Monday, November 10, 2014

No Need to be Scared of Paper

As you may have heard, Thursday was World Paper Free Day. Officially, it is AIIM initiative that encourages people and businesses to not use paper for one day. I was Tweeted, I did not go paper free: 





I was writing and on a deadline for my newsletter--and to tell the truth, absent three or four monitors, I just find it easier to compile a story using multiple sources, when I at least have my notes on a paper. Then I can utilize my computer screen for additional research. And the proofreading....I did go paper free for a year, just to see how it worked, and it was certainly possible to publish the newsletter without printing anything. However, I think it is easier to do it when I can print certain items.

Yes, I think there are situations where paper is more efficient than electronic documents, which brings me to the major discrepancy I currently have with the ECM industry--Everyone is always trying to go paperless! All I hear is about how much more efficient and secure EDM systems are over paper. And this may be true on some levels, but certainly not all.

Let's start with security because I think that's more black-and-white. Yes, I think a properly controlled electronic document in an ECM system is more secure than a paper document. This seems obvious. I mean you can pretty much control who accesses it and changes it and track whoever sees it and provide an audit trail. It's harder to do this with paper. 

Of course, this doesn't quite explain why people in the healthcare industry consciously choose to use fax over e-mail. Apparently they still feel that analog is more secure than digital. I'll explore this more in an upcoming issue of DIR

As far as efficiency, I am a fan of paper for many collaborative exercises, as I think it's easier to share because in many cases it represents a least common denominator. I mean you don't have to worry about your paper being compatible with another system. And your annotations, notes, signatures, et al, work across systems as well. And if you need to contact someone in a remote location - a scanned image should work just fine.

Now, I agree that electronic processes are generally more efficient than paper ones - but I also firmly believe that there are times when paper can be more useful - and that we should take advantage of the fact that we have access to such great printing and scanning technology. In fact, I think we've reached a tipping point, where if managed correctly, it really doesn't matter if information comes in on paper or digitally, it can be dealt with just as efficiently either way.

In other words, don't be scared of paper, embrace it where it makes sense. Don't try and eliminate it, try to set up the most efficient processes you can that take full advantage of paper as a medium of communication. There is great document imaging technology out there. Don't be afraid to use it.

And of course, there are these guys.

Cheers.

Friday, October 31, 2014

Kofax Places its Bets on SPAs

As many of us know earlier this month, Kofax pre-announced that its fiscal 2015 'Q1 results would be below expectations. The final results came out yesterday, and, pretty much as expected Kofax's revenue came in at $69.3M (growth of just 2.3%), sales generated from software licenses fell by 3.5%, and earnings decreased almost 50% to $4.3M or just a 6.3% margin.

In a call discussing the pre-announcement, Kofax CEO Reynolds Bish blamed the shortfall on some larger capture deals that did not close as expected. This was the second quarter in a row for which he used to same excuse. Investors were none too happy, and Kofax's stock plummeted - losing almost 25% of its value overnight. The stock has since gained back some of its value, but as of right now, Kofax's market capitalization is around $550M, which is less than two times revenue and about 30% below Kofax's high-water valuation mark reached this summer.

On the follow-up call to the recent final earnings announcement, Bish stated that Kofax had closed one of the two seven-figure deals that had slipped at the end of Q1, as well as several six-figure deals. He also reiterated that mid-market capture sales through the channel remained strong-but that increased scrutiny at the higher end of the capture market, especially in Europe, through both direct and indirect sales channels, was making sales tougher.

While Bish did not come right and say that the capture market, which still accounts for the majority of Kofax sales, was weak, he did restate that new sales reps are primarily being hired to focus on sales of newer/acquired product lines (including mobile), which in Q1 accounted for 35% of Kofax's software license revenue. "Most of the new quota bearing sales reps we've added over the 18 months have been in the mobile and newer acquired products part of our business," Bish said (from the Seeking Alpha transcript of the analyst call).

In the Q&A portion of the call, Bish added some color to comments he had made previously about reallocating resources and expenditures to focus more on the faster growing parts of Kofax's business specifically "mobile and new or acquired products." "There are a number of additional steps that we've taken here more recently to do so and most of them are aligned along the demand generation efforts," he said.

Bish added that because of Kofax's longevity and reputation the capture market, cutting back on demand-generation efforts in that market "hasn't historically tended the impact that business or ability to generate business there."

Bish then added that Kofax's current salespeople, many of whom also have a strong legacy in capture, have been given stogner incentives to sell the newer products. "There are a lot of reps out there, that have been with the company for many years, who certainly find things like Kofax Capture and Kofax Transformation modules to be their comfort zone, and so we've implemented a number of incentives as well as management processes in order to move them faster from the old legacy products to Kofax TotalAgility."

TotalAgility is the platform that Kofax introduced last year, which combines multiple of its acquired technologies in areas like BPM, business intelligence/analytics, application integration, and presumably e-signatures, and combines them with capture and IDR in a single Web-based and mobile platform. Said Bish, "[TA] can program capture functions, but more importantly can also automate the downstream synergistic business processes, provide a much higher value, a much more comprehensive solution and can also ultimately lead into providing true Smart Process Applications."

Attacking this potentially lucrative SPA space, which is squarely addressed with Kofax's First Mile marketing program, seems to where this market-leading capture ISV wants to train its focus, although it's likely that its market presence, technology set, experience, and momentum, will enable Kofax to maintain its leadership position in the enterprise capture space as well.

Focused on the Future
I think it's worth noting that when Kofax says that 35% of its new license revenue is coming from sales of "mobile and new or acquired software products" that does not necessarily mean these are true SPA sales. They may be of technologies that can be leveraged in SPAs, but capture fits under that bill as well. The majority of these sales, from what I understand, are more or less point solution sales - that said, some are into new and exciting markets, like in the case Kapow's data integration technology.

Yes, Kofax seems to be treating capture like a cash cow, but that's not necessarily a bad thing. As we've said several times over the past year, the capture market is maturing, especially at the enterprise level where Kofax often competes. This may have something to do with the delays in larger sales. There is nothing wrong with a market leader taking its profits from a mature technology and investing them in a potentially higher growth emerging market. Let's just hope that the SPA market proves to be the correct bet for Kofax.

Friday, October 10, 2014

Is HP Split the Right Move?

Last week's big news (well, aside from Kofax pre-reporting disappointing fiscal 15 Q1 numbers) was HP's announcement that it plans to split its software, services, and storage business from its PC and printers business. From what I can tell, it appears to be about an even split revenue-wise. In HP's more recently reported quarter (ended July 31), revenue from Personal Systems and Printing (which will become HP, Inc.) was $14.2B, while revenue from everything else, including Enterprise Group & Services, and Software (which will become Hewlett-Packard Enterprise), was $14.3B. Earnings of $2.7B were similarly split.

So, why is HP breaking up the company? Well, the most straightforward answer was given to me by Chad Stigall, senior manager, solutions portfolio at value-added document imaging distributor Cranel.




And that certainly makes sense, and maybe I'm looking at this from too narrow of a perspective, but my perspective is one that comes the document imaging industry and from the context of that market, I'm not sure splitting up the two business makes sense.

I already felt this way, and then here's the quote I got from Canon's Tom O'Neill last week when working on a story on the latest version of the MFP vendor's uniFLOW fleet management software. "“You’re going to hear more from us on the benefits of an integrated solutions and platform strategy,” he said. “We have several Canon group companies based in Europe, like NT-ware [which develops uniFLOW], I.R.I.S., and Therefore [a document management ISV]—we are able to integrate their technologies with each other, as well as directly into the imageRUNNER ADVANCE platform.

"This will help us create a very strong integrated solutions platform that we believe will relieve a lot of the frustration and pain for our dealers and channel. Nobody wants to have to manage three or four different vendors to create a solution, and Canon understands that. Also, customers aren’t looking to buy a device or software like uniFLOW or Therefore. They are looking to buy solutions to their problems, and we want to provide that to them in a way where the technology is transparent."

So, Canon is talking about combining hardware and software into solutions and HP it talking about splitting up its hardware and software businesses. Lexmark, which continues to roll up software under the Perceptive Software flag, seems to be heading the same direction as Canon. And so is Konica-Minolta, although in its case it is rolling up services businesses to combine with its hardware business. Xerox took a similar approach to KM-although on a much bigger scale when it acquired ACS a few years back, which is now known as Xerox Services and is a very large focus for the copier pioneer.

So, why is HP heading in a different direction than these competitors and spinning off its printer business on its own? Well, for one, the printer business is not being spun off on its own. It's being tied to the PC business--which is ironic if you remember that a few years ago there was a war when some of HP's investors wanted to split off the printer business from the PC business. But, the two were kept together and since then HP has made two huge acquisitions, of EDS (services) and Autonomy (software)--and now the plans are to spin off those two acquisitions as part of Hewlett-Packard Enterprise.

Here's my issue. EDS was acquired in 2008 and Autonomy in 2011- and I really don't think HP has done a good job integrating them into their core business. So, it seems to me they are punting. Really? Is now the time to give up on this integration just when all your competitors are either moving towards this type of model and/or have already achieved it on some levels?

The only plausible excuse for this split from my standpoint is that HP is ahead of the game. In other words, the integration of hardware, software, and services is all a big sham and what every hardware vendor really wants to do is move to a strictly higher margin software and services model and eliminate their hardware. Isn't this what Kofax did when it sold DICOM? And HP is just the first MFP vendor to admit this and dump the hardware-albeit in a fairly graceless fashion.

Now, I'm not saying this is valid, and I certainly don't expect Perceptive to dump the Lexmark hardware business anytime soon, but, really, isn't that what HP is kind of trying to do here?

So, the next move would be for them to pick up the hardware-free Kofax, whose market cap has dipped below $600M and add it to their Hewlett-Packard Enterprise business and move on from there. Where does this leave the MFP/Printer/Scanner business? Well back where it started before any software and services were brought into the mix, and if one is to believe the current trends in the market, that's not necessarily an advantageous place to be.

Tuesday, September 30, 2014

SourceCorp, BancTec Merger Makes Sense

This week's announcement that SourceHOV has merged with BancTec made complete sense from a strategic standpoint-although the announcement admittedly caught us somewhat by surprise. Here's a true story: I was in Birmingham last week visiting ibml when the topic of BancTec came up. I said I could not figure out why they did not just merge with SourceHOV, especially since they had a common investor after BancTec was acquired by HandsOn3 in February.

BancTec's story was that HandsOn3 was only a minor investor in SourceHOV and that the plan was to integrate BancTec with the smaller Dataforce, which would create a $300M business combining BancTec's document capture outsourcing with Dataforce's call center business. Well, apparently, plans changed. It seemed that others agreed with my thoughts that it made just too much sense to merge BancTec and SourceHOV, which are in  a similar market and are both headquartered in Dallas.

SourceHOV, which is actually the result of the merger of the former Lason and SourceCorp that happened in 2011, must have been doing about $600M in annual revenue, as the new organization is being touted as having annual revenue of more than $900M. Here's a quote from the press release the discussion the complementary nature of the organization's services operations. " “SourceHOV’s deep domain expertise in healthcare and legal claims processing, alongside BancTec’s 40+ years of banking payment processing know-how, enables the creation of a global powerhouse provider for Transaction Processing Services,” said Ron Cogburn, Chief Executive Officer of SourceHOV and Mark Fairchild, President of BancTec in a joint statement.

As you might guess from the dual-attribution, decisions have not been announced as to who is going to be managing what going forward. Fairchild was only recently appointed president of BancTec in the wake of the acquisition by HandsOn3. Nothing will likely be finalized until the deal closes, which is apparently subject to Hart Scott Rudino review. DIR caught up with Ray Wise, VP Sourcing and Treasury at SourceHOV, who said he doesn't foresee any problems. The press releases states the closing is expected to happen this year. Wise said SourceHOV would like to close it sooner, but a lot depends on how long the government review takes.

HandsOn3 will become the owner of the entire organization, as it is buying out SourceHOV's other major shareholder. Related to the transaction, SourceHOV will receive a new $1.1B line of credit.

Tuesday, September 09, 2014

What Ray Rice & Donald Sterling can Tell Us about the Future of Capture

For those of you who attended the Harvey Spencer Associates (HSA) Capture Conference last week, you got to see a cool presentation by HP Autonomy's Christopher Surdak on doing automated capture from video files. Examples that Surdak presented included matching license plate numbers with car models to protect against stolen vehicles and analyzing faces taken on video at airports for matches against dangerous persons databases.These aren't exactly examples of the transaction-oriented capture that HSA typically focuses on, but you can see where it could lead. Harvey likes to give the example of being able to take a video of a car engine that is not working right, and sending that video to the cloud - where analysis is done and then the user is sent a list of parts that they can order to fix the problem.


In DIR's annual news review and predictions presentation, I offered my opinion that as millennials and born digitals take over the workforce and smart phones and other computers continue to advance, videos and photos are going to become increasingly important to conducting business. Traditional documents are destined to become so yesterday.

A recent sports news story helps bring the point home about how much more powerful video cam be as a means of communication than traditional text. Many of you have by now surely heard the story of Ray Rice, the Baltimore Ravens running back that has been driven out of football due to his being caught beating up his fiancee this past offseason. Here's the timeline:
  • Story comes out about Rice beating up girlfriend/fiancee. 
  • Rice gets suspended for two games.
  • People get up in arms about the light punishment and NFL commissioner Roger Goodell stiffens NFL's domestic abuse policy - but nothing more happens to Rice
  • Video comes out showing what Rice admitted to
  • Rice's team (Baltimore Ravens) terminate his contract and league suspends him indefinitely
 From this ESPN story on the Rice incident: "The source said that Rice admitted to the Ravens from the start that he was guilty of striking Janay and, for the most part, accurately described what they eventually saw on the video. But the brutality of the assault when seen on the security video made a different impression."

So, basically, until everybody actually saw what Rice was doing, the full impact of the event was not realized. As a text-oriented guy, this kind of disturbs me, because I really wasn't surprised by the video and had a hard time believing many people are just now becoming outraged with Rice's behavior. But then again, we had a similar situation with Los Angeles Clippers owner Donald Sterling earlier this year.

If you remember, Sterling was essentially driven out of the NBA after a recording surfaced with him making racial comments to his ex-girlfriend. Shocking right? Well, not so much.  As far back as 2006, Bomani Jones wrote this article for ESPN's Page 2, entitled "Sterling's Racism Should be News." In spite of this, big name athletes and Coach Doc Rivers continued to sign with the Clippers from 2006 through 2013. Then, they acted all surprised when his racist rants were caught on audio recording this spring.

The bottom line is that apparently, nobody in the mass market pays attention to text media anymore. Which brings me back to my point about multi-media being so much more powerful than text. Maybe traditional documents still have a place in business today, just like there is still print/text media out there being published. But as things move more toward video, audio, and the like in mass media, I don't think there is any question they will also move that way in business transactions. Didn't Blackberry rule the business world before iPhones took over the consumer market and then moved into business? The momentum in favor of video is just too great. Expect more video in business in the next few years!


Wednesday, September 03, 2014

10 Years of Capture Market Evolution

On my way to Harvey Spencer Associates Capture 2014 Conference, where I will be presenting for the 10th straight year. The industry has certainly evolved quite a bit in that time, as has the content of the conference. Here's a look at the agenda for this year's event. Here's an article I did previewing this special 10th anniversary edition of the event.

My presentation this year reflects the history of the conference, as Harvey has asked me to take a look back at how the market has evolved since 2005. I have a fairly detained presentation (that will be delivered in 15 minutes or so, so it will be action packed), but here's a preview of one slide, which includes what I consider to be the five biggest capture trends in the past 10 years:
  1. Consolidation of Capture with ECM
  2. Aggressive Movement of Hardware Vendors into Capture Software & Services
  3. Emergence of Mobile & Cloud Technologies
  4. SharePoint’s Emergence as an ECM Platform
  5. Acceptance of Distributed Capture
 That's just a teaser. Lot more to come in my preso, such as a fairly detailed list of all the major M&A activity in capture market over past 10 years and my opinion on what it tells us.

Cheers.


Tuesday, September 02, 2014

Kofax Aquires Digital Signature Specialist

Kofax, in an interesting move to continue to beef up its "First Mile" and smart process application (SPA) technology portfolio, acquired digital signature specialist Softpro. Headquartered in Boeblingen, in southwestern Germany, Softpro had revenue of $13.3M in 2013, and Kofax is paying $34.7M in cash, so that a valuation of over 2.5x revenue and more than 34x profit, as Softpro reported an EBITDA of $1M for 2013.

From a technology standpoint,  the acquisition a great fit. As Kofax transitions from paper toward capturing more types/channels of electronic information, digital signature technology is a natural way to extend its portfolio. Softpro actually has two types of digital signature technology - both of which dovetail nicely in to the Kofax technology stack. The majority of Softpro's revenue comes from enterprise e-signature technology packaged under the SignDoc brand. Softpro also has strong signature fraud detection technology, branded FraudOne, which is utilized by many large banks.

SoftPro fits nicely into Kofax's emerging smart process application (SPA) play.  For example, Grant Johnson, Kofax's CMO explained to DIR, how it's a natural fit with Kofax's recently announced Mortgage Agility solution. "E-signatures really helped facilitate digital business and transactions," said Johnson.

"It's a great fit for any SPA where there is customer onboarding and it's essential for a signature to be part of the documentation," added Dave Caldera a senior VP with Kofax.

While FraudOne has its place within an SPA hierarchy, it's also a nice traditional capture add-on. In addition to being used for checks, the technology can also be utilized for applications like verifying signatures on contracts. (Coincidentally, Parascript, which recently announced a FormXtra for Kofax Capture module, has touted success in similar types of applications.)

Bottom line is that Kofax paid a bit of a premium to increase its footprint of multi-channel capture/SPA technologies. Kofax CEO Reynolds Bish has said that he will not buy capture market share- and Kofax certainly is not doing that. Instead, as with its other recent acquisitions, with Softpro, Kofax is buying technologies that complement its strong traditional document capture stack and help it evolve as the market continues to increasingly embrace digital transactions over paper ones. I think the M&A landscape has shown that the more digital-transaction-oriented a vendor is, the higher valuation it will achieve.