iPass explains it painful business model software transformation

The CEO of iPass has been telling investors and anyone who will listen that iPass is not the company it once was. It’s a tough story to tell investors that revenue A is falling, but revenues B and C are rising. We’ve seen this particular conjuring act at various operators, but in particular we have seen it done well at Yahoo! where CEO Marissa Mayer dubbed her rising revenue streams as Mavens, short for Mobile, Video, Native and Social. In the end though she had to sell the company.

Has the message about iPass got across yet? Well at the last quarterly results meeting CEO Gary Griffiths was clear. It has taken two years of work, the company is almost out of money, but even that he is managing cleverly, but the ship is starting to turn. He talked to us this week about Unlimited deals on WiFi, he talked about operator partnerships to offer their customers WiFi and he talked about the company’s first Veri-Fi deal, a product only out of the blocks a few months ago.

When he took over iPass had a clear problem. It asked for $25 a month for each customer and promised them a log in to about 30 million WiFi hotspots all over the world. It was always up against it once T-Mobile in the US offered Unlimited cellular and both Verizon and AT&T followed. But before that Enterprises were always pushing back on price, and how much data they were allowed for that price.

Suddenly, like everyone else that has an application on a large number of devices, Griffiths, with a history of working in Software as a service businesses, began to see value in the huge amount of data iPass has.

It has details of how much comes into a device from a particular AP, and the number of APs that iPass can access has now moved up to 63 million, and that can be parleyed into data about devices and data about Access Points.

But the roots of this corporate salvation started way back in April 2015 when iPass gambled – in order stay around long enough to develop new streams of technology, it needed to secure its customer base and it did this by offering a new Unlimited package to enterprise customers. Effectively it prevented Access Point owners running a clock on iPass customers, so they could charge more. This in itself would have been a tough deal to swing. iPass network providers all have a contract which governs how much they can charge iPass to use their WiFi, iPass today calls this its network access costs or NAC. It would have had to get most of its major providers to agree to charge on a different or lower basis.

Then the first software product came out a year later to take the pain out of finding and connecting to an Access Point for any iPass enterprise clients, this was in the form of a product called SmartConnect which came out in February 2016. It’s like a roaming app for WiFi, taking you in and out of the best AP without bothering you.

We talked about this and pointed out that other products on the market select the best AP based on cost to them, quality of connection to the network and data flow and automated credentials management. CEO Griffiths told us, “We had quite a lot of IPR in that sector and wanted to build something of our own.”

His namesake Neil Griffiths, Global Head of Big Data Sales at iPass and
as far as we know no relation, also talked to us this week alongside Gary, we hope they’ll excuse us if we attribute the odd quote to the wrong one.

“The way operators use SmartConnect is with a Dashboard but it can also behave like ANDSF, it can drive mobile offload where that is needed.” Are MNOs still interested in WiFi offload we asked? “Big carriers in Europe are very keen on it,” said Neil Griffiths, “and with our dashboard they can control it, and push new policies to devices. But also we can sell them Veri-Fi” Veri-Fi doesn’t actually verify anything. What is does it tell you where all WiFi is, and lets an operator engage intelligently with WiFi. An MNO using this can gain insights into user behavior, but also enable applications based on accurate Wi-Fi infrastructure location data.

iPass says it doesn’t only offer information on its own Access Points. When SmartConnect looks around at which APs are available to connect to , it also gains information on many other APs. It has measured their signal strength and knows how busy they are even if it does not have an authentication opportunity to use it. “This means we can curate data on 300 million Access Points,” said Griffiths.

But it has now found a secondary market for that data, in the form of both Ad Tech and Fintech companies. This puzzled us at first, but Griffiths took us through the logic. Advertisers are often prepared to pay a bit more to know about people who are close to a place where they can purchase a particular product or service, and FinTech companies want to be able to know where the owner of a particular credit card is geographically, not just so they can prevent fraud, but actually to maximize the use of that card at that location. If a lot of card users go to a particular store, an in-store promotion may serve both retailer and financial services company, so iPass is now selling this real time data to technology firms addressing this market. “This has big applications in retail finance and in the hospitality markets,” said Griffiths.

But surely GPS can tell an app where a phone is when it views an advert? The AP address is a way of validating location data, says Griffiths, adding that “Some 50% of apps use location data. Advertisers use it to ensure advertising attribution,” he added.

Over the past 4 or 5 years we have seen lots of retailers work with beacons or using WiFi access in a beacon-like fashion to track in-store movement and buying habits and try to use a tiny WiFi footprint as a retail advantage. But doing this on the macro scale, iPass seems to have the ability to take these efforts out of the equation and drive big data to a huge footprint of WiFi Access Points, in the process eating the lunch of many WiFi start-ups.

As we said it’s tough to pull this “changing horses midstream” act, creating new revenue streams as old ones die, but it is very clear that the use of some software on a device and some CPU and storage cycles in the cloud, leave a lot of room for significant margin. iPass only has to stay alive long enough for the transition to complete and it clearly thinks 2018 is the year.

At his Q3 2017 numbers CEO Griffiths said, “I am very pleased to report that we closed with a major global mobile network operator the first part of what we expect will be a two-part seven-figure Veri-Fi deal. I remind you that because Veri-Fi is essentially software, the margins are very high compared to our legacy business.”

But what he is also doing is asking new customers for money up front, and has a long standing deal with HP Asia Pacific where money comes in as units are shipped. It significantly improves the cashflow, but has less effect on the profitability, as the revenue is recognized over several months.

One of the new major enterprise clients has also made a payment in December of $2 million up front and some companies are now paying for iPass software to be included in devices as they are shipped, and this results in an upfront payment. Separately iPass has cut a Stock Purchase Agreement with Aspire Capital Fund so that it can draw up to $10 million at will for new stock. So far it has taken down $1 million. These are all tricks for staying afloat and not letting the cash burn break the company.

And although the old iPass business was with enterprise, the unlimited options are driving a ton more data usage, which has almost sunk the company, in expensive NAC costs. It has had to rush to negotiate downwards the cost of its network deals.

“The way we see it, WiFi is heading towards being free,” points out Neil Griffiths, which means that it makes little sense for iPass to be paying top dollar to use other people’s WiFi networks, when it could repay them with soft benefits like data and getting more people to their location.

New deals include one signed with middle East MNO Ooredeoo in November for allowing its 138 million customers to use iPass WiFi when they are on the road, another with Diner’s Club for enterprise access to the iPass network and a deal with HP that’s been around for a while, which is expected to throw off cash in 2018, whereby it includes SmartConnect in HP’s innovative device-as-a-service business. There is a new deal with TechData an equipment distributor, which has added iPass in the US, Canada and Europe and resells the software into its partner device makers.

Finally iPass talks about another major global mobile network operator (over and above Ooredoo) which is about to take another seven-figure Veri-Fi deal. It also said then it was on track for a $54 million full year which will come out in a few weeks. The company says it will break even when revenue hits $15 million a quarter, and that it saved $600,000 in Q4 NAC reductions.

The original iPass idea to make WiFi easy for enterprise executives is still a good idea in our book, because as much as people say that WiFi is shifting to free, we have found that Airports only offer time limited Free WiFi and then charge and that Hotels let you have free WiFi for your phone, which is not man enough for a PC, and then charge extra for giving you that. If anything, outside of the US, the cost of WiFi is rising, not falling. If you add these new revenue streams, with major MNOs and new constituencies who want data about WiFi, then the Griffiths’ optimism is perhaps justified.