Payday for M-Commerce Startup

Irish mobile payments system vendor Network365 Ltd. banked a $12 million third round of funding today and plans to use the money to break into the sophisticated mobile market of S. Korea and the high-volume growth market of China (see Network365 Bags $12M C Round).

Including this latest tranche, which was led by Advent Ventures, the company has now raised $27 million.

Key to the company's ability to attract new funds is its recently announced deal with Japanese mobile operator NTT DoCoMo Inc. (NYSE: DCM) (see DoCoMo Chooses Network365). "That was a multimillion-dollar deal and very important for us," says the software vendor's marketing VP John Hurley.

The Japanese operator is using Network365's mzone mobile-commerce system to allow secure transactions for its 34 million plus i-mode service customers, and, as the vendor's revenue comes from license payments and user takeup, DoCoMo is a prize customer.

Now the company wants to capitalize on that success and catch the uptake of commercial transactions and banking services via mobile phones from the beginning, and it believes the Asia/Pacific region is where a lot of the action will be. It already has engineering and sales teams in Hong Kong, Japan, and Sri Lanka, and will use some of the new funding to extend those capabilities to China and Korea.

What makes it confident of breaking into China, where local relationships are so crucial? "We have a global partnership deal with Hewlett-Packard Co., which is already established there," says Hurley. "That has already given us an opportunity to start the marketing process with the likes of China Unicom Ltd."

The company also plans to use some of its new funds to develop new versions of its system and help make its software more interoperable with existing IT systems and other commerce software. This is particularly important to gain the confidence of the banks that would need to deploy the company's systems in tandem with the mobile operators in order to allow banking transactions to be verified and completed.

The DoCoMo connection is also playing a key role in the software firm's growth plans in Europe. Not only is the carrier an impressive reference customer because of its pioneering track record in mobile data services, but the Japanese operator helped to organize a technology roadshow that took Network365 into DoCoMo's affiliate operators in Europe -- E-Plus Mobilfunk GmbH, KPN Mobile, Telefónica Móviles SA, and BASE (Belgium) -- to tout the revenue potential from mobile commerce.

Hurley is confident of closing deals with such carriers. "A lot of m-commerce tire-kicking is turning into RFQs [request for quotes] now," he says. And there's much more evidence of commercial customer use and sophisticated m-commerce service development, especially by existing Network365 customers Hong Kong CSL Ltd. and Hi3G Access AB, says Hurley. "Just check out the CSL Website to see what it's offering."

Hurley is less optimistic about the potential of signing up another DoCoMo affiliate, AT&T Wireless Services Inc. (NYSE: AWE), in which the Japanese operator owns a minority stake. "AT&T Wireless is reviewing its mobile commerce strategy and vendors," he says.

And there is no guarantee that m-commerce will be a widespread hit, though the uptake in developed countries of online banking services has created a useful precedent. But there's always a market projection to be trotted out on these occasions, and Network365 is particularly keen on a report published last year by a relatively unknown outfit called the Wireless World Forum, which believes the global mobile payments market will grow from €5.5 billion in 2002 to more than €55 billion in 2006.

Hurley says Network365 will be profitable well before that time -- late 2004, by the company's own calculations. But, with revenues tied to customer usage, that's dependent on the success of the operators' marketing strategies. "It's all about customer confidence -- getting users to believe that the system is safe and secure," says Hurley

— Ray Le Maistre, International Editor, Boardwatch

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