Adaptation and innovation are two of the Darwinian traits that distinguish healthy Internet companies. Those who have reemerged from the dot.com downturn with renewed fervor, or have identified a dramatic shift in their marketplace and vigorously responded, have mastered the ability to change.
The transformation of Qpass from a mainstream electronic payment system provider to a company which facilitates content sales and transactions for wireless carriers and other network operators has been so remarkable, it has been award-winning. Earlier this year, the company’s turnaround garnered the 2001 Reinvention Award at the WSA’s seventh annual Industry Achievement Awards.
Through its commerce services, Qpass provides merchants, content and service providers, and application developers with the opportunity to increase revenue and broaden distribution. Their clients include Cingular, AT&T Wireless, MForma, Time.com and strategic partners American Express and Accenture. Along the way, Qpass has also been recognized by Interactive Week, Seattle Magazine and Washington CEO as one of the best companies in Washington to work for.
To gain more of the insight that has revitalized Qpass, we engaged the company’ first official employee and current vice president of business development, Ron Faith, in a little Qpass marketing Q&A. Prior to Qpass, Ron spent several years at Apple Computer where he was responsible for bringing the company’s first consumer Internet product, the Apple Internet Connection Kit, to market. Ron is also the author of the soon to be published “Reaching the Interactive Customer: Devices and Services for a Digital World,” available from Amazon and fine bookstores everywhere in January of 2003.
Seattle24x7: Qpass has shown impressive versatility in adapting to changing market conditions?
Faith: Qpass was founded on the premise that it was just too complicated to buy and sell content on the Internet. There was too much friction for the consumer in making a purchase. We felt there really needed to an infra-structural solution to enable it.
One of our founders, Mark McNeely, was the head of strategy for Ogilvy Mather who knew the advertising and media world extremely well. He took a hard look at the Internet and the business models that would be associated around content. Mark believed that there would only be a handful of folks that would be able to survive on a pure advertising model by being able to aggregate a sufficient number of eyeballs. From his experience with television and other forms of media, he felt strongly that with an unlimited number of channels the vast majority of content owners would be left out in the cold if they were going to count purely on advertising. As a result, we recognized that there needed to be an ability to charge for content, whether that be on a pay-per-view basis, a subscription basis, or access . Our customers included the Wall Street Journal, the NY Times, LA. Times, Morningstar, Forbes, etc. During that process we learned a great deal.
Seattle24x7: Is there a viable solution for marketing content online?
Faith: The way to go is a blended business model. A blend of advertising, sponsorship, some hard goods revenue sales as well as the sale of digital goods and services.
There are several successful content sites operating today. Sites like the Wall Street Journal, The NY Times and Consumer Reports are all viable from a cash flow standpoint as are folks like Ancestor.com who help people find their roots and geneology. For all these sites, a lot of the primary revenue actually comes from subscriptions and they end up using pay-per-view or other offerings as a low-end way for consumers to enter in and nibble at the content. Eventually, they want to upsell you into a subscription relationship going forward.
Seattle24x7: What kind of volume do these content sites need to be generating to be successful?
Faith: The numbers we’re talking about are in the hundreds of thousands. Most of these site have over 300,000 subscribers. But interestingly, they tend not to have over one million subscribers. That gives you a feel for the ballpark they tend to fall into to try and create some community aspects and unique differentiators.
Seattle24x7: Price has also been one of the most pivotal factors for content providers?
Faith: What’s nice about digital goods and services is that the marginal cost of goods is near zero. The more you sell, the better it is, because you’ve got high margin on a per-unit basis. However, you have some fixed costs up front so you require a certain volume amount in order for it to pan out for you. A lot of digital goods and services offerings, especially on a pay-per-view basis, need to be sold at a relatively modest price point.
Think about when you go to a movie. How much do you pay to go to a movie? $8, or something around there? So when you start thinking about buying content in terms of being comparable in terms of size it winds up being more modest in price range — a lot of payment methods that support that are actually cost-prohibitive.
For example, in credit card processing, if you’re going to sell something for $1-$2 you actually wind up in the red and if you have to do any kind of customer care or support around it then you’re really in trouble.
Seattle24x7: So how do you get around it and be able to support an idea like micropayments?
Faith: There are 2-3 different ways of doing that. One is kind of a pre-paid model where you have a pre-paid account and then you draw down against that as you make any incremental purchases. The second is an aggregated billing model where you make small purchases and that gets aggregated up to a point where it’s large enough to be economically viable to charge against a credit card. The third thing is that you piggyback off of somebody else’s billing mechanism, and et collections that way. That’s what we end up doing in the mobile commerce space actually quite a bit.
Seattle24x7: What is the value-add for customers who work with Qpass? Faith: What we do today for AT&T Wireless and Cingular, and an array of content partners such as Disney, is enable their customers to find product offerings — digital good and services — and then have those charged either to the credit card or in most cases to the carrier’s bill. If you think about it, the carrier’s bill is a micropayment mechanism. Every time you make a phone call, that’s essentially a micropayment. What the carriers do is they aggregate those up and they bill you once a month. Well there’s no reason why you can’t put some additional charges on there for content, especially for custom ringtones or certain games or business information services or what have you, over a mobile device.
Seattle24x7: A great adaptation of Qpass ingenuity. What can you tell us about your new book, “Reaching the Interactive Customer: Devices and Services for a Digital World”?
Faith: The books is about how the Internet revolution of the 1990’s has helped shape a new culture of interactivity in the modern household. Technology that first found success in the workplace, has moved into the daily patterns of American lives. Web sites, MP3 players, cell phones, pagers, and other digital devices help families learn, play, and communicate. Well, increasing familiarity with electronic devices and the online world has given customers new expectations for interactivity. Email, chat rooms, and web browsing have taught us new ways to “talk”, “find” and “see” what’s happening in our world.
The thesis of the book, Interactive Expectations, describes how these consumer expectations of interactivity will impact and shape the new generations of “connected” personal electronics. How consumer expectations of interactivity will, in fact, impact and shape the new generations of “connected” personal electronics. Consumer expectations will actually drive the evolution of “interactive offerings”, which combine consumer devices, data networks, and applications and services. Interactive offerings will thus provide an integrated solution for consumers, leveraging the strengths of the hardware platform and software capabilities. In essense, the book helps articulate what consumers look for in an interactive solution.
Seattle24x7: Thanks for the shop talk, Ron.
Larry Sivitz is the Managing Editor of Seattle24x7.
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