Nic Hopkins, BRW, 23 February 2001
RARELY does an internet start-up seeking a few million dollars from private investors boast a retail customer base of 450,000 subscribers. And, since the flow of cash in capital markets dried to a trickle after April's "tech wreck", it's even rarer to find companies falling over themselves to buy into a start-up.
But wireless messaging service BlueSkyFrog will shortly close a private raising of up to $5 million, and the handful of investors quick enough to buy in will almost certainly find their stakes scaled back because of heavy demand.
Interest in BlueSkyFrog has grown partly because its website generates more than 12 million monthly page impressions -- ranking it, by some measures, in the top 10 in Australia -- despite having a tiny marketing budget and relying on word of mouth.
Another reason is that its business model appears to be relatively simple. The company offers gimmicky mobile phone downloads, web-to-phone or phone-to-web SMS (short message services), SMS-based internet access and a diary reminder service. Instead of paying for each individual message, as is the case with mobile carriers, customers of BlueSkyFrog buy them in bulk.
The end result is they pay a lower fee than is charged by the mobile carrier. This can be more than 20c per SMS message. They can also earn credit points which can be redeemed as messages for visiting parts of its site, completing a tutorial, signing up their friends and responding to regular questionnaires.
The company also offers a service for businesses wishing to page its employees -- say, a roaming sales force -- or to advertise their wares or contact customers. For example, rural services group Elders might want to message a large number of farmers in one hit.
Drawing from the information received from the customer surveys, marketers would be able to send out targeted promotions. Rival start-ups such as MobileAlert and Mobemail offer similar one-stop-shop SMS services but seem not to have attracted such interest from investors.
BlueSkyFrog founder Graham Merrett, a software engineer, believes its strength is in being platform and carrier independent, meaning it can deliver services similar to WAP (wireless application protocol) to Australia's 8 million wireless devices. The company has a WAP service, converting old-world HTML websites into WAP for delivery on mobiles or other hand-held devices, but its focus is squarely on the old world.
"The private capital raising has gone extremely well because our story is right in the middle of where the internet and wireless communications are converging, which is happening all over the world,'' BlueSkyFrog executive director Elena Pasquini said.
The private capital raising is tapping the back pockets of a select number of rich individuals and some regular technology investors. The capital raising has been managed by Wentworth Associates, which is also an early investor, along with Morgan Stanley Dean Witter Australia chairman David Gonski, Dominion Mining chairman Peter Joseph, Les Fallick of Gresham Investment House and Andersen Consulting.
BlueSkyFrog claims to be the nation's most popular telecommunications website -- although Telstra.com would beg to differ -- and is adding 30,000 new subscribers a week. It broadcasts more than 100,000 SMS messages a day.
"This particular capital raising is actually quite small,'' Ms Pasquini said. "It's going to be used to consolidate the position in Australia, drive the existing revenue streams and get the Australian market cash-flow positive very quickly."