How Musiwave will Work in North America (OPWV, WTHN)

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Includes: GEC, WTHN
by: SA Editors

Openwave CEO Dave Peterschmidt explains his vision for Musiwave in North America in a conference call with analysts (full transcript here):

Q - Tal Liani, Merrill Lynch

The question I have is just on Musiwave, you had your first success in North America, and when you look at the other carriers in North America at least Verizon just launched its service with Wider Than and you see, I don’t want to say pretty set market, but you do have some decisions being done already on selection of vendors and I’m wondering how long do you think you’re going to need in order to penetrate other accounts in North America, and let’s say you approach a customer that’s already chosen another vendor will it be a replacement or could there be an environment of two vendors?

A - Dave Peterschmidt

Good question Tal. So quite frankly, one of the reasons we were so excited about this third element of our strategy where we talk about components provider and then end-to-end solutions, and then we talk about end-to-end services, meaning we are not selling software, we are offering a solution as a service. That is what Musiwave is doing.

To answer your question, because that doesn’t require forward investment of both capital equipment and software on the part of the carrier, what we’re finding is here in North America even though they’ve made decisions about music download services, everybody is very willing to sit and meet with Musiwave, because they’re feeling is I can turn this service on, it doesn’t cost me anything. And I can actually run a couple services in parallel, and I will see what the subscribers like. And it is not costing me the carrier a big capital outlay. We believe we are going to see more and more of that as the carriers look for ways to offer new revenue generating services without having to put a lot of forward investment into them.

Q - Tal Liani

And could it be a dual vendor environment, or do you think?

A - Dave Peterschmidt

Yes, in fact, we’ve already heard that, that a couple of the major carriers in North America have told us they are more than willing to consider, if you will, a shopping mall type of approach for some of these services.

Q - Tal Liani

Regarding the way it works, when you look at Wider when they approach a new customer, they have, the initial quarter, they have low margin because they have to buy all the systems, the hardware to install it etc., and only then revenues start to climb as subscribers download songs and they get their share. So for Musiwave are you going to follow the same business model where at least in the initial quarters, one or maybe two quarters of deployment, margins are going to be low and then grow, or do you have a different type of business model?

A - Dave Peterschmidt

It’s a little bit different, and the reason that it’s different is Musiwave has data centers set up with excess capacity, so we are not dealing initially, I think Hal as he gets into this will have to put in amortization schedules in place, for how we will amortize those investments are not take quote with each contract. Because that was the appeal of Musiwave, is that they had built out a very scalable data center. Where you do get into initial front end cost, is in the professional services work that has to be done to integrate the Musiwave data center directly into the network of the carrier. So there is some from an expense loading associated with professional services but not quote everyone one of them requires a big investment in hardware upfront.