Content King: A Conversation with SeaPoint's Tom Huseby

Tom Huseby is the managing partner of venture capital firm SeaPoint Ventures and the chairman of Qpass, one of the holdings in SeaPoint’s wireless-focused portfolio of investments. He talked to Jason Meyers about Seapoint’s mobile investment philosophy, where Qpass (the subject of WR’s March cover story) fits and making money in mobile content.

On Seapoint’s perception of mobile opportunity: It gradually dawned on Seapoint, and a lot of the rest of the world, that there actually will be an IP-addressable, smart communications device in everybody’s pocket or purse. The old religious wars were about IS-95, IS-136 and GSM. The new religious wars started to become smartphone or PDA. We find all that pretty irrelevant, frankly. We know that the communications devices are going to get smarter. Voice is a critical component of the value proposition, and all of these IP-addressable, always-on applications are going to become huge. I think it’s bigger than anything that’s happened.

On finding a mobile content niche: We focused initially on trying to make these networks work. There are a lot of people who rushed into the whole content space. That’s a little bit like draining the ocean--where are you going to put it? There’s this continuing supply of really exciting, creative content--and if that’s not enough, there are billions of dollars being invested by major corporations making sure they’re going to own their content. I did not see that as a place for our fund to play. As a small fund, you have to identify some really arcane, narrow problems, or else you’re playing in big-buck money and chasing the very few winners in the well-known problem sets.

On the allure of Qpass: What got me excited about Qpass is that the whole business model we’ve evolved does not go out to pick anyone’s pockets. On the contrary, we make sure there’s the ability for the content to get a return on the billions of dollars of investment--let alone the thousands of hours of creativity in garages or basements that are generating new applications--and at the same time, the carriers get a return on the billions they’ve invested on infrastructure. We provide an enablement platform, and we stay way away from the business models that an awful lot of the initial forays into this mobility chain had.

On mobile content misdirection: It was an exact copy of the Internet model: It was either companies saying “Don’t worry, one day we’ll figure out how to make money,” which is suicide--there’s no big equity machine to feed that flawed business model--or it was companies saying “Oh, don’t worry, we’ll make money when you make money.” Carriers hate that. The carrier model is “We’ll invest in capability, and then we get the revenue.” Qpass did that model.

On keeping mobile content options open: There were a whole bunch of initial attempts to grab a carrier’s entire value add--to provide everything they would ever need. That forced carriers into a commitment that we didn’t think would work with Qpass. So we very carefully constructed both the software product and the model they’re selling it under to be very flexible, and let the carrier control what kind of content they can on-board and off-load in as flexible a manner as possible. 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. Anyone who locked themselves in to a single aggregation of content is going to lose.

On a challenging economy: I think that environment probably helped rather than hurt. Compared to the billions of dollars that were being spent on infrastructure--or, you could argue, not being spent--what we were offering was a way to try and recover some of that investment that was pretty painless compared to what was going on in the rest of the market. One of the early decisions we made was to not wait for 3G. We went after least common denominator applications--SMS, ringtones, browser access. We started when it was real easy and we moved right up the chain. The key to that is to define the network you’re addressing in a way that is sufficiently simple and has a low enough bar so you can actually make money on that network, and not have to wait for the next network.

On being the neutral middleman: If there’s a relationship, it’s between the content and the carriers that deliver it. The business relationship is between those two primary partners. All Qpass is doing is facilitating that economic relationship. Believe me, there were so many temptations to get in the middle of that. We don’t even charge the content developers anything. We’re here to make sure it all can flow. We are here to help productize your bitstream.