they took advantage of the long holiday weekend to complete the final step in a massive transformation of their company.

The original license for the company's software platform was set to expire at the end of 2002, so Qpass had to get a new system in place for its customers. And although both AT&T Wireless and Cingular Wireless were using the system, it was not originally designed for use on mobile carrier networks. So throughout 2002, Qpass worked on enhancing the functionality of its current platform while simultaneously building a whole new Java-based architecture tailored specifically for wireless carriers.

That process culminated on Thanksgiving weekend, when Qpass lined the halls of its Seattle offices with cots, brought in nourishment (“Everything from fried chicken to Red Bull,” as one Qpasser put it) and went to work. Employees with functions like marketing and sales had already completed their parts of the transition, so they were designated “Q Lackeys” and assigned such tasks as taking care of their colleagues' dogs and supplying sustenance to busy co-workers. The company's engineering and operations employees spent the weekend taking the old system down, migrating some million wireless accounts to the new platform and bringing it live.

“Lots of people used the analogy of changing tires at sixty miles per hour,” said Chase Franklin, CEO of Qpass. “It was that kind of a process.”

By 2002, though, Qpass was no stranger to high-speed shifts. The company was founded in 1997 to build a software platform that managed customer accounts and facilitated transactions for Web site operators looking to sell electronic content. Because those were dial-up days, the primary customers were text publishers like Dow Jones, the New York Times and USA Today. In Q1 of 2001, Qpass diversified by repurposing its platform to appeal to cable operators expanding to offer services beyond video, such as home security. Shortly after that, Qpass added AT&T Wireless and Cingular as its first wireless customers on the same platform.

“So the original system, which was really a commerce infrastructure for the creation and sale and support of digital content and services over the Internet, was now being used for that, plus for the delivery of content-based services over proprietary commercial networks,” Franklin said. “When the macro economy stumbled — when the Internet bubble burst and the telecom industry headed into a deep recession — we had a company of about 200 people.”

That's when Qpass faced the first of many difficult decisions: how to whittle down its operations to a level right for the economic environment but stay in the business with the most long-term opportunity.

“We were convinced that the publishing business was not going to get us to where we wanted to be — as a very big, successful company that made an imprint on the world,” Franklin said. “Publishers at that time were a little schizophrenic about how they thought about the Internet as a news distribution channel. In almost no circumstances did an old-line, big brand publisher fully embrace the Internet.”

Qpass lacked the financial resources to focus on both cable and wireless, so it opted to concentrate on only mobile.

“Then we needed to take the company down to an operating size we could afford and redevelop our technology so that rather than an adaptation of our original vision, it was a system that was purpose-built for this application and could scale and run reliably for a telecom company,” Franklin said.

In 2001, Qpass scaled back its employee base from 200 to 55, shuttering its European operations, its Web site commerce business and its cable business. But even as it dealt with the inevitable employee, customer and investor fallout, Qpass was considering how to apply its technology to the pain points of wireless service providers that were warming up to the relatively nascent mobile data concept.

“We specifically looked at their back offices and what it really takes to manage their business and integrate these new forms of activity into that business without having to build out new business systems or keep replacing the old ones in forklift upgrades,” Franklin said. “We chose mobile because we felt they had more of an imperative to actually make forward progress — to invest and build out this capability.”

The contribution Qpass makes to help fulfill that imperative is a software platform called Prosperity Series that lets mobile carriers manage all the functions of what the company broadly defines as mobile commerce. Prosperity Series is designed to facilitate the delivery of all kinds of premium services over all kinds of mobile networks while easing accompanying back-office functions like payment, settlement, reporting and customer care.

“It bridges that gap between the necessary operator systems — billing, care, provisioning — and the galaxy of third parties out there, the content and service providers that are adding value to the network in this new world,” Franklin said. “Our vision was that the back office was going to go through a challenging evolution. The networks have to do things they were never designed to do in previous versions, but so does the back office.”

Essentially, Qpass is trying to make sure wireless carriers are equipped for smoother operation in a mobile commerce environment — not mobile commerce in the sense of simply using a mobile phone to buy things, but rather mobile commerce in the sense of using a mobile phone to buy things FOR a mobile phone.

“All people were talking about was m-commerce, and what they really meant by m-commerce was buying a book at Amazon, or a tractor part when you're out in the field and your tractor breaks down,” Franklin said. “Those kinds of things did not make sense to us. Maybe some day people in large scale will use their phones to buy books at Amazon, or parking, or cocktails at a bar — but there was a much more fundamental problem to be solved. We thought a mobile consumer was going to want to use their device to purchase and interact with products that were consumable on that device — and mobile, and immediate, and integrated with the form factor difficulties and all those things.”

When it decided to hone in on mobile first, Qpass also decided to focus on North America first, in large part because the region essentially represented a greenfield opportunity for both mobile operators and for Qpass. The company now counts seven U.S. operators as customers — AT&T Wireless, Cingular, Dobson Cellular, Nextel, Alltel and two it has yet to publicly announce.

The Prosperity Series platform is offered both as a licensed software product and on a service bureau basis, the latter intended to appeal to smaller mobile operators. Prosperity Series also features a module called QuickStart that gives operators access to about 10,000 pre-integrated applications from 130 content providers and, as the name suggests, helps carriers introduce new services more rapidly.

The available functionality and format of Prosperity Series is somewhat varied, but at its core the platform is essentially the same — a fact that has contributed to some market confusion but, Qpass hopes, will ultimately help define the market.

“Our first three customers bought three different things: one bought a mobile wallet, one bought micropayments, and one bought IP billing,” said Scott Blanksteen, director of product marketing for Qpass. “That was what their RFPs were calling it, but they all bought the same software from Qpass. Now there's getting to be a market segment, a definition of a mobile commerce enabling platform and there's much less fuzz about what the operator's trying to do.”

Cingular, for example, has been using Prosperity Series QuickStart since mid-2001. The carrier uses the platform to integrate content providers and for micropayments and billing functions for downloadable content — a rapidly growing market sector for Cingular, which expects to exceed its 2003 downloadable content revenue mark by the end of Q1 this year, said Christy Swink, director of entertainment and mobile marketing for Cingular.

“2004 promises to be a huge year for us in the downloadable content space,” Swink said. “We needed a way to bill for services not metered like a typical wireless minute.”

The Qpass software helps the carrier introduce new content more quickly and integrates with existing systems to let Cingular's customers see charges for downloadable content on their bills, Swink said. It also lets Cingular package content specifically for its prepaid customers, she said. “We're able to make changes to the way we want to package different services that don't involve making changes to our overall billing system,” Swink said.

As Qpass sees it, one of the distinguishing factors of how its platform facilitates mobile commerce is that it stays out of the way: Qpass connects carriers and content providers but doesn't take a cut of any transactions its product makes possible.

“What got me excited about Qpass is that the whole business model we've evolved does not go out to pick anyone's pockets,” said Tom Huseby, chairman of Qpass and managing partner of SeaPoint Ventures, the VC firm that led the company's B round. “We are an enablement software company that lets people transact valuable content over valuable networks without taking a piece of the action. We don't care if they're selling a ringtone or a house. It's a transaction. We're there to enable that purchase to happen in a way that the carrier and the content can make money off their investments.”

In addition to the back-office functionality it provides — or perhaps because of it — part of the mission of the Qpass platform is to address a number of issues at the forefront of the mobile content market. Among them is making the market a more accessible and less treacherous place for carriers.

“Operators are forced into a pretty risk-averse environment because the cost of failure is high and the cost of putting together offers traditionally has been very high,” said Tom Trinneer, a former AT&T Wireless executive who joined Qpass in 2002 as VP of products. “It's a culture shift to be able to think it's not expensive to try things — it's not expensive to try a lot of things at the same time.”

In fact, one of the challenges Qpass faces is conquering carriers' long-standing notions about the cost and risk of introducing mobile commerce offerings — in other words, convincing its customers to do more with its platform.

“We're repeatedly reminding operators that they have an unbelievable power in their hands today: Because you bought and installed Prosperity Series, you no longer have to call your IT shop — nice folks that they are — and ask for a feature change or table maintenance in the back-end business systems,” Trinneer said. “You have a Web-based tool on your desktop, and if you think men aged 18 to 24 in the Southeast are really going to like this Nascar game promotion and you want to bundle it with Linkin Park ringtones, you can do it for near zero cost.”

That example highlights a salient point about mobile commerce as Qpass sees it: Anything is possible, and any combination of anything is possible. That represents a complete turnaround for a mobile carrier sector that would otherwise have to make an upfront commitment to deploying mobile data services they had no idea customers really wanted.

“We thought there was no way a carrier could possibly decide up front which were the killer apps for their market, and there was no way to segment the market finely enough if you're committing major effort up front,” Huseby said. “So we very carefully constructed the software product to be very flexible, to let the carrier control what kind of content they can onboard and offload in as flexible a manner as possible.”

That flexibility is critical not only in network and back-office capability, Huseby said, but also in being able to select what content to offer — in being able to turn on a dime.

“The carriers that understand that they have an amazingly flexible capability, that they've just begun to scratch the surface of the applications that can run across it, that are embracing the creativity of the inventing public and that have a cost structure that lets them be flexible and embrace the ones that are going to take off — those are the carriers that are going to win,” Huseby said. “Anyone who locked themselves into a single aggregation of content is going to lose.”

As for what factors finally sparked the long-anticipated market for premium mobile data content to life, it's anyone's guess. But the principals of Qpass attribute it to a confluence of factors like network readiness, subscriber awareness, device capability and content availability — not to mention the ability to manage payments and provide easy and accurate billing for mobile applications. But like every great trend, it's difficult to find a precise tipping point.

“Almost independent of any carrier marketing, people started doing it,” Trinneer said. “So you had peer group influence and word-of-mouth, which is the way most of the really cool fads and market trends take off in the first place. Most really compelling stuff didn't get cooked up by a marketer.”

That said, now that the mobile content market has taken off, carriers absolutely must be able to effectively market their capabilities and services — and it's something wireless carriers are regularly criticized for not doing well. Franklin, however, disputed that notion and said any marketing or time-to-market shortcomings carriers may have are attributable to market realities and the fact that mobile data has gone very quickly from being potentially meaningful to being a fundamental element of their business.

“Carriers live in a very complex world, and they get kind of a bad rap for not being good marketers,” Franklin said. “The challenge for mobile operators is that they pay the light bill with a fundamentally different kind of business today. And while that's being commoditized and margins are eroding around their traditional business, they still generate all their revenue — and in some cases profit — from that business. So you can't just shift away from that and say ‘Here's my plan for spending $5 billion a year building out these networks, and enticing device manufacturers to build this stuff, and stuffing content into it.’ You have to do it incrementally.”

The 2002 contraction and subsequent reinvention of Qpass begs the question of why the company is still around, and why it continues to prosper and is once again growing, adding customers and employees. To hear the Qpass principals tell it, it's all about the company's culture — but not culture in the rooftop party-having, foosball-playing, late-1990s start-up sense that those who lived through telecom's go-go years might think.

“We have always paid great attention to people,” Franklin said. “That was certainly in vogue in the Internet bubble — parties every week and so forth. But the way we pay attention to people is not by having a beer blast every Friday (although we have a beer fridge, and we encourage people — at a reasonable hour — to crack a beer). What we've always done is had a policy of treating people as adults and with respect. We have very open communications where we try our darndest to make sure people really understand what's happening in the business and where the business is going.”

That management philosophy includes sharing with all employees the structures of deals, the results of board meetings and details about customer engagements — good and bad. To product marketing director Blanksteen, a five-year Qpass employee who survived the 2002 contraction, that kind of openness is what helped the company survive.

“In 2002, I attributed the fact that the company was still in existence to the culture — to being careful about hiring, to hiring people who are passionate and consistently envisioning a successful future, and to treating people like people and as assets to the business,” Blanksteen said.

Franklin echoed that sentiment, adding that being open through the company's prior lives and lines of business helped prepare people for what was coming.

“The net benefit is that people can better handle the shocks resulting from being in a start-up,” he said. “So when the going got tough, people were able to absorb what otherwise would have been stunning informational developments.”

The other thing Qpass did that helped it survive was to be cautious early on — “well before we drove off the edge of a cliff,” Franklin said. When the company downsized, it had 24 months worth of cash to operate at a subsistence level, he said. “We kept enough resources that we could take draconian action in terms of downsizing the business, but action that was conceived against the long-term plan instead of just reacting.”

Franklin, who prior to founding Qpass spent 10 years at Microsoft and was one of the lead architects of that company's original applications strategy, also considers the recruiting practices of Qpass crucial to fostering an effective and retentive culture.

“I took away from Microsoft a very disciplined hiring approach,” he said. “So even for the lowest-level positions in the business, interviews are a day long and you might see eight or nine people. At the management level they're weeks long and from 12 people you might see four of them three times. So when you go from 200 to 55, with very few exceptions you end up with the A+ players.”

Perhaps the best judges of the character of a company are the people who put their money behind it. Huseby, whose firm has to date invested $4.7 million in Qpass, said the company's survival is entirely attributable to the people running it.

“As a venture capitalist, when you find a company that seems to bring out the best in everyone who touches it, those are the ones you get excited about,” Huseby said. “This company had to make a big shift in direction, and the only thing that really enabled that shift to happen is that it is a very well-run company.”

With transitions, redirections and crises behind it, Qpass is now focusing on growing (carefully), keeping up with the growth of the mobile content sector, staying ahead of the competition and managing the evolution of both its product platform and its customer base.

“What really changed the profile of the business and started to give us cautious optimism that we were nearing the end of the tunnel was early in Q2 last year, when we started to see transactions grow, number of active subscriber accounts we manage grow and dollar volume through the system grow,” Franklin said. “It just continued month after month after month — in fact, it's averaged a pretty steady 25% month over month, which is roughly doubling every quarter. That's a wonderful thing for the business, but it really taxed us. So we started growing the business as cautiously as possible again in mid-Q2, and we've grown pretty steadily ever since.”

The competition, as Qpass sees it, ranges from wireless carriers' own IT organizations that believe they can do themselves what Qpass does for them — although Franklin said that situation becomes increasingly rare as the mobile content market expands and carriers better realize the importance of being able to scale — to billing system developers, which Franklin views more as potential partners than competitors.

“We're not a billing system, and we don't want to be a billing system,” Franklin said. “Billing system vendors, I think, view Qpass from time to time with a bit more of a jaundiced eye. We look like we're sort of in an area that they could be doing, too. But we never lose business to billing companies, and I think over time we'll be able to collaborate more with billing companies.”

Huseby, however, views operations and business support services system developers with a somewhat more wary eye.

“People on the OSS and BSS side — billing companies, customer relationship management companies — are looking at this whole new world and saying ‘We have to develop that capability,’” Huseby said. “Our job is to stay way ahead of them on capability at much lower cost. And we have a huge advantage in that we face the content — we have understood the delivery of content across every content layer for a long while.”

Over the balance of 2004, Franklin said, Qpass also will concentrate on expansion into Europe. To that end, Qpass recently announced an alliance with American Management Systems that is designed in part to help expose the Prosperity Series platform to AMS's European wireless carrier clients.

“That's important to Qpass because we want to be a global company,” he said. “It's important to our customers because they want to work with global companies. A North American carrier doesn't necessarily want to have a significant part of their developing business based on a technology that's constrained in its use to North America.”

As for the evolution of Prosperity Series, Qpass is concentrating on making sure the platform continues to scale with the market and helping wireless carriers address the enterprise customer opportunity. In addition, the company is adapting the product to appeal to additional customer segments, like the cable market it exited two years ago and large media companies looking to create and package their content for distribution over mobile networks.

“That's very symbiotic with what our operator customers want,” Franklin said. “They want a large media company to be able to create a product and view the 150 million subscribers in North America in as much of an aggregated mass as possible.”

More than anything, after a long economic downturn and a carefully orchestrated deconstruction and reconstruction of its company, Qpass is enjoying being a contributor to a revitalized mobile content sector.

“Our application is now in the hands of operators that collectively have 70 million subscribers,” Franklin said. “It doesn't take a very large fraction of those subscribers to significantly transform the marketplace.”