Aether Systems: Mobile ASP

Founded in January 1996 as the wireless data consulting firm Aeros LLC, Aether quickly became a significant presence in the wireless trading arena. The release of its "Wireless Wall Street" set of applications completely redefined the company's mission as a leading provider of wireless data services and systems.

The financial services industry has been one of the first to incorporate wireless data access with its service offerings, since it views the real-time transfer of financial information as a logical offering. Aether anticipated the industry's strategy early on and positioned itself to capitalize on the growing demand for wireless data solutions. In 1997, it introduced AirBroker, which provided real-time stock quotes, alerts, and news through wireless phones. Aether followed up on the product's release by building a strong financial services customer base offering online trading and financial data for Charles Schwab, Morgan Stanley Dean Witter Online, Merrill Lynch, Bear Stearns, and others.

Aether went public in 1999 based on their results in the financial services market. With the money raised from the IPO, Aether rapidly grew the business and through a number of acquisitions broadened their focus beyond just financial services into mobile software products, as well as other vertical markets such as mobile government, transportation logistics, and health care.

The opportunity Aether is targeting is enabling enterprise customers to extend their existing information or their existing investment in business information systems to a mobile workforce. Large enterprises have invested hundreds of millions and, in some cases, even billions of dollars in information technology, and yet when the users get up from their desks, they lose the value of that investment. So Aether is targeting the mobile workforce as one of the first areas for deployment.

The Aether Full-Service Approach
Companies seeking to deploy a wireless data strategy must address several key issues before the technology can be implemented and successfully adopted. These include carrier selection and management, network management, and flexible wireless technology selection to minimize the risk of obsolescence. Also, the number of ways in which mobile devices, user interfaces, and operating systems can be combined is an extremely complex issue, as are technology selection, activation, inventory management, and device maintenance.

Confronted with such a maddening range of issues, executives at many firms have serious doubts as to their company's ability to successfully embrace mobile technology even though they clearly recognize the need for "anytime, anywhere" access to information.

Aether's full-service approach recognizes how this matrix of issues could very well delay or prolong the economy's transition to m-business. To address the needs of companies, Aether has three products:

1. The Technology Foundation offering is a comprehensive family of software products used to construct a variety of mobile systems for businesses. It includes wireless integration, mobile data management, and wireless infrastructure products.

2. The hosting service has three main components: core services, including the network operations center, carrier connectivity, and messaging middleware; value-added services, including product fulfillment and customer support; and general horizontal services, including wireless Internet messaging and vertical services for financial services, transportation, manufacturing, and health care.

3. The consulting offering provides engineering services to complement Aether's software products and hosting services, and is offered on a stand-alone basis as well.

Revenue Model
Aether Systems has three primary revenue streams: 1) recurring subscriptions, 2) software licensing, and 3) engineering services. Subscription is the core component of Aether's revenue model. It encompasses the services, software, and applications hosted for customers for whom Aether charges a recurring monthly fee per end user. Subscription revenue is derived from two drivers: the number of subscribing end users and the average monthly revenue earned per end user.

Software licensing involves applications or platforms that are delivered to an enterprise customer instead of being hosted from Aether's network operations center. Aether intends to move more of its software licensing arrangements to recurring hosted arrangements.

Engineering services are consulting-type arrangements with clients such as Merrill Lynch and Reuters. Once the core of Aether's focus, engineering services is now the least significant component of Aether's revenue model. Engineering service assignments are now taken primarily to penetrate new vertical markets, develop new technologies, or satisfy a major client.

Get Big Fast: Acquisition, Investment, and Partnership Strategy
Aether's goal is to be the leading supplier of mobile solutions. However, in order to outposition their competition, Aether must expand and grow quickly. The company has a three-pronged strategy for achieving rapid growth in a short amount of time:

1. Acquisitions. Aether has built or acquired the key technologies it needed to create what could become the leading mobile hosting and transaction platform on the market. The company's acquisition strategy lets it enter new high-growth markets quickly.

2. Partnerships. Aether has developed a partnership-dependent business model rather than focus on head-to-head competition. This aspect of their strategy creates a broad "ecosystem" of products, services, and channels.

3. Investments. Aether has formed a venture capital division to focus its investments on emerging companies with product and service offerings complementary to its own. The company's goal is to encourage market adoption of specific technology standards and platforms, as well as promote the company brand.

Where possible, Aether acquires the assets and competencies it needs to succeed. For example, in 1998 it acquired Mobeo, Inc., a provider of wireless foreign exchange and commodity information services. This acquisition allowed Aether to expand its service offering, subscriber base, and relationships with financial institutions. Mobeo's flagship service F/X Alert delivers real-time price quotes, news, and alert service that track more than 150 financial instruments, including foreign exchange, fixed income, futures/derivatives, and commodities.

When acquisition is not feasible, the company forms partnerships, mainly with device manufacturers and wireless carriers. Aether's arrangements with the largest U.S. wireless carriers provide customers with virtually nationwide coverage at minimal airtime costs. The firm's wireless carrier partners include Ameritech, AT&T Wireless, Bell Atlantic Mobile, BellSouth Wireless Data, and GTE Corp. Aether has also joined with device manufacturers 3Com and Microsoft to develop applications for the Palm and Windows CE units, respectively.
Through its wholly owned subsidiary, Aether Capital, LLC, the company also invests in developing new services offering compatible technologies. Doing so helps to 1) provide a window on new technologies and business models, and 2) fill critical gaps in the parent company's own product line and business ecosystem. Since 1999, Aether has invested about $150 million in twenty companies.

Where Is Aether Heading?
It would seem the company is well positioned in the wireless market given its first-mover advantage and full-service approach. However, a major issue currently confronting Aether's management is the company's long-term strategy. Aether's leadership must determine if its future success will be found in maintaining its diverse portfolio of products, services, and investments or in focusing more on its core competency.

Currently, Aether's strategic focus is on maintaining its broad portfolio approach. This strategy assumes that customers will gravitate toward a full-service, comprehensive solution provider due to mobile technology's complexity. Many m-business companies are faced with the same key strategic problem as the one faced by Aether. They, too, must assess whether the corporate customer is better served by focusing on the company's core competencies or by developing a broad portfolio of comprehensive services. Traditional management theory has always argued in favor of companies staying focused on what they do best - their core capabilities. However, traditional management theory assumes stable markets, and adhering to it can put businesses at risk in a marketplace where the technology, processes, and customer needs are in constant flux.

The challenge for Aether's management is similar to the portfolio problem facing investors who have to decide whether to put all their money on one stock or spread the investment around. Today, Aether's approach clearly emphasizes diversification of its offerings. It is not an approach without risk. The key to a successful diversification strategy is maintaining a singular focus on profitability in whatever market you chose to participate in. If Aether can achieve sustained profitability quickly, then its future success seems fairly secure.