Posted on Wednesday 22 June 2011 byUlster Business
Michael Crossey and Michael Black
Every ambitious software company is trying to find a niche in the world of internet-based cloud computing, something Belfast-based Aepona has achieved in the mobile cloud market. Symon Ross went to find out more from two of the company's directors, Michael Black and Michael Crossey
Aepona may not be a household name in Northern Ireland but the company is currently making waves in the technology sector after finding a niche for itself in the mobile cloud computing sector.
Founded in Belfast in 1999, the company has been a pioneer in bringing mobile intelligence to cloud computing and has supplied telco-grade software products to more than 25 mobile operators and services providers around the world, helping process more than 1.2 billion network and payment transactions a month.
It is very much an international company, with CEO Al Snyder based in Colorado in the US and 260 staff in various locations around the world, including 75 in Belfast who have expertise in telecoms and networks, and over 100 in Sri Lanka who look after the internet element of the business.
While Aepona has grown steadily over the last decade it was in 2010 that business really took off. The company increased its revenues from $21m to $35m last year and it expects this upward trajectory to continue through 2011, with revenues forecast to hit $46m this year.
The growth came partly as the result of acquisitions - it bought Dublin-based Valista in 2009 - but principally because the company gained new clients outside of its traditional market of telecoms software by expanding into mobile cloud computing.
It is aiming to gain competitive advantage by being an early mover into the mobile software space and to tap into the growing opportunity for new mobile and web-based applications that revolutionise the way smartphone users work, shop, socialise and consume content.
Aepona isn't developing applications itself, but instead provides a platform through which telecoms operators - such as Vodafone, AT&T and Telefonica - can more easily link up with application developers. Its platform means organisations can reach and bill any end user on any network without having to enter into multiple arrangements with network operators or rewrite their software for each network they wish to connect to.
Michael Crossey, vice president of marketing at Aepona, explains that the company's technology overcomes longstanding issues of fragmentation and dependence on specific operator platforms within the industry.
"We have sold our technology to the operators for years - that has been our core customer base and we've done very well out of applications that are developed for that operator and that operator's target customers. But when you are moving into this new paradigm, really sparked by the Apple iPhone, where anybody can develop and application, it can be targeted towards any market and there is a degree of independence from the operators, they need to be able to write an application once and have it run anywhere. That's where mobile cloud computing comes in," he said.
"We were preaching the message that the operators needed to open their networks since the company was founded, that was our mantra. They weren't really listening because they were of a mind that ‘we develop applications, we sell them to our customers, it's our customer, there is no third party involved and if there is we will cherry pick the third parties and bring them in to our network'," he adds.
"Then, when Apple launched the iPhone and the app store, the mobile operators started to realise that if they didn't do something quickly they could end up like the fixed line industry, becoming a utility type service that couldn't extract value from the applications. What Apple are doing is selling the application direct to their customers, bypassing the networks and taking a 30% cut. Networks don't get any money from that and in fact have to provide the data connection to allow them to do that," adds Crossey.
"They have now started to see themselves as enablers rather than controllers. We had the technology that allowed them to be the enabler."
Michael Black, chief financial officer of Aepona, says that having an intermediary in the cloud that enables an easy connection between developer and operator is potentially a huge leap forward for the industry.
"In some ways it is a bit like when SMS took off. SMS took off when it became cross platform. If you get it all to work together, so that from the consumer point of view it just looks like one overall homogenous network, that's when things really start to take off," he said.
"The opportunity could be really big in terms of revenue share. If you think about the app world in general, Apple have now passed a billion US in applications so this could be really big. Our vision is to build up a range of partners to jointly monetise this."
The company has already signed a number of deals in the mobile cloud space, the most significant to date being a multi-million dollar contract with Virginia-based Neustar, which will use Aepona's software as part of an intelligent cloud service in the mobile marketing and digital entertainment space.
Michael Black says that where its historic telco business still represented 70% of its business in 2010, the company expects the balance to switch, with a similar percentage of business coming from mobile cloud contracts in the next couple of years.
"We historically would have had quite a traditional business model towards mobile carriers - that was the way they bought technology. What we're actually doing in the mobile cloud space is renting out our technology. We will rent it to Neustar but then Neustar actually get a revenue share for revenues coming across the platform," he said.
"So, we are monetising the opportunities in mobile cloud jointly. We are contributing our technology and they are contributing their market access and their go-to-market investment," he adds. "The vision for the company is that if we build up a range of these cloud relationships we'll see a regular recurring revenue stream through the platform rentals and the revenue share."
Crossey further explains that Aepona is focused on using the cloud to make available mobile network assets, such as customer intelligence. Mobile networks, he says, know where customers are and have a lot of information about them that sits in the network. This can be used by application companies, brands and retailers to present them with relevant offers.
One of the key enablers to this market is what is known as carrier billing - the ability to charge mobile subscribers for other services such as digital goods, applications and web subscriptions through their mobile bill.
"The operators are opening up to the fact that this is a key asset that their competitors don't have - Google doesn't have it, Amazon doesn't have it, Apple doesn't have it. They all rely on an established payment mechanism to charge for their services like a credit card, or PayPal, whereas my daughter has a mobile phone. She can download songs and have that charged to her mobile phone bill. It opens up a very easy, low friction channel for payment," said Crossey.
"It has been shown that as people go through the buying process on the internet the fewer number of clicks they have to do, the more the conversion rates multiply. The easier it is, the more people spend and the broader the market gets," he adds.
A sign of how highly Aepona's prospects are rated in the tech community was its ability to raise $10m to fund investment in the business last year from venture capitalists including BlackBerry Partners and SAP Ventures at a time when overall VC investment had fallen away dramatically.
In the end, it invested in the sales and marketing of its new mobile cloud products from earnings because it started to generate profits 18 months ago, meaning the $10m is still sitting in the bank waiting to be used. CFO Black doesn't rule out using it for further acquisitions if they find someone that could add capability to its platform.
"The venture market has come through a bit of a shake up, which we think has left a number of companies out there that have reached a certain size, but haven't been able to catapult themselves on because they haven't been able to raise the capital necessary to do that. Right now we have a couple of ideas on our roadmap that we think we could fulfil through acquisition, and we'll always look at things opportunistically if they fit our overall plan," he said.
However, Aepona is also reinvesting in the business, with plans to increase its workforce, ramp up spending on R&D and spend more time working out what its platform is going to be used for by end users so it can identify opportunities and act as a matchmaker between developers and operators.
It is operating in a competitive sector - the company with the solution closest to what Aepona does is Larry Ellison's software giant Oracle - but Black is confident about its future prospects in what could be a market worth several billion dollars.
"We're investing a lot this year in building an even bigger sales team and also stepping up another gear in terms of R&D," he said. "Our objective and our board's objective is to build the business for the longer term - that's the only way you can run a niche business."