About $5 billion worth of stuff was sold online in the first three months of 2000. And the vast majority of it was not digital; it was physical (things we can pick up with our hands). Qpass, a three-year-old company headed by Seattle-area Internet bigwigs, is betting that the sale of digital content–everything from articles and books, to music, to movies–will grow exponentially. And it’s positioning itself to get a percentage of this digital e-commerce.
How? By providing to The New York Times, The Wall Street Journal and other big media a billing and transaction-processing platform (software and related services). Below, we asked co-founder Mark McNeely exactly how Qpass intends to make money.–SJ
Seattle24x7: Mark, most online content is free now. Why do you think more of us will be paying for content?
McNeely: Recently, there’s been a sea change in the attitude of Internet companies. The monopoly-money phase is over. Sites must figure out how to monetize their online assets. Prior to now, the business model had been one of free access. But now, free (just as in the physical world) is no longer adequate. So that’s one factor.
Second, the whole entertainment community has held most of its product off the Internet so far. But that is changing, slowly but surely. Entertainment companies are now in the experimentation stage, but they’ll soon be in the monetization stage, including music and movies on the web that will be distributed through alternative devices, such as Pocket PCs or cell phones.
Seattle24x7: This is a big potential market you’re describing. The established outsourcing players, like IBM, Network Solutions, Computer Associates, etc., will no doubt also chase it. How do you intend to compete with them?
McNeely: When we were bidding for each of our current clients, we competed with some of the best and the brightest. And in each case, we won. Some of the companies you mentioned do not have an offering that is competitive with ours, especially as it pertains to small transactions.
Seattle24x7: How did you manage to land clients such as The New York Times and Los Angeles Times?
McNeely: We’ve spent $20 million so far developing a system that can process the purchase of online digital content, be it articles, books, videos. It’s not very cost-efficient, even for the most prominent media companies, to set up and maintain such a system. Another reason they outsource to us is because once consumers sign up to use Qpass, they can purchase from all other sites that use Qpass, without having to re-enter all their registration and credit-card data.
Seattle24x7: Most of the purchases Qpass processes now are small-ticket items–archived articles that cost a couple of bucks. How can you make money from such tiny transactions?
McNeely: As you know, it’s not really cost-effective to bill credit cards for purchases under $15. So we aggregate small purchases for each buyer until they reach $15. Then we charge their credit cards. Say you bought $10 worth of articles at The New York Times and $10 worth of photos from Corbis in one month. Your credit card would show a charge for $20 from Qpass. And you could look up the specific charges on your online Qpass account.
Seattle24x7: So consumers are not billed by Qpass until their online purchases total at least $15, however long that takes?
McNeely: That’s right.
Seattle24x7: You charge your clients 5% to 40% per transaction. What’s that based on?
McNeely: It’s based on volume and context of content. While we are able to handle small transactions, we’re not limited to those. People are selling $500 research reports, for instance. By taking an agreed upon percentage of each transaction, we think we provide the most value to our content providers.
Seattle24x7: Are your clients basically buying your software, which is installed on their servers?
McNeely: What they’re buying from us is a service. We do install software at their site, but, more importantly, we provide the following: credit-card authentication, collecting money, making sure the money goes to the proper corporate division, and we also handle customer-billing questions.
In addition, we handle online promotions, content distribution, including our “Sell Anywhere” capability. Let’s say Seattle24x7 wants to sell its articles on certain national sites. We’d put your banner on those sites and then we’d process all the resulting sales transactions.
Seattle24x7: You have some very prominent online media clients and more than 300,000 registered users. But why would established online retailers turn to you?
McNeely: The large online retailers are usually set up around commercial programs intended for the sale of physical goods. The sale of digital goods is a whole different game. It involves being able to instrument content created by third parties, such as a downloadable movie hosted on the servers of the movie studio or another entity. Keeping track of that transaction is harder than tracking the sale of a pair of shoes. Sure, some large e-tailers will create their own systems for handling digital content, and we would be happy to supplement those.
Seattle24x7: Any music clients?
McNeely: We just signed two. One is an independent record label and the other is an online retailer of music, a significant site.
Seattle24x7: How do you compare with Microsoft’s Passport online-payment system?
McNeely: We’re a complement to Passport, which is mainly an authentication tool to make sure you are who you are. Qpass provides authentication but also the processing of small purchases, customer service for billing and we instrument content from various sources. Passport is integrated into the sites of merchants who mainly sell physical goods; our main focus is digital content.
Seattle24x7: How about other potential competitors like Seattle’s eCharge, which contracts with sites to charge online purchases to phone bills?
McNeely: When it comes to type of billing, we are Swiss; that is, we are neutral. We’re billing credit cards now because that’s what consumers appear to prefer. But we’re open to also providing billing via ISP accounts, checking accounts, etc. And we’re open to working with companies like eCharge.
Seattle24x7: What will you do with the $40 million you received recently?
McNeely: We will broaden our platform by making a serious push into wireless delivery. And we’ll also offer transaction-processing for physical goods, not just digital. Geographically, we’re expanding into Europe, and we signed our first publisher over there last week.
Seattle24x7: So providing your clients’ digital content to hand-held devices will be another layer of service. Are you doing that now for anyone?
McNeely: Ours is an IP-based transaction system. We’re indifferent to the device, whether wireless or palm device or hybrid, as long as it uses Internet Protocol. We’re working with several significant publishers and network owners, both here and in Europe, to address both wireless and set-top box delivery.
Seattle24x7: Thanks, Mark.
Soula Jones is Content Chief at Seattle24x7.com
83 King St., Suite 500
Seattle, WA 98104
Launch: Sept. 1997
Founders: Chase Franklin (now CEO) spent a decade at Microsoft, helping to create its Merchant Server, among other things; advertising executive Mark McNeely, former chairman of Cole & Weber and founder of LapTop Lane; Bill Bryant, former VP Sales at Visio Corp. and president of Netbot.
Funding: $70 million so far, from the likes of Venrock Associates, Oak Investment Partners, J&W Seligman, BankBoston Ventures.
Employees: 175, with 50 more hires expected within six months.
Clients: 20 companies, including Corbis, Forbes.com, LATimes.com, The New York Times On the Web.
Consumers: more than 300,000 registered users of Qpass.