A symphony of data: Syntonic
Alan Kohler January 30, 2018
CEO Interviews
Gary Greenbaum is the CEO of a company called Syntonic, which is a Seattle based business that listed in Australia in late 2015 through a backdoor listing. What it does is licences a platform that allows phone carriers to bundle up content and access. That is to say, instead of having a data plan that says ‘x’ number amount of data or something for your price for the carrier, you’ll buy say access to Facebook and Netflix or Facebook and YouTube and even though those things are free there’ll be a subscription to that which includes the data that goes with it. That seems to be becoming quite popular.
They also have a system on the same platform that allows the whole thing to be free and it’s sponsored so they carry advertising, and that’s quite popular apparently, Gary says, in countries where data is expensive such as in Southeast Asia. They’ve been going for a while. He started the business in 2013. He was a former Microsoft executive and before that with other telephone carriers, so he’s got some pedigree in that area and he just thought here was an opportunity because smart phone buyers, users – which is everybody I guess – don’t really like or get this data plan thing and they prefer to just have it all bundled up.
So he’s doing that and it seems to be working quite well. I mean, it’s a start-up so it’s slow-going. They’re still burning cash, $1 million per quarter; but revenue is growing and it seems to be a real business here, interesting stuff, interesting ideas.
Here’s Gary Greenbaum, CEO of Syntonic.
Gary, did you start Syntonic?
Yes, I am the Co-Founder and CEO. I started this company in 2013. Prior to that as an executive at Microsoft and prior to that, Hutchison Tele – you might be familiar with the 3 brand?
Sure.
Where, at the time I was responsible for the rollout of their digital media services over their 3G network. Then I went to Microsoft and I was responsible for the mobility platform on Windows. Obviously, worked very closely with major carriers around the world for the better part of my 15 or so years in mobile.
What was the opportunity that you identified?
Well, I’ll tell you a little bit of colour around this. Even when I was at Microsoft I was responsible for building in the 3G/4G connectivity into tablets and PCs, and the thinking was these are ideal devices for people to be connected to anytime anywhere. Unfortunately, people were just not buying those devices, PCs and tablets with the 4G modules to be connected. We probed a little bit further into this and we realised that people didn’t want another data plan, they already were planned to death with their fixed line and mobile and so on and there was also the additional cost of mobility, the hardware itself.
We were looking at the root cause of why people weren’t buying this and I realised at the end of the day that the data plan is an arcane concept and it really doesn’t map into what people value particularly on today’s smartphones where what people value are the apps, the content, the ability to consume and to connect to this global world that we live in today. As a result, because of this mismatch between this abstraction that you’re buying called data and what you value which is really access to content, and I found that we’re really holding back the full monetisation potential of the mobile internet.
The good thing about this is the carriers agree with that also because as you see what’s going on right now pretty much globally, data is becoming a commodity and as a result the carriers only lever for differentiation is price, and that’s not really a good position to be in. And from the consumer’s side there’s this increasing demand for video and audio and content to consume on devices. We looked into this and we found that new models can be both beneficial for both the carrier and consumer by bundling the access with the content itself. That was sort of the premise of our vision many years ago, really about transforming the consumer model, the carrier model for monetising access on the mobile internet.
What did you build then? What was the thing that formed the basis of the company?
The heart and soul of the company is technology. If you take a look at the DNA of our executive teams, rich, deep expertise in platform server, high availability technologies. The first piece of technology we built was a platform service that allowed for this bundling of access and content and it’s called the Syntonic Connected Services Platform, and we started to try to sell that into the carriers…
What do you mean by bundling access and content, what does it actually mean?
As an example, instead of making a purchase for your data with the carrier and then making a purchase with your Netflix, then not really sure if what you’re consuming with your Netflix is satisfying the limitations of your data, what happens if you just buy the content and it comes with its own access? One of the things which is available today in The United States is the ability to buy what’s called a Freeway overpass subscription which is unlimited access to a set of social apps or unlimited access to YouTube. So it’s really about buying a content plan rather than buying a data plan when you can bundle access with content.
How do the carriers get paid for the data?
They’re getting paid through the subscription, they’re actually making more through this unlimited content plan because studies have shown, research have shown that people understand what they’re buying. This is a very simple value proposition, buying content versus buying data. People will buy more, number one. And number two, the other thing about this that’s good for carriers is it enables differentiation and stickiness and customer retention because you’re selling something of value that your competitors perhaps are not selling. As opposed to data which is a commodity, you know, one bit of data from one carrier is the same as a bit from another carrier, there’s no differentiation and no difference in value.
I actually intuitively would have thought it’d be the other way around, that if you’re buying your data separately from a carrier, and so you’re on a 500 gigabyte plan or whatever it is, then you would tend perhaps to over-compensate, you’d tend to buy more than you need because just in case you don’t want to run out. Whereas, if you bought the data with the Netflix or whatever it is subscription, that I would have thought would be just the right amount.
Well, it would be the exact amount because you’re not buying the data separately. But what’s happening is that we’re seeing a greater rise in consumption, particularly around audio and video on today’s smartphones and people are exceeding their plans and as a result being forced to pay a higher plan or to pay an over-use charge or worse if you’re on prepay you just get shut off until you top up. So what’s happening, people are consuming and going beyond the limits of their plan and either waiting for Wi-Fi if they can’t afford the next level up. But either way, if you understand what you’re buying you’re likely to buy more.
Are you saying that under your product people would pay an actual subscription for Facebook and that would basically – obviously, Facebook’s free, but that would be the data with whatever they consume on Facebook, is that how it would work?
There’s a couple models. We talked about the content subscription where you can buy a content pass to a bundle of content for unlimited use. But when you bundle content with access it also introduces other models, for example, ad supported or sponsored, where third parties would be willing to pay for your access to consumer their content as a means of increasing customer acquisition and engagement. That’s a model actually that’s quite popular in regions where data tends to be quite expensive. A lot of our focus is in Southeast Asia and Latin America, Central Europe and Africa where more of the sponsorship model actually is taking off right now.
What do the content providers think about you adding advertising to what is essentially their content?
Well, so long as people consume and moves people through the monetisation funnel, they’re happy. Because right now the alternative is, particularly in regions where data’s expensive, people are not accessing or people have to make a very conscious decision whether to access or not because of limited funds and because these economies are prepay where you have to pay in advance and your service gets shut off if you over-consume.
So there’s no element of your advertising competing with Facebook advertising for example?
Correct. Our advertising is more about, ‘Brought to you by…’ and the content then streams to you freely. It’s a different type of advertising. A lot of it is performance based. We work with a lot of game companies for example, who allocate quite a bit of money for marketing their games, their applications, particularly to get people engaged, it’s a very competitive market and it’s a great market response through data because these game companies, our biggest is Digital Reliance Entertainment, as an example the studies have shown that if they can get you to engage with their game for 40 minutes then you’re essentially hooked. Meaning that you’re then going to consume that game and be monetised through various elements in that game. In this case, reliance will be able to sponsor your access say for 40 minutes to the particular game, knowing that that’s a very cost effective approach to getting people through this monetisation funnel.
Under your platform do the carriers then market packages that are basically content plus access, is that how it works?
Exactly. We actually have two separate businesses, one is a systems business where we licence our technology to carriers to enable these new content services. It’s a very good business. Our marquee customers are Verizon Wireless, Tata Communications. On the other side is our own services business where we have our own branded service that runs on top of these various carriers and is across carriers. There the brand is called Freeway and Freeway offers these various sponsored ad-supported and content subscription plans across carriers.
I’ve never seen it. I’ve got a mobile phone and I’m connected to Telstra in Australia, so how come I’ve never seen it?
We’ve not brought Freeway to Australia just yet. Freeway’s focus has been – we’ve launched in Indonesia, Malaysia, India, Mexico, United States and hopefully soon we’ll have a presence in Australia.
So if and when you do have a presence in Australia, what would I see? How would it work? Would I get an ad popping up or what?
No, like I said, if the system sells – if I sell the solution to an Optus or Telstra, they would be in control of that user experience, they would be able to provide you a bundled pass of content or an ad supported where it’d be a simple notification. The way our service works is a little notification that precedes your use of an app or video that says this content is being sponsored by company ‘x’, ‘y’, ‘z’. We try to stay in the background while making sure that the content is at the foreground.
But you said you’ve got a service of your own called Freeway that you sell across platforms as well.
That’s right.
That presumably is carrier agnostic, is it?
That is correct. It is a function of integrating with carriers and that’s why we’re not here just yet in Australia. We’re working on that and hopefully that will come sooner rather than later.
Tell us about the pricing. How does that work?
For our Freeway service, as an example, in fact I think it might be helpful if we send some screenshots so you can actually see what this product looks like in The United States, for example, where we sell various content bundles. As I mentioned, you can buy a social package, a day, week or a month. The exact pricing, I’d have to check, but you order – let’s say it’s $10 a month for unlimited access to your Facebook, Instagram, Twitter… Or you can buy a day, week, month pass say for YouTube and it might be priced at 99 cents per day or $2 a week, $7 a month.
Again, it really is a function of the pass, how it’s priced, because it’s based upon our analytics about use. But that’s roughly – we’re trying to make all the content passes under this $10 dollar magical number, certainly in The United States. Then for sponsors, obviously that’s all free and you’d be able to use various games and various other types of content and the way that’s priced from a consumer perspective obviously is free.
I presume in this subscription model the carrier collects the money and then gives you an amount of money for the use of the platform, is that right?
Our systems business is a licence. We licence our technologies to the carrier and the two different models we are per unit royalty or a rev share.
What’s a unit?
The unit is a smartphone, so how many smartphones are deploying this technology, we would get a royalty.
Or there’s a rev share?
Exactly.
And what’s your share?
As you can imagine, it’s pretty commercially sensitive, particularly as we’re involved with various negotiations right now. But it does vary a little bit just depending upon who’s operating the service. Fortunately for our biggest customers like Tata and Verizon, they’ve brought it in-house and so there’s very little cost for us and it’s all margin, both the royalty business as well as the rev share business for both of those keystone customers.
With the sponsored side of it, who sells the advertising?
It depends. For our Freeway service we’re essentially the ad platform, so we get inventory from various aggregators and in some cases we work directly, particularly with the gaming companies who are very much interested in increasing engagement and I think that’s really the unique component of our platform as opposed to others that are more focused on customer acquisition, which right now is pretty much a commodity solution, but engagement is rather unique, being able to engage with a customer, paying for that. That person’s much further down the path of being able to monetise them.
Then in the case of our system’s business it’s up to the carrier. Many carriers are also going down this path of creating ad platforms and the big ones, that is, for example SingTel, the parent of Optus, has their own ad platform. There’s a lot of noise right now about Verizon and others getting into this space. From a systems business it’s really the carrier’s responsible for that business and we’re just providing them the enabling technology. For our systems business we acquire our own inventory.
You’ve also got another business I think called DataFlex, can you tell us about that?
Yeah, that is our B2B solution. Everything we’ve talked about was more of our consumer product. The reason that we can do and entertain a B2B product is because it leverages to the exact same technology and the vision around DataFlex is the ability for employees to use their personal devices or a corporate device and we can virtualise it into personal and work. The company would provision this device with the appropriate applications required for the employee’s job function and would get all the analytics about how that employee is using those applications, as well as picking up the tariffs associated with the use of those business apps.
The way to think about this, to connect the two different businesses, is that the enterprise is sponsoring the access to the business applications. So it’s the same exact technology, a little different set of policies and a little different go to market strategy for Freeway versus DataFlex.
When you backdoor listed in Australia through Pacific Ore, you predicted – and I’m just looking at the presentation now – there was a prediction in relation to this part of your business that BYOD, that is, bring your own device I presume, will grow by over 50% in the next three years. That was in late 2015. Has that sort of growth actually occurred, 50% growth in – well, it’s two years now, but are we on track for 50% growth in three years or not?
Actually, in some markets even more. The biggest BYOD markets are The United States, China, Brazil, India, as examples, and there it has grown even more than that. I don’t have the exact numbers, that was research we did about three years ago. We have put DataFlex on hold the last year, mainly allowing us as a small company to focus on the immediate opportunities of our Freeway systems and services business. We wanted to stay focused on that and quickly land grab as much as we can. We have a significant amount of inbound carrier interest that we wanted to capture. However, we did announce to the market just recently that we’re going to be aggressively deploying re-engaging in DataFlex starting this quarter.
In your quarterly report for the first quarter of FY17 you reported $480,000 in revenue, where did that revenue come from?
That was split between our systems business and our services business. The vast majority of it was from our systems, mainly the licencing to carriers.
And it seems to be growing okay, are you happy with that? Are you more or less on plan?
Yes, I love the systems business because the margins are great. My background at Microsoft and selling software, it’s a great business to be in just because you can enjoy 80-90% gross margins from a licencing business, versus our services business where the opportunities are huge – we’re talking about a global distribution of content delivery, but there are some significant costs associated with customer acquisition and operating that service. I like both. In the short term I really like the ramp up that our systems licencing business can give us.
You also said in the quarterly that you’ve got robust cash in the bank of, I think it was $3.7 million, is that still what you’ve got?
No.
What have you got now?
I need to take a look at the quarterly, it’s about $7.2 or 7.3 million in the bank. Give me a second, I could probably look it up, it’s in the 4C today. $7.24, yeah, so $7.2 million.
And how much cash are you burning at the moment?
Again, I’ll probably refer to the 4C to be very accurate. This quarter it was a little over $1 million Australian dollars.
So it was, $1.07. But that was actually a tiny bit less than last quarter?
Yeah, a couple things. December, things get a little slower in terms of our go to market strategies, the marketing. And we’re just trying to become more efficient with a lot of our marketing spend, relying more on organic and viral distribution than actually paid advertising. You’ll see that trend moving forward. I think that’s a sign of a more mature product that people like using.
Do you think you’ve got enough cash now to get to breakeven and when do you think you will breakeven?
I think we have all the cash that we need to have a sustainable business. If things come along that are out of the ordinary, that require additional funds, we will consider that at the time if that’s the right thing for the company and the right thing for investors. But I think we’re in a great ramp up right now. I don’t know if you’ve seen the 4C but we’ve had 43% growth in our cash receipts and almost 2500% in our half annual revenue, unaudited. Next month it will be audited. I think the trajectory is great for a sustainable business with what we have.
So you’re pretty confident you’ve got a business here?
Oh yeah, I’m all in, Alan!
Yeah, no, I’m sure you are.
There is no next or something else going on in the background. This is my life and I believe in it, my team believes in it and we’re solely committed to it. I think it’s encouraging when you have some of the largest Fortune 100 companies in the world knocking on your door, you know, I’m talking about the carriers. That’s really reassuring. We’d love to capture some of that revenue in the near term.
But couldn’t they build the thing themselves?
That’s a great question, and some of them are trying. We encourage that, by the way. We really like carriers who are trying to get into this business and doing it themselves because then I don’t need to sell them a scalable, sustainable solution. What’s happening is, carrier’s expertise is the network and they’re all taking a very network-centric approach to this. Unfortunately you can’t capture the full solution just by a network approach. If you take a look at some of these carriers, and I don’t want to name names – there’s one in Australia for example that’s offering Spotify, free Spotify.
But take a look at the exceptions. The exceptions are, if it’s video and music it’s not free, if it’s ads it’s not free, if it’s the authentication it’s not free. The point is that there’s no way that taking a network-centric approach can actually capture the full Spotify, meaning there’s a data leakage. And so a lot of these carriers are doing this and I love it and once they get to the point where they see that they want to have a real business, they come to us. To answer your question, carriers don’t have the handset or smartphone expertise, they have the network expertise. And you have to have both if you want to have scalable, reliable, high available business around this bundling of access with content.
Have any of them tried to buy you yet?
No comment.
Could I assume that that’s probably your exit plan, to sell to a carrier?
My plan is to build a successful company that rewards our shareholders and builds value for our ecosystem customers, whether it’s carriers, consumers and others. At this point, not focused on exit, I’m focus on building a great, sustainable and successful business.
Why did you list in Australia?
Great question. We were at the point in our company’s maturity where to take it to the next level of growth we needed additional capital. I had found that Asia, Australia investors had a far greater appetite for mobile investment than in The United States. As you can imagine, my early investors were quite surprised that I would pursue a rather non-traditional approach to raising capital. But like I said, I found that the appetite here was far higher than the traditional VC than saw in The United States, number one. Number two, I was doing a lot of my business out here in Southeast Asia and it turns out having a small little office here and listing here was actually somewhat convenient for some of the businesses that we were trying to do and the time zones here. Obviously, the way it played out in terms of allowing the founding team to have control of the company, allowing us the ability to see our vision come to reality, worked out better here than it could have in other forms of capital raising. I think the other thing that really was an afterthought which I didn’t realise and was really valuable for us, was the credibility of being a publicly listed company, particularly when you were trying to do business with Fortune 100 companies.
As an example, the deal we did with Verizon involved a level of due diligence. They’re not going to engage in a small company for a critical component of their business unless they understand that you’re going to be there for a while with them. And being a publicly listed company, everything’s public. Go to the ASX and you can see all of our reporting, all of our financials. There’s a level of rigour, there’s a level of accounting and accountability, and to be a publicly listed company that really has helped our credibility and our ability to sell to the large carriers.
This is a broader question than just about your business, but is the ASX being seen in Seattle and San Francisco and so on as a viable alternative to venture capital in the US?
The ASX has to do a little bit more marketing. I think it is, I have no regrets with what we have done. Obviously, my role has changed a little bit. I spend a lot more of my time dealing with investor relations. I recognised that that was the one change that had to happen. But to answer your question, I think this is a viable alternative to some of the more traditional approaches to capital raising. I think the ASX needs to do a lot more marketing and it’d be great to see a little bit more competition in the US with other avenues for capital. I’ve always been very bullish, companies have approached me about going on the ASX and I’m very supportive of it and give lots of advice because I do think it is a credible alternative and it’s one that I think so far has been very successful for us.
Thank you very much, Gary, it’s been fascinating talking to you, thanks.
Absolutely, Alan, I appreciate the opportunity.
That was Gary Greenbaum, the CEO of Syntonic.
https://theconstantinvestor.com/symphony-data-syntonic/
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