Ariba Network plus Dynamic Discounting give startup Mediafly cash flow benefits, help in managing capital

Ariba Network plus Dynamic Discounting give startup Mediafly cash flow benefits, help in managing capital

Summary: We feel that this Ariba Discovery concept is extremely valuable to us as a small organization, as we look to scale as a lead generation opportunity and ultimately, as we’re transacting business.

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Listen to the podcast. Find it on iTunes/iPod. Read a full transcript or download a copy. Sponsor: Ariba.

The latest BriefingsDirect podcast, from the 2012 Ariba LIVE Conference in Las Vegas, explores the latest in cloud-based collaborative commerce with Mediafly, a startup company that delivers cloud-based applications for content management and distribution on mobile devices for Fortune 500 companies.

We’ll learn how Chicago-based Mediafly, through the Ariba Network, gained insight and control over its cash flow and found new means of managing capital and in aiding its ability to support ongoing operations, as well as to drive future growth.

To hear more about how they did it, Interarbor Solutuons Principal Analyst Dana Gardner interviews two executives from Mediafly, Carson Conant, CEO, and John Evarts, Chief Financial Officer and Chief Operating Officer. [Disclosure: Ariba is a sponsor of BriefingsDirect podcasts.]

Here are some excerpts:

Gardner: Tell me about your startup company and why managing cash flow is so important.

Conant

Conant: Mediafly is the leader in the presentation platform market. What that means is that we’re the company that helps bridge the gap between large Fortune 1000 companies, their internal systems, and primarily mobile applications, but also things like Internet-connected televisions, and so forth.

Large companies create lots of video. It could be live broadcast, sales presentations, training videos, and TV and movie industry content. When they're trying to distribute that content to make it available on all of these emerging devices, particularly at that large scale, they need a provider like Mediafly.

Think of all the TV and movie productions that are going on the studios. Those companies have thousands of video files that they're housing inside of their four walls. They're trying to expose that content to all of their executives and staff, everybody from the makeup artist that needs to watch the last three dailies to the CEO and the president.

Perfect platform

Now, they want to be able to do that on iPads, iPhone, Android, and on televisions connected to the web. We're the perfect platform, because there is so much that has to go on that so many gears are turning to make all that happen.

That’s a perfect solution for the cloud, and those companies now integrate with us so that that material is available to all the different stakeholders on all of these different devices. So we’ve dropped ourselves in and filled the gap between their in-house systems and all of these mobile devices.

Gardner: As a small company, what are you facing, when it comes to the financial pressures?

Conant

Evarts: As a small company, we often don't have a balance sheet that’s attractive to banks, among other things. As we seek things like angel investment or equity investment, we need to do things that are extremely capital efficient with those funds.

When we have an opportunity for revenue, especially revenue at large corporations, Fortune 100 companies, these are large contracts. As a small organization, contracting with larger organizations, it’s absolutely critical for us to manage that cash flow well and have visibility into the cash flow.

As we said, we’ve been growing very quickly. So our recurring revenue has grown by 3x over the last two years. As we grow quickly, we need to have that visibility into cash management, because it’s absolutely critical that we staff at the right time relative to taking advantage of opportunities that are out there in the market.

Gardner: So looking at this from an elasticity point of view, larger companies have a bit more wiggle room. As a smaller company you don't, but you need to grow fast. Help me understand what led you to do things differently in order to make this elasticity work in your favor.

Conant: We’re very fortunate. One of our largest customers is in the media entertainment space and we did a large seven-figure deal with them over a series of years. But the way that they do invoicing and transactions is through the Ariba Network. They said, "For you to get paid, join the Ariba Network."

So that was the first thing that got us onto the network. What was amazing is that once we got on there, as John said, it was unlike a lot of our other transactions with similarly large companies. In those companies it’s just like a black box. You've got a several hundred thousand-dollar invoice that goes out, and you may not know if that’s going to come in in two weeks or six weeks.

What was amazing to us with Ariba was the ability to know exactly where we were in that payment process. Ultimately we took advantage of this program they call "dynamic discounting," which allowed us to accelerate cash for a couple of basis points.


Huge ramifications

So for a fairly inconsequential amount of money to us, we were able to get paid in about 14 days instead of 60 days. It had huge ramifications on our business. What that did for us is allowed us to interact with them in a way that they preferred, but still have the nimbleness that we need from it as being a small company.

Gardner: So visibility and predictability are really important. In the past, people would generally go to a bank to get a line of credit and pay a high interest rate in order to have that accordion to manage their cash flows. You’ve found a way to do this, not through a bank, but through working directly with your customers and perhaps even incentivizing them to help you with your cash flow and visibility and your saving on the interest. It sounds like a win-win all around.

Evarts: It's an excellent opportunity for us to work with a partner and deepen that partnership with our vendors. We’ve found that, as Carson said, for a few basis points of a concession on the contract, we’re able to factor 100 percent of the contract value of the invoice.

When that occurs, the advantage to us is that we're able to immediately take advantage of it, as soon as it hits the system, to take 100 percent of those otherwise unknown collection periods. When we can reduce the collection periods from 60 days all the way to 14 days. We’re in a much stronger financial position, because we can take advantage of those dollars.

Conant: The first time we took advantage of dynamic discounting, it was relatively early in a development cycle for a security package that we were in the process of building. What that did allowed us to get access to cash to bring in additional resources to accelerate those featured enhancements.

Literally, two weeks after signing this deal with one of the largest entertainment companies in the world, we were in the board room with one of the largest global banks in the world touting these new security features we had, which we otherwise wouldn’t have had for maybe 60 days.

It sparked additional Fortune 100 contracts. It was fundamentally game changing for us. We joke that it would be interesting if all of our customers leveraged something like dynamic discounting. It would be transformative for our business. It would drastically accelerate how we can deploy cash. Then you think about it in terms of what could it do for the economy.

If all these companies were taking advantage of this, it would boost the stability and the growth of their partners and their vendors. It would be something. That’s why we’re so vocal about it.

Evarts: As a small organization that is very nimble and trying to innovate, it speeds up and accelerates the pace of innovation that we’re able to generate. The new features that we offered to this first client, we were immediately able to turn and sell to one of the leading investment banks as the same security capability.

So when we’re able to quickly accelerate and bring new innovations to market, obviously everybody benefits. Mediafly benefits, and ultimately, our customers are going to benefit as well.

Level playing field

Gardner: And what strikes me is that this seems to be a level playing field between you, a small company, and as you point out, some of the largest media companies in the world. You’re playing with the same rules with Ariba being the trusted arbiter.

Conant: Absolutely. There are probably two or three technologies that we've taken advantage of that have just come into play in the last three to five years. One of them is cloud-based infrastructure. We don't have to buy servers anymore. That’s allowed a company of our size to outpace and out-compete companies that have been around for a long time and provide enterprise services to Fortune 100 global companies.

Then, you look at Ariba, and it's very similar. It allows us to interact with them the same way that they would interact with another large company. Doing business with us doesn’t feel different than doing business with another large company.

They get what they want, we get some additional visibility and some things that are valuable to us. But, these technologies have just come into play in the last three to five years, and it's really allowed a company like Mediafly to exist.
Gardner: A lot of times, analysts like myself focus on the technology behind the cloud, but it's really a game changer, when it comes to business processes and allows for the compression of what used to be latency in terms of business functions, monetization, and cash flow. Now, when everybody has visibility, when the level field is there for all participants, it's much more efficient and direct, and we’re just starting to pick some of the fruit of that.

Evarts: And you touched on it. Creating scalable solutions is absolutely critical and it allows a small organization with relatively limited initial capital, first to be able to scale to a level, and participate in the Ariba Network, and basically have the same credentials as some of the largest companies in the world.

Folks who are transacting with Mediafly are doing it in the exact same way that they do with other Fortune 100 peers. To some degree, to us, it's a competitive advantage, and we feel that way. We feel that if we're on the system, we’ve been vetted, and other folks are using us on the system. It's an excellent credential for us to have and a nice reference for us.

Gardner: We’ve touched briefly on how this could be a go-to market benefit for you. Let's expand on that. How in providing a discount incentive to cash flow, and using the Ariba Network, does that end up getting you more customers?

Evarts: One of the tools that we’re just trying to tap into is this concept called Ariba Discovery. Discovery allows you to self select a series of industries, what they call commodities. That allows you to say, "These are the services that we offer." Then, large companies are able to go on that system and say, "These are the services that we're looking for." So it's really kind of a matchmaking function.

While we’ve only scratched the surface -- we feel we're relatively new to this system -- we feel that this Ariba Discovery concept is extremely valuable to us as a small organization, as we look to scale as a lead generation opportunity and ultimately, as we’re transacting business.

We feel that as a small vendor, if there are a number of individual companies that are looking to leverage this system, we're happy to make a light concession, obviously, for the right amount of basis points and just for the right timing. We're able to then take advantage of that, accelerate cash in. When non-financial companies, at the end of third quarter last year, had $3 trillion sitting on their balance sheets, you know that there's a ton of liquidity out there that will be invested, and is going to be invested in different ways.

One way that folks can take advantage of it is using a system like Ariba in order to support the supply chain, investing in their current partners.

Of, for, by the cloud

Gardner: So you're sort of of, for, and by the cloud. When it came to moving toward Ariba and using some of their services, did that work as an off-the-cloud service, where there wasn't anything on premise or you didn’t have to have your IT people involved in? How friendly a cloud player did Ariba turn out to be?

Conant: Extremely friendly, relative to some other more manual processes that some of our other customers leverage. The best example that is our ultimate discovery of the dynamic discounting program. Our controller noticed a checkbox in our interface. It's a web-based interface and he asked John, "This looks interesting. Should we take advantage of it?" We said, "Yeah, let's try it on our first invoice."

This was not some training that had to happen before we understood how to use this system. It was a couple of checkboxes, and now we are getting paid earlier.

To me, that's really what the cloud is. A company like Ariba, in my opinion, has done a really good job of abstracting, so you're left with just an elegant functionality and it's in the cloud. It's all web-based. There's nothing we had to deploy on premises.

We're a cloud company. So it feels natural. I can't even imagine how simple it must seem to somebody who's used to using things on premises.

Evarts: One of the key elements for us was the ease to get on the system. When a customer whose that large asks you to join, and you're as small as you are, you say absolutely, how quickly and when. Ariba was absolutely fantastic in helping us to get onto this system and then ultimately helping us navigate, within the course of a couple of hours max, to have been fully integrated into the system. Not only can we now take full advantage of their entire cloud-based infrastructure, but it was very easy for us as a small vendor to get onto this system.

Gardner: On the other side, the flip side of the coin, these global Fortune 500 companies were familiar with Ariba. You didn’t have to drag them along and convince them. There was already the established trust and credibility.

Conant: We’re still scratching the surface, as more and more companies are moving this way. It seems like a lot of the people that we’re talking to are moving into cloud-based procurement solutions, things like Ariba. As more time goes on, more and more of our customers will be on Ariba and leveraging dynamic discounting and so forth.

What's great is that each one that is using Ariba is already set up. It's just a matter of them attaching our profile or however it happens behind the scene. But there are not a whole lot of additional process. That’s what's neat about the network effect. Once multiple parties are on a network, it's just a matter of connecting the two lines together.

Listen to the podcast. Find it on iTunes/iPod. Read a full transcript or download a copy. Sponsor: Ariba.

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