Qpass discovers survival to be rewarding venture
Seattle Times technology reporter
Manages voice services and some data services for wireless carriers, cable companies and land-line companies
Headquarters: St. Louis
Ownership: Publicly held, traded on New York Stock Exchange (DOX)
Management: Dov Baharav, CEO; Ron Moskovitz, chief financial officer; and Michael Matthews, chief marketing officer
2005 revenues: $2.04 billion
Customers: More than 150, including Deutsche Telekom, BT, Vodafone, BellSouth, Cingular Wireless and Qwest.
Manages the distribution of ringtones, graphics and other content between content owners and customers of wireless operators
Investors: Westbury Partners, Venrock Associates, RRE Ventures, SeaPoint Ventures, Granite Global Ventures and Oak Investment Partners
Management: Chase Franklin, founder and CEO; Sterling Wilson, president; Steve Shivers, senior vice president of corporate strategy; and Jon Matsuo, senior vice president of worldwide sales and services
2005 revenues: $42 million
Customers: Includes Sprint Nextel, T-Mobile International, Skype, Cingular Wireless and content companies such as Disney and ESPN
The striking $275 million acquisition of Seattle-based Qpass by Amdocs, announced Tuesday, ends a long chapter in one of the Puget Sound region's best turnaround stories.
The deal is the largest sale of a Washington state venture-backed company in six years and the third-largest since 1992, according to the Dow Jones VentureOne research firm.
But beyond the price tag, it is particularly remarkable, given Qpass' near-death experience and the key role it's likely to play under Amdocs, a billion-dollar public company doing business in the rapidly growing arena of handling customer transactions in telecommunications.
Amdocs, based in St. Louis, helps land-line, wireless and cable companies bill customers for traditional services such as voice and TV. Qpass helps mostly wireless companies bill subscribers for content services such as ringtones, video and wallpapers.
Together, the two will be able to offer both traditional and new billing services to enterprises ranging from land-line companies and content owners to those providing IPTV, or television over the Internet.
Under terms of the deal, Amdocs is paying $275 million in cash for Qpass. The purchase, which must pass regulatory review, is expected to close by the end of the quarter.
All Qpass employees will remain except for six with jobs duplicated at Amdocs, said Qpass Chief Executive Chase Franklin.
The Seattle office will operate as the headquarters of Amdocs' new digital commerce division, led by Franklin. Qpass will remain a separate unit and will be run by Sterling Wilson, former Qpass president.
Senior executives and critical employees received incentives to stay, and all will benefit from stock options.
Investors in Qpass also did well. Since the company's restructuring in 2000, it raised $16.5 million in venture capital. At the time, the company was valued at $20 million, Franklin said, making the $275 million sale a huge premium.
But the path to Qpass' so-called exit strategy has been a long one.
"For nine years, we carried the flag of content commerce and digital commerce," Franklin said. "We had to restructure four years ago, but we feel vindicated today with explosive growth of premium mobile activity and validation by companies like Amdocs."
When Qpass was founded in 1997, it helped media companies sell content over the Internet. At its peak, it had partnerships with more than 100 content sites, including USA Today, Dow Jones and The New York Times.
By 1999, it found itself in the era of easy-to-obtain capital and had raised about $100 million in venture capital. But by 2000, it yanked plans for a public offering to take a serious look at its business.
Franklin realized Qpass was trying to make money on content that was essentially being given away free. It needed to find a network that, unlike the Internet, would make money off content. So it made a bet — an early one at the time — on wireless.
To do so, Qpass laid off most of its employees and persuaded investors to give it a fresh slate by refinancing the original investments and contributing a fresh $16 million.
"Frankly, when the walls were tumbling in, and we were trying to dodge bricks and beams, I always felt that what we were pushing was inevitable — that digital goods and services would want to be traded over electronic networks," Franklin said.
Since then, the company has worked its way back up to 300 employees, more than doubling revenue from $17 million in 2004 to $42 million last year.
It amassed a customer base that included Cingular Wireless, Sprint Nextel and T-Mobile International, all giant companies. It also has customers such as Skype and content players including Disney and ESPN.
Franklin said Qpass' senior management and board considered options including a possible public offering or accepting other suitors' offers. After discussions of a merger started in February, and weighing offers from at least three other companies, Qpass and Amdocs signed final documents midnight Monday.
Franklin said the merger allows Qpass to expand into fixed wireless broadband networks such as WiMax, IPTV and other new technologies.
The company also will work on a division it recently started called OpenMarket, which allows content to be sold direct from owners to consumers instead of funneling through wireless carriers.
"I can tell you that Amdocs has been looking carefully at this market for the past several years and intensively over the last while," said Mike Couture, Amdocs vice president of solutions marketing. "We looked at all the players in the market, and after a very rigorous process, in the end, our choice was Qpass. We are excited about the choice."
Tom Huseby, a Qpass investor through his affiliation at SeaPoint Ventures, has been in lockstep with Franklin during the company's history as chairman.
He had mixed feelings about the sale, for sentimental reasons, not financial.
"I enjoyed waking up everyday and thinking about Qpass. I was ready for another six years if I had to," he said.
Tricia Duryee: 206-464-3283 or email@example.com
Copyright © 2006 The Seattle Times Company