STARTUP TO WATCH
Urban Airship's Flight Plan: Push Out Info, Pull In Revenue

Given the growing popularity of mobile devices and the great many applications to go with them, you would think that this new niche had plenty of room for newcomers. Many of those newcomers, though, will find it difficult to capture a great deal of consumer attention. Places like the Android Market and the Apple (Nasdaq: AAPL) App Store are popular and growing fast, but they're awash in apps that struggle to stand out from the crowd.

Urban Airship recognized the potential for mobile app sales, but instead of adding still more mobile applications to the multitudes already in existence, it sought to tap the market by way of offering services to application developers. Those services are designed to make developers' apps better and give them more revenue opportunities.

In a very challenging economic cycle, Urban Airship's co-founders beat the odds to a successful startup by bootstraping their company with personal funds. They started with no customer base. Now some six months later, the startup anticipates it will soon reach 2,000 paying customers and is transacting more than 100 million pieces of mobile data across 10 million mobile devices.

That's not a bad performance for a newcomer in a red-hot mobile apps market. Mobile users will download about US$6.2 billion worth of mobile apps this year, nearly double what was spent in 2009, according to research firm Gartner (NYSE: IT). Sparked by devices like Apple's iPhone, the smartphone market is expected to grow 37 percent, compounded annually, between 2009 and 2013, according to investment firm Morgan Stanley.

Add to this ravenous buying demand improvements in geo-location services and in-app technology solutions. That leaves little wonder why venture capitalists are showing renewed interest in funding mobile startups like Urban Airship. The company recently won $1.1 million in VC funding.

"A lot of the economic business models and components have gaps. This is where Urban Airship sees opportunity. I think Urban Airship sees the chance to provide some of the app store support and push the messages to the application, even if it's not running," Jay Lyman, an analyst with the 451 Group, told the E-Commerce Times.

Sensing a Need

Despite this rosy market outlook for mobile app players, many startups in this space found disfavor among VC money issuers. Last year, less than two dozen iPhone-focused mobile app startups secured more than $100 million in funding, according to Urban Airship officials.

Urban Airship came to the table with an idea based on a perceived need. It turned that perception into a business necessity for its customers.

Similar to when Amazon (Nasdaq: AMZN) pioneered its EC2 cloud services to enable developers to scale with an affordable pay-per-use model, Urban Airship is among the first to offer scalable, on-demand mobile app infrastructure services that reduce developers' costs for implementing new smartphone features such as push notifications and in-app purchases.

These sorts of features can enhance an app's usability and provide additional money-making opportunities for developers. For instance, adding push notification capabilities to an app encourages the user to pay more attention to that application and use it more often. Combining that with the ability to execute in-app purchases gives devs the chance to continue generating revenue above and beyond the one-off sale of the app itself.

"One of the real keys in this success story is that Urban Airship is taking a proper view of the market. The company tapped into a proven economic model with the iPhone and Android and the App Store," noted Lyman.

Urban Airship's 1,500-plus customers include large media companies and independent developers alike. Both classes of customers can opt for the multi-platform, scalable infrastructure the company provides rather than build their own.

Leap of Faith

Jump-starting a business with personal finances and no customers takes faith and a lot of business savvy. Cofounder and CEO Scott Kvetson had a lot of both of those elements. He landed his first paying customer within the first 30 days of founding Urban Airship.

The two cofounders launched the company in June of 2009 as a mobile apps infrastructure provider. They built a customer base quickly and are now looking to see where things will go from here.

"We knew we wanted to be developer-focused. We had to generate revenue through a quick launch. We found a business waiting in the process," Kvetson told the E-Commerce Times.

Urban Airship recently took a step or two closer to seeing what is waiting around the next business corner. In mid-February, the new mobile content delivery channel provider closed a $1.1 million Series A funding round.

The round was led by True Ventures and included Seattle-based Founders Co-op. Urban Airship plans to use this new funding to extend its product offering across multiple platforms and to expand its engineering team.

Early Problems

As Urban Airship's founders worked to build a scalable infrastructure for mobile app delivery, the company's engineers relied on existing cloud servers from Amazon. In essence, Urban airship did not have to reinvent the wheel, noted Kvetson.

"We used a lot of open source and Amazon's platform, so there was no need for our own servers. Over the last eight months we added our own modifications," said Kvetson.

Besides building a mobile infrastructure, urban Airship had to adapt to the complexities and challenges of each publisher. That is a task other service providers have also struggled to achieve.

"Our goal was to meet customer demand. I didn't spend a lot of time on what the competition was doing," he said.

Bases Covered?

However, Kvetson may be well advised not to underestimate the competition. A sizable showing is already evident from companies such as Ilime.com, Open Handset Alliance members and Funambol, an open source vendor.

"I expect to see a number of other vendors coming along. Urban Airship has a head start. It is a new bread that won't be the last," Lyman predicted.

Still, Kvetson expects to experience a big enough market to allow him some elbow room. This market will be massive, and there is presently no other infrastructure to support it, he said.

The smartphone field has become much more lively over the past few years, due in no small part to the arrival easy-to-access application storefronts offering easy-to-use mobile apps. The Android Market and the Apple App Store are prime examples. Cloud computing is also making this field more interesting.

"Urban Airship sees opportunity to fill the gap for developers with app store services. App store functionality is pretty limited. The challenge is how to make money in all the different applications," said Lyman about upcoming challenges Urban Airship must meet.

New Turf

Success will continue to greet Urban Airship, Kvetson believes, if his mobile apps platform can remain flexible enough to include a wider range of participants. He sees new interest in pocket-sized computing devices, touchpads, netbooks and smartphones.

"This is a huge opportunity to service this mobile market. This market will continue to explode," he said.

New smartphone features provide businesses and developers the chance to increase contact with customers, enhance their brand and create a recurring revenue stream. However, these new features also call for additional, costly server-side infrastructure. This forces developers to figure out how to support this new requirement.

That's where Urban Airship's scalable platform comes into play. It enables businesses and mobile publishers to quickly integrate push notification and in-app purchase functionality within their mobile apps. This lets the company's customers focus on monetizing their apps across multiple platforms instead of having to invest in building a complex network and infrastructure.

Tapping Tapulous

As an example of how Urban Airship is adapting to potential customers' needs, look no further than Tapulous. That vendor last summer was among the first mobile game publishers to introduce push notification services on the iPhone, which enabled its 25 million "Tap Tap Revenge" players to challenge one another from within the game interface, explained Kvetson.

Urban Airship's services powered Tapulous' ability to offer push notifications. Since then, the young company has found early success and revenue from large brand-name companies such as Universal Music Group and Virgin Atlantic to popular mobile app publishers such as Tapulous, Yowza and Gowalla.

That's precisely what the startup will need to do to continue being successful, noted Lyman. The company's chief claim to fame might very well be its flexibility.

"Urban Airship is taking a broad approach by not limiting itself to any one aspect of app delivery. Part of that readiness to serve the whole industry is probably why they recently were successful in receiving funding. The company is rightly focused on smartphones," said Lyman.