Xtract and Comptel: A story with many lessons

This article was authored by Jouko Ahvenainen, and was originally posted on telecomasia.net.

On February 9 Nokia announced its intention to acquire Comptel, a listed Finnish company. Five years earlier Comptel acquired a data analytics company called Xtract. I was one of the founders of Xtract. We founded it in 2001 and built it to conduct world-class advanced data analytics. This is a story about success with paying customers, investors, revenue growth and exits, but at the same time this is a story about lost opportunities that illustrate the whole telco industry. I hope, for example, the finance industry can learn from this.

In October 2001 a few smart guys and myself founded Xtract. A few founders held PhD’s in developing data models, and at one point we had 13 PhD’s in the company; it really was top-level competence. Our first plan was to utilize self-organizing maps technology to make a new kind of customer segmentation for telcos. We talked with one telco about that for a long time, but it never happened. We started to develop many kinds of analytics solutions (big data as we would say today). In 2002 I studied in the US and one professor told me about social network analytics. One of our scientists also had thoughts about that and it was the starting point for the product that made Xtract globally famous.

As a whole we created many analytics solutions including retail loyalty program analytics, credit card fraud detection, targeting in marketing and personalization for banks and media companies, as well as automated insurance claim processing. But it was the social network analytics that was the globally best-known solution. It included solutions for finding influencers (Alpha Users as we called them), followers and potential social network clusters for different marketing campaigns. The concept combined social network, behavior and demographic analytics, and we called it 3D Analytics.

It was the time before social networking services. In 2005 we named our product Xtract Social Links and one of our business angels called me and said “don’t use ‘social’ in the product name, Americans can think it is something communistic.” We didn’t get social networking data yet from the Internet, but some telco carriers were interested in using it to find influencers for product campaigns and also to predict churn.

It was and still is slow to sell anything to carriers. I remember when my colleague and I met Vodafone Germany the first time in summer 2005 at one conference, and they were interested in what we did. It took about 4 years, many pilots and technical evaluations to get the deal. Some others, like SingTel, were faster, when they used it as an independent system, but then version 2.0 that was integrated to legacy IT was a very long story. Anyway, we started to accumulate telco customers.

In 2007 we got the first VC investor, and in 2008 two more. The investors were from Finland and Sweden. It was the time social networking, mobile apps and more data oriented internet services started to emerge. We had different strategic views, especially with the investors and some newly hired management team members. The founders started to be more interested in the internet and social media solutions and related new business models. The investors and some new people (who were actually more senior and came mainly from corporates with Finnish and Swedish telco business experience) liked the telco business. It was thought to be simpler and less risky to sell software to telcos, not to test new business models, data collection and other unproven things on the internet. As a new CEO said to me “never again use the word ‘freemium’ in the board meeting, it is not serious business.” And in early 2007 one of the investors said about our handset analytics app concept  that “it is not realistic that people would start to install some apps into their phones.”

Telcos had then a lot of plans and opportunities with data. They were sitting on mountains of data. It was also the starting point of mobile apps, and telcos wanted to get a good position in that business. Some telcos, like Vodafone UK, also entered the social networking business. And it was a total failure as most carriers’ plans to open new businesses, utilize data and create ‘value-added services’ have been. We also worked with Nokia, including Nokia Ovi, which was going to be their answer to Apple and Google. Needless to say, they never got their business to work and it also failed.

Step by step many founders and core team members left the company (the whole story has much more details, maybe enough for a book, but this is just a simplified summary). The telco business was growing, but very slowly. Some other business still made decent money, but they were not really the focus. Then in 2012 Comptel acquired Xtract. Comptel’s background is especially mediation devices and billing solutions. With the acquisition they wanted to get analytics competence and solutions to offer more value added services in data processing for carriers. Comptel has made a stable, systematic effort to keep it growing and profitable, but hasn’t been a huge success story since the 1990s. Today almost none of real Xtract talents work anymore at Comptel or with telco analytics, they are now working, for example, with the internet, gaming, AI, robotics and finance services.

So, in many ways someone can say everything went well, Xtract generated revenue, got customers, achieved the exit and so did Comptel. But, this story is about opportunity costs. It is not only about Xtract and Comptel as companies, but the entire industry. Telco business was a license to print money in the 1990’s. Still in the early 2000’s they had all opportunities, customers, data and a gatekeeper role on their hands. But when Apple and Google created the application business, the Internet really came to mobile the carriers became bit pipes. They couldn’t utilize any of these opportunities. And the same happened to their vendors, because they were tied with the carrier’s position.

It useless to talk about the past, if it is not to make things better in the future and utilize all this experience. At least, my five lessons from this for my businesses later have been:

1. typically incumbents cannot utilize new business opportunities although they have the best resources to do it,
2. as a startup, never make yourself dependent on the incumbent’s new businesses and/or their legacy IT,
3. if you want to bring new to the market, you need ways to bypass the incumbent companies in the industry,
4. find a new business model wherein although you would target also incumbents, something that can disrupt the model to buy and use your service,
5. customers that have less risk in their business don’t mean you have less risk in your business.

Now I try to apply these lessons e.g. to the fintech business. I was at the Singapore Fintech Festival in November, and most startups there wanted to sell their solutions to banks. These experiences came to my mind. I don’t believe anyone achieves a huge success by selling software or other additional components to banks. They can be one customer group, but if you want to achieve great success, you must also disrupt the model to offer your services and find ways then to disrupt the whole market.

It doesn’t always need to be directly to consumers, it can also be how and what you offer b2b, as Salesforce.com famously did and open API companies do. But if you want to change the market, never make yourself totally dependent on guys who have more to lose if the market starts to change. Hopefully, finance companies and other industries can also learn from telcos and actually do things in another way.

Nokia, good luck for telco data processing!

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