The Search for Missing Revenue

Without proper billing methods, revenue can disappear deep into a network. Tom Huseby of VC firm SeaPoint Ventures is backing excavation tools to help carriers get it back.

Never invest in a company that can't help a wireless carrier increase revenue on existing and future networks. That's Tom Huseby's cardinal rule.

It's also the cornerstone of the investment strategy of SeaPoint Ventures, the venture capital firm based in Bellevue, Wash., where Huseby is managing partner. SeaPoint's wireless-centric portfolio is strong: Of 13 initial investments, only two haven't delivered — an impressive track record in an investment environment where 40% failure rates are the norm.

To continue performing at that level, SeaPoint is focusing on the development of solutions that are capable of hunting down and billing for revenue that otherwise would slip through the cracks of wireless networks. Huseby's view is that competition, spectrum auctions and 3G network upgrades are forcing carriers to get taller and more expensive walls for their walled gardens. Carriers are desperate to find new ways to monetize their wireless data networks. They can — if they can figure out how to deliver and get paid for third-party content.

“For the walled garden not to crumble into financial ruin, you have to invest in content, in content delivery platforms and in a trusted payment intermediary,” Huseby said.

SeaPoint Ventures started VC life as a Pacific Northwest “point fund” company for three VC firms in other parts of the country: Oak Investment Partners, Sevin Rosen Funds and Venrock Associates. In October 1999, SeaPoint set off on its own course with a $35 million fund, but it maintains strategic ties to its parentage.

Huseby's background in technology development, along with his financial acumen, is critical to understanding both inventor and investor in the wireless world. He entered the VC existence with a strong wireless pedigree. He was the co-founder and first CEO of Metawave Communications, a manufacturer of smart antenna equipment. Before Metawave he was the first president and CEO of Innova, a maker of digital millimeter wave radios. He also spent 17 years of his career at Raychem in various technical and executive management positions.

In an environment where the applications themselves hog most of the spotlight, companies like the ones Huseby cherry-picks won't win any awards for sexiness. But the likes of Wireless Services and Qpass, two of SeaPoint's portfolio outfits, fulfill Huseby's no-nonsense, functionality-driven requirements because they can locate revenue that would otherwise disappear without a trace.

“If you look at what a content play has to cope with even in a single carrier, let alone trying to get economies going across multiple carriers, you will find that every carrier today has a multiplicity of standards and networks in operation at any given moment,” Huseby said. Each function, such as WAP or short messaging services, requires a different network delivery mechanism, and each ends up sending different messages through the network and to the client.

Wireless Services zeros in on that hybrid network dilemma and simplifies any type of content transport by providing the platform that negotiates the traffic between various networks.

Steve Wood, president and CEO of Wireless Services, first started noodling with this idea in the early 1990s after realizing that companies like America Online were targeting the wireline market for their first e-mail forays. As part of a McCaw Cellular research project, Wood realized the huge potential of wireless e-mail and wondered if anyone was pursuing it. He soon found out it was a green field opportunity.

Before e-mail across wireless networks could become a reality, though, Wood had to figure out how to get content across hybrid networks. If he could, it would open the door for delivery of all sorts of content services.

The Wireless Application Delivery Platform is the result. WADP enables carriers to deliver “any bit over any network” and encourages applications to become the killer kind because carriers aren't limited to their own subscribers. WADP allows carriers to reach across and communicate with other carriers' networks.

“You could be CDMA, GSM, Java — whatever. We don't care. We're agnostic,” said a company spokeswoman. Short message services in particular illustrate the value. Carriers can carry not only their own subscribers' messages but also messages from other carriers and devices.

If it's wireless data, it goes over the platform, Miller said. Its revenue model fits the carrier business plan because it gives them the upside, Huseby said. Carriers can invest in the platform and then simply pay a monthly fee based on the amount of traffic it carries.

Wireless Services currently is working with Nextel, Nextel International and SkyTel.

The mission of Qpass, another SeaPoint portfolio company, is to help carriers extract the revenue from their content delivery networks. Qpass serves as a single point in the network through which all commerce passes. Through this point of integration, content providers can interact with multiple carriers' billing systems, supporting m-commerce transactions and sending revenue to the appropriate content or service provider.

Qpass works with the carrier, the content provider and the subscriber. It can designate payment as part of the carrier's bill through credit cards or other billing mechanisms. Likewise, subscribers aren't limited to only one designated avenue for the m-commerce transaction. They can make purchases using short message service, voice, WAP, the Web or point-of-sale.

Last year, Cingular Wireless implemented Qpass as the driver of DirectBill, its micropayment solution. Cingular subscribers now can use their devices to make phone-related purchases such as specific ringtones.

Chase Franklin, chairman and CEO of Qpass, said this solution is merely the stepping off point for carriers today. That's because the service can grow to include mobile payment services such as games, vending machine snacks and other carrier-designated transactions that haven't even been fully defined.

Unless carriers want to be relegated to a pure transport play, they need to figure out how to measure such content based on the price. To Huseby, this is a huge, unbridled area for future growth.

As the content play becomes more defined, carriers will realize that they need more sophisticated tools for transactions such as counters, monetizers and rating stocks, Huseby said.

As time goes by and as carriers “get” the notion of various content plays, they find they need tools to prove that content providers are getting paid fairly.

And so it goes with Huseby — one thing leads to another.

“Cottage industry? This is going to be huge!” said Huseby. And so spawns, perhaps, another fund.