What Netcall is doing right

When I started looking at Netcall in 2004 it was a company in need of salvation. Its Queuebuster call centre software was well regarded, but occasional big licence fees didn't add up to a sufficient stream of earnings to defray its costs.

Now, it's doing well and the share price has nearly doubled in six months.

What has it done right?

First of all, it's grown its hosting business from nothing to not quite £1m this half-year. That increases visibility of earnings - it's also a USP in the field, as far as I know. Increasingly, businesses prefer to pay for what they use - converting a one-off capex payment into a regular budgeted cost.

There's an accounting question here. I've always been very suspicious of apportioned costs - and I'm obviously not the only one. By turning an apportioned depreciation cost into a cost that can be directly allocated to a given transaction or stage in a business process, such hosting deals enable businesses to see the cost of their operations far more transparently. Where the price is usage-based rather than purely rental, that is even more the case.

Secondly, Netcall never bothered about whether the ASP business would cannibalise its licence income. It probably has - but the company as a whole has grown. I remember from my days as a BT accountant that business cases were all about 'protecting the existing business' - definitely the wrong way to run a business, unless you really want to run it down and siphon the cash off.

Thirdly, the company has got three strong partners who are actually selling the software - BT, C&W and Affiniti. Indirect channels aren't always easy to get right - but Netcall seems to have managed it, by concentrating on growing a small number of good relationships rather than a scatter-gun approach to partnerships. The indirect channel now accounts for over 40 percent of revenues.

Alas, the shares look expensive, on thirty-something times earnings for this year and 17x next year according to Digital Look. I do wish the company hadn't got such a lot of publicity for its turnaround :-(