Hi. While this blog is a part of Seed Catalyst’s website, I realised over the initial few weeks that a lot of you are first introduced to the firm via the blog rather than our home page.
So to introduce myself - I’m a business consultant working with early stage technology firms to help streamline their strategy and go-to-market approach and support them for fund raising.
With this blog, I aim to capture key market trends that I see in the industry, the ecosystem and cross-plays in some of the more interesting and upcoming sectors, as well as cover interesting companies that I meet.
I will also be addressing vexing and interesting valuation and deal/term-sheet structures that would be of interest to technology start-ups at various stages of their growth.
RIM’s acquisition of Cellmania has been covered by all the leading blogs and newsletters. After all everyone was looking for signs that RIM’s management hadn’t packed their bags and gone off on vacation awaiting the eventual demise of the brand. The acquisition however leads to a number of questions:
Was an acquisition in this space relevant and necessary?
The blackberry app store hasn’t stood out for its ease of use or variety. The general opinion was that the applications are limited in range, they are expensive, payment methods are restricted and finally discovery and search is ineffective. A solution to the dilemma was certainly the need of the hour. RIM is working on the range and the pricing of the apps in a parallel initiative. For payment they relied on Paypal but there was a need for more options and better integrated operator billing. And finally search and discovery - it could assist as the best marketing tool if effectively used.
Was it the right company?
I did question the choice of Cellmania.
Cellmania is a white label content management system with an integrated DRM and 3rd party ad platform which enables over-the-air delivery for several OS' in addition to the blackberry e.g. Android, Symbian, Windows, Java. The store front supports localized content and media like music, ring tones, video, and graphics as well as multiple payment plans such as subscriptions, integrated operator billing and ‘in-app’ purchases which allow users to purchase virtual goods and other services from within the app. The platform manages the billing and also provides real time download reports.
But there are various other app store vendors with a much stronger presence – to quote a few Pocketgear, Getjar, Handmark and then others like Surf Kitchen, Bango (£46 mil). All these players are the intermediaries between operators and app developers.
Pocketgear – One of the largest after the Apple app store, they have 32,000 developers in their network and have generated over $400 million in mobile content revenues. The firm currently powers storefront and content solutions for over 40 partners, including 4 of the world's top 5 handset manufacturers, 3 of the top 5 mobile operators in the US, 3 of the top 10 mobile operators globally, and leading media and ecommerce companies, including Samsung, LG, Sony Ericsson, Research in Motion, Microsoft, T-Mobile, AT&T Wireless, and Verizon Wireless.
Pocketgear may have been a suitable target for RIM. However, while Blackberry Partners Fund is an investor in Pocketgear, so is Google. That may be a little unfortunate for Pocketgear as each may potentially block an acquisition by the other. They raised $15mil earlier this month focused on market expansion and tech growth.
Getjar – The firm has seen spectacular growth over the last four years - 300,000 software developers already using the service, one billion downloads till date with around 3 million downloads per day. GetJar works on a fremium model, meaning there is no cost to developers for basic development and app distribution is free, with GetJar getting its revenue only when developers pay to actually promote their apps. However they still have an online model rather than an on-device mobile app portal and the billing system is also WIP with hope of launch be the end of the year. Currently they integrate with carrier billing systems.
The company raised $11 million in June this year from Accel Partners. They could have been a good target for RIM with their app inventory but without the integrated billing system and on device portal it is a no-go.
Handmark – Once again a market leader in terms of app inventory with an on-device channel for distribution. They have multiple billing options methods including credit card processing, carrier billing, PayPal, Amazon Payments and Google Checkout which can be customized as per the requirement of the customer.
A bigger presence, more customers – a higher price.
Surfkitchen - I wouldn't be surprised if the firm is on the market but hasn't been able to generate any buyer interest. Lack of positioning or focus.
Bango - Publicly listed; not worth the hassle plus it would solve the billing issue but without the added bonus of an app inventory.
So the only name to come out of this very limited analysis is Handmark. Does that make the Cellmania acquisition penny wise pound foolish? Since the terms of the deal haven’t been disclosed this can only be speculation. (I am not discussing the in-house app stores from Qualcomm, Ericsson and the others)
What are the synergies that we should see?
A look at the Cellmania platform - the key operative is the billing and settlement engine which is integrated with various operator networks, credit card companies and Paypal, and was a key requirement for RIM. In addition are the integrated social features such as rating and previews for improved search and discovery. Ad serving, while a 3rd party solution, is an integrated component as well.
Source: Cellmania
Is it too late?
Simple answer – I hope not. Last week the company announced that they were moving from an 80/20 to a 70/30 revenue share between app developers and the firm. The rationale was that they need to cover the cost of the billing infrastructure provider. There was news that Bango, the m-commerce platform provider will be providing the billing infrastructure for the app platform. The firm has signed up with AT&T for on-bill application purchases and was also releasing new features like support for QR codes to locate applications from barcodes in marketing materials.
They seem to be waking up....let’s hope that over the next few weeks they don’t have too many governments taking anti-RIM stances. Otherwise, with each piece of negative news, all the analyst negativity may become a self-fulfilling prophecy.
