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The world’s smartphone users don’t want bits and bytes, says Syntonic CEO Gary Greenbaum. They want music, video and games. He talked to MEF Minute about this changing consumer mindset and why it is making operators, publishers and brands embrace Syntonic’s sponsored content models.

We live in an era of exploding demand for streaming video, on-demand music and connected gaming on mobile. But one factor limits the potential of this content market: the cost of data. Consumers are either concerned at the cost or they don’t understand data at all. After all, how many megabytes are there in 10 minutes of YouTube?

Syntonic believes it has the answer. It works with operators and publishers to sponsor data so that users can enjoy specific content without worrying about incurring data costs.

After three years, the company and its ideas are gathering momentum, says its CEO Gary Greenbaum…

What prompted you to start Syntonic?

I’d been working as an executive at Microsoft and Hutchison Whampoa for ten years, but I began my career as co-founder of a start-up that was acquired by RealNetworks. I decided that I wanted to return to my entrepreneurial roots at a small, agile company.

I had two business ideas: one based on big data and the cloud, and the other on enhancing the mobile experience. I had witnessed the inefficiencies in the data plan model for monetizing the mobile Internet, and that led me to creating Syntonic.

It was also an opportunity for me to ‘bring the band back together’. My Syntonic co-founder, Rahul Agarwal, had been with me at RealNetworks where he had developed the core playback engine for RealPlayer. And Ben Rotholtz, our CMO, had been head of product and service marketing at RealNetworks.

What made you think that sponsored access was the right opportunity?

Microsoft was developing a tablet – and obviously, any tablet that connects only to Wi-Fi ceases to be useful outside the house. So it seemed to be the perfect device for connecting over cellular. But this wasn’t how the market saw it. Businesses and consumers weren’t willing to accept a new data plan for these devices.

I looked into why and realised that the existing business model – based on megabytes – isn’t right. For consumers, the real value is in the applications and content. They just don’t think in terms of bits and bytes.

How hard it was to get attention from possible customers in the early days?

In our early days operator meetings were a challenge, even though it was clear to everyone that the future was in line with the models we were proposing. The problem was that the internal success metrics for the operators were at odds with what we were advocating.

The way shareholders and executive management valued success was based on three metrics: ARPU, churn, and additional subscribers.  Clearly, Syntonic’s model was not aligned with them. People were polite and earnest. They acknowledged that new access models were the future, but that it wouldn’t happen today.

What about the rest of the market?

We reached out to PC and handset OEMs, and they were very responsive. What they saw was a chance to differentiate the hardware with a compelling service offering. Devices were becoming commodities – a big screen, a keyboard, and an interface defined by the OS.

They recognised that they could add differentiated value with accompanying recurring revenue by utilizing the new content models we were proposing. Of course, without the interconnect to the carrier we only solved half the problem.

So why and when did that change?

screen696x696More recently, data ARPUs have been flattening or declining. Operators realized that new revenue streams were needed  to meet their upcoming investments in 5G, such as smart cities, IOT, connected car, connected home and so on. Now, three years after starting the company, carriers are coming to us.

What is motivating the carriers to pursue these new models?

There’s a trending alliance between carriers and entertainment companies. Carriers recognize how content can provide marketplace differentiation and high margin revenue streams. There’s an industry-wide realization that the value is in the content not the data.

You see this in any number of deals: AT&T purchased DirectTV, and is trying to acquire Time Warner; Verizon is in the same position of pursuing content such as Yahoo!; the BT/EE merger brings content programming to EE subscribers.

Carriers are now offering free-rated content or selling content subscriptions with bundled access For example, if you’re an DirectTV and AT&T mobile subscriber your access to DirectTV Now is data-free. This promotion added over 200,000 new subscribers in the last half of last quarter.

So how will carriers offer content to subscribers?

They can zero-rate, sell through subscription, use ads, or have brands sponsor content. The solution is likely a blend of all these models. The bottom line is that the access currency will be the content and not data.

Tell us more about how Syntonic makes money. You are taking money from both sides, the mobile operators and the content providers…

It’s a multi-sided market for Syntonic. The carrier seeks differentiation and ARPU growth; content providers and app publishers want to grow new audiences and engage more with their customers in a cost efficient manner.

Syntonic both buys and sells to carriers. We have a cross-carrier first party product, Freeway by Syntonic, and for this we are the purchaser of wholesale data from carriers. We resell it to the content providers and app publishers to provide sponsored content access for consumers.

But we are also on the sell side, licensing a white-labelled version of our technologies to the carriers themselves so that they can provide unique content services to their subscribers.

Can you give an example of an innovative sponsored content project?

In the U.S., there’s small independent movie studio we worked with, BBA Studios. They produced a mobile trailer and wanted to use their limited marketing budget to drive marketplace awareness to their latest movie.

BBA used our platform to sponsor access to their movie trailer. As a consequence of this promotion, BBA achieved significant marketplace awareness and sold out all showings of their movie.

Can you give an example of successful partnership with Freeway?

We’re working with some of the major game publishers around the world. For Reliance Digital Entertainment, we’ve been providing support for over 10 of their apps in Indonesia, India, and Malaysia. Reliance is using our model to encourage gamers to download and engage with their applications.

Generally, casual games have been an area of focus for us. The companies are fiercely competing for share, and have significant marketing budgets set aside for acquiring and engaging customers.

Where would this money otherwise go?

They would typically be allocated to Google AdWords or Facebook Ads. Freeway provides an alternative that extends beyond installation to engagement. This is something not provided by either platform.

Do customers need a data plan to use sponsored data or get data rewards?

For sponsored data: the carrier sets the rules about who can participate and whether the sponsored data can be used for prepaid, postpaid, or ‘no paid’ subscribers.

With data rewards, the user is compensated for accepting and using an offer: they must have some affiliation with a carrier to receive compensation. The users are required to have an active plan to be compensated. Data rewards are working in Southeast Asia with prepaid data plans.

You’ve talked about the possibility that a brand might sponsor third party content. For example, a soft drinks company could sponsor live cricket coverage. Is this happening yet?

Brands have expressed interest and we’re in active discussions now. Our initial focus is to go after the apps and content providers that have already set aside large marketing budgets. That provides a faster go-to-market than explaining a new advertising model to a Unilever or Coca Cola.

You went live on the Australian Securities Exchange (ASX). Why Australia?

We were seeking additional funding because we knew that we had to quickly grow the company to capture market opportunities. That brought me to Asia, which has the greatest investment appetite for early stage mobile companies.

I discovered the ASX from a former Microsoft colleague who had just completed a successful public listing 6 months prior. After deliberation with our board and investors, we agreed an ASX listing would be most economical for all parties.

There were additional reasons for Syntonic to pursue an ASX listing. We wanted to open an office in the Southeast Asia time zone to assist with our business operations in that region. We wanted access to affordable high tech talent. And we wanted the financial transparency associated with a public listing to assist with our business credibility, especially when engaging with Fortune 500 companies.

How do you view the regulatory issues like net neutrality? Could this limit your growth?

I believe that including Sponsored Data in Net Neutrality policies is wrong. Sponsored Data is not a form of discrinatory pricing, nor does it exclude smaller companies from participation. It’s like cancelling the Super Bowl because as a small company, I don’t have the financial means to sponsor an ad! Sponsored data levels the playing field.

The argument that sponsored data is discriminatory and that smaller companies don’t have the means to participate doesn’t align with our experience. To the contrary, as example, a small company with a limited marketing budget, BBA Studios, used sponsored data very effectively for promotional purposes.

In the US, the new FCC chairman declared that all investigations with regard to sponsored data and operator zero-rating are terminated. In India, where sponsored data is prohibited by the Telecom Regulatory Authority, we can still offer services like data rewards with the hope that public opinion will eventually be heard by the government.