Evil Knievil on Proxama (PROX)

After yesterday’s comment on Proxama (PROX), I decided that it would be helpful to expand the comments so that readers could have a better idea as to what is going on. Here I again enlisted chairman David Bailey’s assistance and he advises that Proxama’s marketing business is focussed on Bluetooth beacons. The beacons “push” a message to passing smartphones. Currently there are probably fewer than 4,000 beacons across Britain, nearly all of which are in “closed” environments – i.e. an individual retailer, from a coffee shop to a department store, will deploy beacons on their doorways to alert passing consumers, or internally in the shop to alert consumers to specific offers in a particular department. The retailers control the messages, so only their “messages “ will be sent, but the messages only resonate (currently) with consumers who have that specific retailer’s app on their phone and are within range. Beacons have a range of 5 to 40 metres.

Proxama’s beacons, (they currently have about 1,300 deployed but expect to have around 10,000 deployed by end December 2015), are in an “open” environment, so they are/will be on buses, bus shelters, poster sites in airports and shopping malls as well as in stores, sports stadia and bars. The strategy is to put them in high footfall areas, to create a network that any brand can use to “push” marketing messages, whether general (e.g Sky sending out info about tonight’s movie premier) or specific (today’s offer at a particular JD Wetherspoon) with target geographies (e.g. within the Oval on an Ashes Test day, or as broad as Norwich, or London, or Britain, or Europe). Proxama intends to create a broad network infrastructure of owned and controlled beacons. Proxama controls the access to that network, collects the data from that network and charges a fee for access to, and notifications to and triggers by that network. Any app that the consumer has on his phone can trigger the Bluetooth message. Proxama has developed its own App, and has deployed it so far in Norwich and Jersey, to support community wide messaging and marketing. It has recently won a £1m grant from the UK Government to roll out this solution to communities across Britain.

It is helpful to appreciate that a beacon is a small device the size of a slug, which is battery powered (though Proxama are working on a solution that would make a mobile phone emulate a beacon which would be useful in taxis for example). The beacon is a Bluetooth device, so it connects with the Bluetooth app on a smartphone, and “pushes” a message to that phone. The consumer has to do nothing bar have the Bluetooth turned on, and (for the moment) have an app on his phone that recognises that the message is coming from a source that is acceptable to the consumer (it could be the Sky app, Dominos Pizza, Youtube, Google, Waitrose… whatever). Proxama gets paid for “notifications” – i.e. the beacon interfacing with the phone, and also gets paid a lot more for “click through” by the phone user to actually look at the message being offered. Experience so far is that Proxama get a response rate of between 11% and 25% to the initial message, which is clearly a fabulous number compared to flyers etc where 2% is considered good. Bus-mounted beacons – these have a range of 5 to 40 metres – will be stuck behind the drivers. In airports they will be stuck on billboards and pillars. Proxama control the network across the beacons (they cost about £12 each to buy plus programming costing £3.40 followed by the fitting cost). So no one can send messages across without Proxama’s permission. Retailers can devise their own messages and change them several times a day. Therefore a coffee shop could push croissants in the morning, sandwiches at lunch and, in the afternoon, cakes and scones etc.

Proxama can then send less retailer specific messages across that network (or be geographic specific) pushing an offer from the local theatre, or rugby club or pub chain which may not have beacons, but want to “broadcast” an offer… perhaps because they have spare seats, or because there is a band playing tonight, or just because it is hot weather and it is “Pimms time”. The key to Proxama is that they have exclusive, multi-year deals with the owners of the key out of home media sites who see the opportunity to increase the effective inventory of advertising sites by using digital technology, as well as much better information for advertisers as to the success of their campaigns. This should increase the yield from the advertising, as well as make the advertisers keen to use the greater opportunities to change the offer messaging depending on time of day, weather, stock levels, etc. This is a revolution in marketing, and, if Proxama can control the infrastructure, and the data, it will have a business which would be very attractive to larger companies, from WPP to Google.

If beacons are about “pushing” messages, Proxama also offers “pull” technology where, using NFC (Near Field Communication) or QR codes, consumers can “tap” a coil embedded in a poster, beermat, card (an example was the Oystercard) and receive a download of a voucher/recipe/message etc. That is also part of their offering but requires more consumer acceptance and effort and so is expected to take longer. However, that is expected to be a large market before the end of the decade. Again, Proxama will control the “pipe” and charge for access, for messaging and for downloading and redemption of marketing and loyalty offers.

The payments side of the business also offers a great opportunity as the US credit and debit card industry moved from “magstripe and signature” to “ChipnPin” (EMV) technology, and then through to “cards on mobile”. Proxama offers a suite of software products to enable card processors and banks to migrate their cards to the EMV technology, and Proxama’s solutions are already deployed in many countries around the World. The current sales pipeline (taken to be 5 years value) of this division has risen from £18m in February to £31m (unweighted for probability of crystallising) today.

Increasingly banks are looking at ways to differentiate their offerings to the market, and the combination offer of card management, migration to mobile payments capability and access to mobile marketing capability and loyalty vouchers offers and redemption, is attracting great interest.

All the foregoing means that Proxama could be sharply undervalued at 2p.