Category: Pricing

This is the fourth in a series of eight articles with some of the people involved with the Digital Lifestyles conference day at IBC2004.

We interviewed Tony Greenberg, CEO of Ramp^Rate, an IT sourcing advisor designed to help companies select the most appropriate vendors for services such as email, hosting and security.

Ramp^Rate uses its Service Provider Intelligence Index to rate vendors and marry them up with customers using an unbiased, purely data-driven methodology.

Tony started Ramp^Rate as a response to the problem of huge sums of money wasted every year because of poor sourcing decisions.

Amongst many highlights in his career, Tony ran sales and marketing at Raindance, was senior vice president at Digital Entertainment Network and was a senior executive at Exodus.

Simply put, RampRate helps companies make great decisions, fast. Part of what we do is help some of the biggest entertainment and technology companies in the world understand where all these next-generation media platforms are going, and how it affects their businesses. We do a lot of research and consulting with a lot of companies you’ve heard about, companies who are looking at delivering digital media of various sorts over wireless, mobile, the web and so on.

And the other part of what we do is help those companies and many others save a lot of money when it comes to running all the information technology that helps them function. Companies spend billions of dollars on IT services, and they’ll only spend more in this increasingly technological world. But we believe, and prove it every day, that companies spend way too much money on their IT services. So we help them save a lot of money.

We do that by using what we call the SPY Index, which stands for Service Provider Intelligence Index. We help companies buy sophisticated and complex IT services – everything from outsourcing everything related to a computer in your business all the way down to simpler services such as digital rights management, e-commerce gateways, bandwidth, applications outsource management, anything that has to do with a monthly recurring service.

The SPY Index is a bit of a magic black box, but it’s basically a huge database filled with information about hundreds of IT services deals and other information we’ve collected over the past several years. We take a client’s needs, punch those into the Spy Index, and find out which of about 200 vendors we are associated with would be a good match for the services they need, at a price that is almost always far below what they’re paying now.

A vendor can be a big company such as IBM or EDS or a lesser-known smaller company such as a payment-processing house. RampRate learns everything about the vendor, puts all the key information into the SPY Index, then uses that to radically speed up the process of picking the right vendor for a given client. Saving time saves companies a lot of money, and our SPY Index gives them hard numbers that let them know what real market prices are for the services they want. They can get a great decision, much quicker than ever before, and know that it’s the best deal available on the market.

We can do this because we have an unusual structure. We use an agency model, which means the vendor and the client share the cost of our services. That’s a different approach than many consultants take. In a more typical relationship, a company like Microsoft, Disney or Sony would give a consultant a retainer. The consultant in turn would source the products and services that they need, then would be paid a uniform transaction fee from each of those vendors that was chosen. The consultant then would repay the retainer to the client. So in essence it may cost the client essentially nothing, but they likely are paying far more for the services they actually get.

Our first allegiance is always to the client, but we know our approach allows everyone to win within a shared “ecosystem” of clients, vendors and us, as their intermediary. The vendors save money because we bring really good clients to them who are ready to do deals. The clients save money because we’re able to bring them the best deal out there, from a vendor who meets their specific needs for service quality, reliability, financial stability and other factors.

We manage hundreds of millions of dollars of transactions for companies large and small, and we have strong client work in the areas of publishing and media with clients like Primedia and Microsoft and a lot of online properties such as iFilm, ESPN Motion and the National Hockey League.

Can you tell us how you actually got to Ramp^Rate?

As a kid, I built a chain of retail stores in the fashion eyewear business and had several peripheral businesses in the manufacturing and distribution arena.

In manufacturing eyewear we designed, we customised eyewear and we created a unique proposition different from many stores worldwide. We also had a direct order/direct mail company – and we even did infomercials.

I sold those companies in 1995, moved to Colorado for a couple of years and regrouped. The Internet started to happen and I moved out to Silicon Valley, kind of paving a new frontier – and I was brought in to run many of marketing functions for Exodus Communications.

At Exodus, we had a few dozen people, and we turned that into what became the largest Internet hosting company for major brands in the world. From the streaming perspective, we developed the first streaming core for all the big broadcasters from Broadcast.com to Real Networks to Akamai to Yahoo. We went public with a US$37 billion valuation, and were sold to Cable and Wireless and then on to Savvis.After that, I have invested in a few dozen companies and then moved to Raindance (RNDC), which is now public in the web-based conference-calling space, where I ran sales, marketing and business development.

Then I went to run business development at Digital Entertainment Network, where we raised US$88 million from Microsoft, Michael Dell, Enron, Intel and NBC. The network paved a new frontier in digital-media distribution, not only creating short-form programming but aligning distribution deals with most of the major portals for video on demand.

After working with a venture firm for a bit of time, we re-launched RampRate based on correcting billions of dollars of bad mistakes on IT-service decisions. We have had a concentrated emphasis in the digital-media space, especially from streaming, and now moving into IT sourcing. Most of our deals are between US$5 million and US$100 million – but we do everything down to very simple core functions like streaming media, collocation, digital-rights management and even some telecom.

We have another unit of the company that is run by Michael Hoch. He was formally research director of Aberdeen, a leading research firm in digital media, and he now runs our operations and research. The research group uses the SPY Index to identify trends, especially in digital media.

We have analysed more than 300 companies against all their competitors. We use the data resulting from transactions to help companies go to market quicker, better and cheaper with their products and services. We work with everyone from large software companies to large media companies on a research and go-to-market basis. It is a very substantive part of our business – about 25 percent of our overall revenues.

Can you tell me a little about your IBC session and what you are going to be discussing there?

There are some enormous chasms in digital-media distribution in terms of business models that “stop.” Business models stop when they lack what I call the “point of inflection,” where they can successful, based on economies of scale or possibilities in distribution.

For instance, what are the limitations of Cable VOD in regional markets? How many concurrent users can be had? Well, that’s a bandwidth issue, it’s a numbers issue.

When companies go to market with things of this nature they must make decisions from an economic standpoint: how much they are willing to invest in the distribution, their loss, and the internal rate of return on the project as they move forward into this new space.

As long as they are clear what the investment is, and what their customer-acquisition cost is, that’s great. You just have to know where you are going.Data-driven decisions, which is what we provide our clients, are really where it’s at, where we focus our energies. What’s efficient and what’s not in the marketplace for IP distribution? What is the faceoff between Cable TV and broadcast affiliates and networks? What are the efficient scales? How does wireless relate to those and how does Microsoft relate to all points in between?

I guess some of the areas that I find interesting are, who is your natural partner and who is your natural enemy in the digital-media food chain? Answering those questions will define the business models that will be successful. You can prognosticate what their cost will be in distribution all the way out three, four, even five years. It is pretty easy because you have a strong trend of costs and transactions gleaned from our database. We have everything from a data standpoint, so the trends are based on solid, real-world numbers that we know are correct.

That is quite a bit of ground you are covering there!

There are three distinct areas in the media business: creation, distribution and consumption. Almost any time any company has tried to delve into two as opposed to one they have been wholly and fully and holistically unsuccessful.

If media companies feel that, in bypassing a distribution channel such as Blockbuster, they can increase their relationship with their customer and take more profits off the table, then they are wholly and fully wrong.

I will help them try, but at the end of the day, the food chain has been established for content creation, content distribution and content consumption, and you can’t be in all those businesses.

Tell me what you are doing with ESPN and with NHL?

We have managed the sourcing for ESPN Motion. We have managed the procurement for the video-on-demand service for an online content e-commerce project for the NHL. We have testimonials on our website from those counterparts that would indicate the types of things that we did for those firms.

Are services like Video on demand and content on demand reaching mass market? What do you personally define as mass market for these services?

Anywhere an economic model exists to create profitability in a regional marketplace.

Are we getting there?

That would align with models that would throw dollars into the three channels discussed – content creation, distribution and consumption.

If I were to make a blanket statement, it is very clear that sponsored and/or branded content will pave the way as opposed to a subscription model. I believe that things like USDTV or MovieBeam, which are using the broadcast signal, offer a unique perspective and a unique revenue model for broadcasters and broadcasting affiliates alike.

In addition, the augmentation of satellite radio and distribution advertising will create another channel. A lot of these things will be bundled and pushed towards what I call Enron conversion. Who has the most to gain and who has the most to lose? You can either charge the consumer 10 bucks or you bundle it for telco to have a long-term sustainable contract with the vendor.

When you are talking about a place where you have cable or DSL, telephone, VoIP, VOD and cell phone – the telco, whether it be wireless or hardwired, really are looking to make about US$200 per household per month minimum. That’s US$2400 dollars a year or US$4800 dollars for two years which is the average churn rate for a lot of those services.

Well if there is US$48 to gain for a large telco and there is US$10 a month to be gained by a content provider, I guarantee that telco is going to be willing to pay for those services to bundle it in, to support conversion for long-term subscriber revenue into their base.

Playing the long game?

You have to. You can either play the short nickel or the long dime and ecommercing content these days is so very expensive because of on-line fraud and other issues. Unless you have a very meaty, highly valuable product or service, you could be eating up 15 percent to 45 percent of your actual revenue just in transaction costs.

Protecting the content is expensive too.

Well, that is important. We have to be more aggressive in the way we bundle, the way we package, as media companies. If I were speaking from their perspective regarding peer-to-peer services and increased distribution, which is the most valuable aspect, I’d say what they are getting for free is important, so they should really pay for the peer services.

Do you think that free to air digital TV services are going to be big in the USA?

It is hard to prognosticate where USDTV is going – all I know is that they are on loan to the spectrum, and the broadcast affiliates will have to adopt the model, with everybody and their brother starting to stick their feet in the water of trying to own something that lives in the living room.

The TiVo or PVR as we know it goes away, the cable box may integrate directly into the media centre which may look like a remote control, it may look like a light switch, it may look like a knob on your car, it may look like a cell phone.

All those things will be tried, but ultimately between hard-drive space and functionality, it doesn’t take a whole heck of a lot to put a new box next to your stereo or to integrate it into a unified system with your five-speaker digital surround sound system.

I can plug a cheap S-video cable from my laptop into my TV and VCR, and by doing that I enable every form of digital media that I can get on my system directly through the television at a very high resolution.

We are already there, it is a manufacturing thing and will be driven by the size of market.

Producing content and delivering it to many platforms is obviously expensive. What sort of efficiencies can content producers adopt to spend less money on re-purposing content?

Stop trying to deliver it themselves and rely on service providers enabling them to grow and create efficiencies in their business. Stop trying to create and distribute your content. Rely on people who do that for a living and use a sourcing advisor like RampRate.

So no need to bark if you’ve got a dog?

That’s right – everybody wants to do everything and they think they are controlling some secret sauce, but there’s no secret sauce. What they need to control is the quality of their content, because it is still a hit-based business. You get enough people to watch it, they will pay for it with their eyes through advertising or with their pocket book, through subscriptions and the like.

What’s next? What are you looking at next for your business that you can tell us about?

For us, we are very excited about the fluid marketplace that the SPY Index helps create, but really we are more excited about the fact that every business model has been tried and tested, and that data and operations have been put together to enable distribution and file-format and -protocol conversion.

Basically, there are services and web services that enable the conversion of these file types into deliverable media to all devices. It’s getting really simple to stick a content router or a box that reformats things and distributes to everything from your TV to your PC to your wireless headset to just about anything. WiFi and WiMax enable it, and it becomes the new operating system for distribution. We are very excited that there is a fluid connection within that digital-media chain.

We are going to pave new products and services, and whole new service providers, that will enable a fluid distribution through one single point. That’s exciting to us.

What keeps you awake at night? What is frightening you?

What’s frightening to me? I guess from this standpoint how powerful the telcos become three years from now.

Do you think that there will be another break up of the telcos in the US again?

I don’t know what the breakup would mean. I just think that they had been able to hold their product models extraordinarily steady until the big bandwidth started to appear. This music-download stuff is also scary as heck to me. It is very expensive to deliver; you have to have a product that will support the profit or the losses that it takes. It really feels that movies and video, long term, go the way of branding and sponsoring similar to television; the economic models are really tersely negotiated and are grave at best for a profitable enterprise over the coming two or three years.

So you think that the downloaded music business model is going to decay in another three years?

It’s the red herring of the business!

It is about transport cost and storage cost. The reality is, if you look at Moore’s Law and you do a calculation, 85 percent of all the music that people want to listen to will sit on one disc by the end of next year. Storage is so much cheaper than transport. You’ll take that drive and put it in your car. Why is Netflix working? Because they didn’t try to send it over the Internet.

Tony is a panellist in the ‘Future Business Models – Who Pays for What?‘ session between 16:00 and 17:30 at the IBC conference on Sunday, 12th September in Amsterdam. Register for IBC here

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