The Networked Economy
Dynamic discounting proved to be a real game-changer for Mediafly. "We joke that it would be interesting if all of our customers leveraged something like dynamic discounting," said CEO Carson Conant. "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."
05/21/12 5:00 AM PT
Mediafly is a startup company that delivers cloud-based applications for content management and distribution on mobile devices for Fortune 500 companies.
Through the Ariba Network, Mediafly 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.
Listen to the podcast (18:56 minutes).
Here are some excerpts:
Dana Gardner: Tell me about your startup company and why managing cash flow is so important.
Carson 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 1,000 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.
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?
John 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 3 times 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.
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.
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.