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REVIEW SUMMARY
Company. Interop Technologies
Industry. Telecommunications
Key. Own the technology to lead the competition.
John Dwyer looks like a genius today.
But when he started a small company in Fort Myers called Interop Technologies in 2002, the texting revolution was in its infancy. Who would have thought that so many people would prefer texting to talking today?
But consider this: Americans are now sending 1.4 trillion text messages using their cell phones every quarter. On average, that's eight messages per conversation.
Give Dwyer credit for recognizing the trend by 2004, when he and his team of engineers rebuilt their systems to handle what's turned out to be hockey-stick-shaped growth.
By 2007, after two years of development, Interop had the fastest message-delivery system in the world, capable of delivering 53,000 mobile-phone messages per second.
Because of intense competition, privately held Interop doesn't disclose financial information or the number of customers it has. Since 2007, the company says it has landed two big customers, Metro PCS and Cox Communications, and a slew of smaller regional carriers.
Now, Dwyer says he's targeting the Big Four of the cellular industry: AT&T, T-Mobile, Sprint and Verizon. “We hope to be working with most within a year,” Dwyer says.
Interop is looking overseas for growth, too. The company recently launched a $30 million, three-year expansion into Latin America and it's exploring opportunities in Asia, where the texting craze has exploded, too.
Interop is growing so fast that it can't hire enough qualified people in Fort Myers, where it currently employs about 100 people. Because of that, the company has opened an office in Dallas where it plans to hire as many as 30 more employees this year. “Our opportunities outpaced our abilities to find people in Fort Myers,” Dwyer says.
Hold onto technology
Interop's genesis started long before 2002. John Dwyer's father, James Dwyer, 73, is a 30-year veteran of the cellular phone industry who has built and sold several ventures. He sold his last regional cell phone company called Wireless One Network in Fort Myers to AT&T for an undisclosed sum in 2000.
But in his deal with AT&T, the elder Dwyer wisely retained the patents his engineers had developed to handle messaging technology. The younger Dwyer, 43, had joined his father in the business, but both presciently agreed to sell Wireless One at the height of the telecom boom in 2000. “The market was at a high point and we knew it wouldn't last forever,” the younger Dwyer says. (James Dwyer was not available for an interview.)
But despite the payout, the Dwyers weren't ready to walk away from the industry. “We were still looking to be in the game,” Dwyer says. Dwyer says his father financed the startup for less than $1 million. “He lent me a couple bucks and I made him chairman,” jokes the younger Dwyer, now president and chief executive officer.
Smartly, they didn't sell valuable technology when they sold their operation to AT&T. That text-messaging technology formed the basis for Interop.
Regional growth
Text messaging in 2002 was in its infancy and the large cell-phone operators already had their own technology. But a fast-growing group of smaller regional and local cell-phone companies needed this service because it was often too capital-intensive for them to build and maintain on their own.
At the time, a rival company that Dwyer declines to name managed text messaging for many smaller local and regional cell-phone companies. Dwyer's business plan was to crush its rival: “We're going to put them out of business in 18 months,” he says.
In less than two years, Dwyer says Interop snagged 30 small cell-phone carriers as customers. These included regional operators such as Bluegrass Cellular, Northwest Missouri Cellular and Alaska DigiTel.
Dwyer says Interop didn't have to compete on price because customers were unhappy with the service they had with rivals. And Interop offered customers flexibility; they can either buy the text-messaging system from Interop and manage it themselves or hire Interop to do it for them. Although Dwyer declines to discuss pricing because it varies by customer, he says the company charges cell-phone operators a flat fee per subscriber or a cost per message. “It all goes back to the fact that we were once a carrier,” Dwyer says.
Working with smaller carriers has allowed Interop to perfect its technology before chasing after bigger customers. “That's why we started with small carriers,” Dwyer says. “You start by finding a hole and you fill it as best you can.”
But by 2004, Interop executives realized that the text-messaging business would explode. So its engineers redesigned the software from scratch to handle the growth, taking to two years to do so. Today, Interop can handle 53,000 message deliveries per second.
“Capacity is probably the number one challenge,” says Stephen Zitnik, executive vice president of technology and new ventures. “We saw that was coming.”
Dwyer plowed profits into the research and development, keeping overhead low by housing Interop in a warehouse building in an industrial neighborhood in Fort Myers. “We've been able to effectively fund our R&D efforts,” he says.
The company hasn't borrowed any money and has not sought venture funding. As a result, Dwyer says, “The early years we grew more slowly, but we learned a lot. We're blessed to be in a position to not need cash.”
While Dwyer won't discuss the company's finances, he says Interop was profitable in its second year. “We killed ourselves,” he chuckles. “We've been very prudent in how we build the business. We did it with just hard work.”
Bigger customers
Now, Interop is challenging some of the bigger players in the industry, including Sybase, a publicly traded company with more than $1 billion in annual revenues that helps large cell-phone carriers manage text messages and data. According to its latest annual report, Sybase has more than 700 cell-phone carriers as customers (Sybase officials couldn't be reached.)
But Interop can scale its business with speed and flexibility in pricing because it has developed its own technology. “If you don't create and own your technology, you can't do that,” Dwyer says.
Already, it has signed companies such as Cox Communications, which is a well-established media company that is venturing into the wireless business. (A Cox spokeswoman declined to discuss the details of Interop's selection.)
Interop is also expanding into Latin America, where it plans to spend $30 million over the next three years, 40% of which will be earmarked for Mexico.
The challenge overseas is to make the venture profitable. Average monthly cell-phone subscriber revenue in the U.S. is about $50, but in Latin America it's $7 to $15. The challenges are the same in Asia, another market Dwyer is exploring. Vietnam's revenue per subscriber is $3.
“We may not make money on the first deal,” Dwyer acknowledges. But Latin America and Asia could prove to be profitable because of the sheer volume of cell-phone users.
Unlike previous companies the Dwyers have owned, Interop is not for sale. The elder Dwyer had to sell his previous companies because investment partners demanded a return after five years or so. “It's hard to imagine saying goodbye to your baby,” the younger Dwyer says.
This time, the family owns the company outright.
“What we're doing is chasing a dream,” says Dwyer. “How does it end? I don't know.”
Jean Gruss covers the Lee-Collier region. He can be reached at {encode="[email protected]" title="[email protected]"}, or at 239-415-4422
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