The Little Company That (Still) Could

John Little was 27 years old in 1985 when he made a pilgrimage of sorts to Silicon Valley, the one place he knew one had to go to be taken seriously as an entrepreneur. The Princeton grad said he had spent enough time in what he calls “the Disneyland of product development” — better known as AT&T Labs — to know there had to be a more practical way to spur the growth of and capitalize on this new phenomenon called the Internet.

At AT&T Labs, Little had worked on developing advanced communications systems, including some of the world's first videotext and online information systems. He founded Portal Software soon after arriving in Cupertino, Calif., and the company released its first commercial product in 1986. It was a software portal (hence the name) that provided Internet access, particularly for people who didn't know UNIX — and they were legion.

Portal remained a relatively small business until commercial and private Internet access became the propellant that would shoot the company and its founder to temporary stardom. When Portal began selling its billing software (by now known as Infranet) to carriers, Internet service providers and competitive service providers around 1995, it made a big enough impression that Goldman Sachs helped take the company public in May of 1999. By the end of the year, Little was worth more than $1.3 billion on paper and was named by Forbes magazine as one of the 400 richest Americans. It was one of the most successful IPOs of the now-maligned dotcom heyday — or any other time, for that matter.

However, not everyone sees it that way. The stockholders filing suit for alleged securities fraud and the U.S. House Committee on Financial Services — which conducted an investigation of Goldman Sachs and Credit Suisse First Boston for their methods in taking companies including Portal public — probably consider it more excess than success. Nonetheless, the cash generated from that IPO, minus the millions snatched by some major shareholders (reportedly around $700 million), continues to fuel the company, even though Portal has yet to realize a profit. (That may change by the time this article appears. Portal's latest earnings call was Feb. 20.)

When the bubble burst, Portal's customer base disappeared, and Little's stock plummeted. Many of the CEOs who came of age in that era have retreated into obscurity, but Little has stuck with his company through tough times, saying he doesn't need a certain number of zeros and commas in his net worth statement. Now he has taken Portal to the brink of a mini-Renaissance, finding success in the wireless market that is beginning to surpass the early success it found selling to ISPs.

“Founding CEOs tend to have longer tenure,” Little said. “People that start their own companies tend to have a long-term vision for their company. And as long as that vision still exists, why leave?”

Little's basic vision hasn't changed much. Neither has Portal's software. Except for the natural progression of a maturing software product, Portal is sticking by its fundamentals.

“When we started the company, we realized [the Internet] was going to be a very broad revolution in communications, not just a narrowly, technically focused one,” Little said.

So he and his team built a product he said is machine-independent, network-independent, application-independent and, to a large degree, language- and currency-independent. This independence has endowed Portal with the maneuverability to survive the decimation of its early customer base and adapt to markets experiencing growth rather than gentrification.

Portal has remained fleet of foot, not just in the markets it addresses, but also in addressing specific concerns of service providers. Lately, it has found a niche helping service providers differentiate their converged services through creative pricing. Little said carriers have to stop selling the network and focus on the value that network can provide.

“It's pretty hard to differentiate voice through basic pricing. When you differentiate on price, the price usually goes down, and it becomes a low-margin business,” Little said, adding that 100 years of paying by the minute for a network that never goes down is a mindset that's now baked in.

That mindset carries over to other services — and that's the problem. “It's not about price. It's the price you can get for the value,” Little said. That message has helped Portal win contracts with a growing number of wireless operators, particularly abroad, including Cell C, a South African mobile operator, and Telecom Italia Mobile.

Here on the continent, though, Portal has most recently worked with Canada's Telus Mobility to help it implement pay-per-use pricing for its Pocket Web services. These services include games, directory services and travel directions. Using Portal's Infranet Wireless billing solution, Telus has also solved the problem of sharing revenue with the application partners that provide these services.

“Portal has allowed us to go to our partners with a very compelling value proposition with regards to revenue sharing, and we have a strong roster of partners as a result,” said Chris Langdon, director of product marketing for Telus Mobility.

In addition to increasing the margins on services, value-based pricing Portal-style gives wireless operators the ability to provide tiered services in order to attract a wider audience. “People who are willing to pay for value are generally users of more than one service,” Little said.

More important is the ability operators have to experiment with different price packages, service bundles and the services themselves. While wireless LANs and Wi-Fi may be hot topics today, it remains unclear how these services will be offered — particularly how they will be priced and billed.

“Operators have to be able to try these services out to see what works and what doesn't,” Little said.

Providing this flexibility has been the Achilles' heel of larger billing vendors, which Portal has been trying to cut. Through acquisition and internal development, however, the big vendors have been toughening up those heels. Little says they are still vulnerable, claiming that if Telus used its own embedded billing system, it would have taken nine months to roll out the same services Portal helped it roll out in 30 days.

“Portal had a lead in the market. They were one of the few vendors that recognized the opportunity,” Langdon said. “Now some of the bigger billing vendors realize they have a hole in their portfolio.”

Telus began its Pocket Web service two years ago using WAP technology and offering a flat rate. Six months later, Portal helped it move to a value-based pricing model. “I don't want to be the critical path for my customers' business plans,” Little said. “I don't ever want to get a call from somebody saying they really want to provide a service, but can't because my software doesn't allow it.”

By focusing on the value of content rather than a particular delivery method or transport technology, Portal should be able to follow the trail of value-based billing adoption to whichever market it leads — be that wireline, wireless, voice or data, broadband, cable, or even the enterprise.

In the European mobile market, where Portal has been gaining momentum, the market for mobile content is expected to outgrow online content by 2-to-1 over the next few years, according to a Van Dusseldorp & Partners study released last month on European digital media strategies. The issue, according to the report, is that there is a broad range of users who are not willing to pay for content.

Little says you have to make them see the value in it. He cites short messaging as a prime example. “A stock quote that is delayed 24 hours is probably not worth as much as a one that is 20 minutes delayed, which is worth less than a real-time quote and definitely not worth as much as a proactive quote that tells you a stock you are interested in is having problems,” Little said. “It's the same message, but it's the timing that creates the biggest difference in value.”

And given his experience with IPOs, if there is one thing Little knows for sure, it's the value of timing.

Indeed, while Little is understandably zeroing in on wireless opportunities, he won't forget his lessons from the past.

“We are very optimistic about wireless, but not religious about where the market will grow fastest,” he said. “We need to be dynamic and go where the opportunities are.”

Little calls himself an incredible optimist. He sees long-term opportunity everywhere: the growth of wireless in China, the billions of people who are without phone service but want it, and the fundamental demand for communications worldwide.

And for the short term? “The worst is behind us,” Little said.