Has Lexmark Found Formula for Software Success?

Lexmark announced its second quarter 2013 earnings (click on Q2 2013 Earnings) yesterday, with both revenue and income exceeding analyst guidance.This is certainly good news for Lexmark and its shareholders, who saw their stock jump approximately 5% in yesterday's trading. However, the most interesting thing from our perspective was how much credit Perceptive Software is being given for the strong quarter.

Perceptive is a suite of ECM software products that Lexmark began acquiring back in 2010 when it bought Kansas City-based Perceptive Software. At the time, Perceptive was a traditional document imaging/workflow ISV with about $85 million in annual revenue. Since then, Lexmark has rolled up several other ECM-related software companies under the Perceptive umbrella, including advanced document capture specialist Brainware. In Lexmark's latest quarter, Perceptive generated approximately $60 million in revenue, including 34% growth. It also achieved "a modest operating profit for the quarter."

This last point is significant because in previous quarters, while Lexmark had reported some strong growth for Perceptive, it was losing several million dollars per quarter. Here's an explanation of the Perceptive turnaround from Paul Rooke, Chairman and CEO of Lexmark, as quoted from the Seeking Alpha transcript of today's investor call. "We delivered improved Perceptive Software profitability this quarter, up $10 million sequentially and up $4 million year-to-year, driven by two factors. First, we delivered record Perceptive Software revenue, growing more than expected, driven by record licensing revenues as we closed several large enterprise customer licensing deals during the quarter. Second, this increased licensing revenue contributed to a larger gross profit margin increase than expected.

"We also stated last quarter that we were taking additional actions to further reduce Perceptive Software's cost and expense growth to improve profitability without negatively impacting revenue growth.We started to execute that in the second quarter, and we'll begin to see the benefits of these actions starting in the second half. Going forward, we expect to continue driving double-digit software revenue growth and remain committed to delivering a positive software operating margin in 2013."

That's encouraging sign number one for Perceptive.

The second positive sign are synergies that Rooke discussed, which are being developed between Lexmark's Imaging Solutions/hardware business unit and Perceptive. From the Seeking Alpha transcript: "As proof of these synergies, we're beginning to win software solution deals in ISS accounts across a range of industry segments. In fact, over the last two quarters, we've won over 20 new capture, content and process software deals across a range of ISS banking, retail, manufacturing, government and healthcare accounts, and our sales funnel continues to strengthen. We're also beginning to see the reverse happen as well, where ISS is capturing MPS deals in Perceptive Software healthcare accounts."

Basically, this was always the vision - that ISS' large global presence would be able to turn what was essentially a North American SMB-focused ISV like Perceptive, which strengths in a few vertical markets, into a worldwide, cross-industry ECM power. What's neat is that if the Perceptive success continues, the Lexmark blueprint could provide a plan that will be copied (no pub intended) by other printing hardware vendors - all of whom have at least been dipping their toes in the water regarding an increased software focus. If Lexmark can jump all in and succeed (it really has invested a ton of money and resources in Perceptive - and made more of a commitment to software than any of the other hardware vendors), perhaps the other vendors will follow.

What will this mean? It could mean acquisition/buying sprees by hardware print vendors of ECM and capture ISVs. Hyland, DocuWare, Open Text, Kofax? Could they all and more be swept off the table by hungry hardware vendors in the next couple years? If Lexmark's Perceptive plan continues to pay dividends (and admittedly, one quarter does not a successful business make, but Rooke is projecting the success to continue), then why wouldn't the other hardware vendors follow suit?

One more thing, I thought was interested that came out of the Rooke's call with financial analysts. I thought he did a very good job expressing exactly that the big vision is for a combined print/MFP/ECM conglomerate like Lexmark is evolving into. Here's a quote from the Seeking Alpha transcript:

"Lexmark is rapidly moving its value proposition from a provider of only printing solutions, a partial response to the unstructured information challenge that all of our customers' face, to a provider of unstructured information solutions, a more holistic response to this challenge, encompassing: output management, to optimize paper output, a big part of the unstructured information challenge for the time and place it's needed; content management, to make unstructured content, both paper and digital, available at the time and place it's needed; and process management, to automate and integrate those manual, often paper-based disconnected process challenges to improve workflow efficiency."  - I think that makes a lot of sense and does a good job explaining the synergies, from a technology and marketing standpoint, between print and ECM technologies.

eDiscovery Dispute Highlights ABBYY-Nuance OCR Patent Suit

This is kind of ironic - and thanks to our friends at Harvey Spencer Associates for connecting us with the link to this article, but it seems ABBYY has been ordered to pay Nuance $135,000 in a dispute over document discovery. Yes, it seems the two OCR ISVs are arguing over the exchange of documents.

U.S. District Judge Jeffrey White, whose office is in San Francisco where Nuance's lawsuit against ABBYY and Lexmark (Lexmark licenses ABBYY technology) over OCR patent infringement is being heard, ordered "Abbyy to pay Nuance $135,000 in sanctions for taking so much time handing over requested documents that the court reopened discovery and Nuance retook depositions that had already been completed."

Also from the article "ABBYY contended that it disclosed the information late because it was tied up responding to 'Nuance's multiple other discovery requests seeking massive amounts of irrelevant information,' but Judge White didn't buy that excuse. 'The court does not find the delay in production justified considering the scope of this case and the sheer amount of lawyering and the parties' investment of time and effort,' he said."

Alright, so it appears the game is on. This case has been in court since 2008, but it seems some headway is finally being made. According to the article, "All the parties were ordered to attend a settlement conference to be held no later than July 5."

If you remember, one of the predictions we made in DIR to start the year was "Some major market developments driven by ongoing patent lawsuits." Stay tuned.

Upland's Plans for Filebound

It sounds like it will basically be business as usual, at least initially for FileBound Software, which was recently acquired by an organization now known as Upland Software. FileBound is a long-time document and image management ISV that is probably best known for its SaaS or cloud-based offering, but offers on-site systems as well, and primarily sells through a value-added reseller (VAR) channel. Primarily through an acquisition strategy, Upland is building a portfolio of products in an emerging market labeled by Gartner as "project and portfolio management (PPM)," but is also looking at adjacent spaces like BPM, IT planning, resource management, and product life cycle management.

I just got off a call with Ludwig Melik, the president of Upland, who owned one of the original two companies acquired by the investment firm Silverback Enterprise Group when it decided to pursue PPM and broader spaces. Prior to the Filebound acquisition, Silverback's PPM group was known as PowerSteering Software, which was the name of one of the legacy acquired companies. "We decided to rename the organization Upland, because we wanted to start with a clean slate," Melik told me.

However, that does not mean that Upland is throwing out the successful business models of the companies it has bought. "With FileBound, we bought a successful company that is profitable and growing," Melik said. "That number one rule in that case is to do no harm.

"The best way to surmise how we are going to manage FileBound going forward is to look at the past. If you look at what has happened to Tenrox (Melik's company) and PowerSteering, both product development teams are still in place. That is the same path we will take with FileBound, and we will look for opportunities for members of the FileBound team to take a greater role across the company. For example, Sean Nathaniel, who was the CIO at FileBound, has been named Upland's VP of product development."

Upland also plans to maintain FileBound's VAR channel and if and when there is opportunity, to introduce some of its other offerings to that channel. "Our goal is to maintain FileBound's current areas of strength, to continue to develop compelling products for its customers and partners, and to take advantage of some of the increased resources that a larger organizations like Upland can bring to bear in areas like marketing," Melik said.
 

Beyond Paper: Info Insight Automates Processes

Multi-channel capture is certainly a hot topic. A couple weeks ago, we visited ibml and ReadSoft, who each discussed their expanded focus to include multi-channel capture. This week, we briefed with Kodak Document Imaging on its new Info Insight application, which was announced last week.

Info Insight is a Web-based IDR solution that is able to automate classification and capture of document from multiple inputs. Kodak is advertising it for use with scanned images, faxes, e-mail, and input from social media sources. So, from the capture side, which Kodak is calling its "integration platform edition," InfoInsight certainly has multiple channels covered.

From the output, or process standpoint, Info Insight also addresses many, what we'll call "avenues." Kodak calls this side of Info Insight its "solutions edition module." It includes assisting with both automated and manual responses to e-mails, social media input, and traditional paper correspondence. It also includes being able to track the "moods" on social media sites via a graphical screen.

No, I wouldn't say that Info Inight is deeply into what Forrester has defined as the Smart Process Application space, but it's clearly a step in that direction. Info Insight is designed to take input form multiple sources, apply technology like self-learning and artificial intelligence, as well as data aggregation, and produce some sort of response to the input. The main SPA element that I see it as missing is a true BPM engine for dynamically automating complex processes. (Yes, Kofax has trained me well in the use of the word "dynamic," but I think it makes sense here.)

All and all, it is interesting to see where the capture market is heading. I completely agree with Kodak and Kofax's and others' position that it is very important for capture companies to expand their front ends to embrace multiple channels, because clearly the generation currently going through higher education and those behind it have less use for paper than any generation in the past 100 years.

That said, the processes that paper has traditionally been a part of are not going away. So, it's very important for anyone in the capture market to realize that the future is about owning the process, not the paper, and Info Insight, and Kofax's SPA strategy, and quite a lot of what I'm starting to see show up on the market, seems to be taking this approach. Good work guys!

Andersson Spearheads ReadSoft Acquition Strategy

Since ReadSoft co-founder Jan Andersson stepped down as CEO in 2011 and joined its board of directors, one of his charters has been to guide the Swedish-based capture ISV's acquisition strategy.  Last year, we saw that strategy manifest itself in the acquisition of foxray, a German high-volume document capture specialist. Last week I was in New Orleans for a briefing on how ReadSoft is integrating the foxray capture framework into its business strategy.

foxray is a capture platform that kind of reminds me of a newer version of the InputAccel platform. It's designed to manage multiple capture workflows and can utilize best of breed components. Historically, it's integrated a lot of Kofax technology for example, but now that foxray is owned by ReadSoft, ReadSoft's capture platform will certainly be the first, but not only, option. foxray's Xbound platform also has cool features like the ability to re-use components across multiple workflows (which eases set-up) and the option to use a single verifier for multiple data capture processes. It also provides an end-to-end view of all a user's multi-channel capture processes.

foxray's Xbound system has historically been sold primarily in Germany, but ReadSoft has plans to bring it to North America targeting markets like service bureaus, healthcare, and financial services.

Last week, ReadSoft announced another acquisition that Andersson helped put together. That was of e-invoicing network provider Expert Systems. Based in Sweden, Expert Systems' hosted application is complementary to ReadSoft's thriving software business in extracting invoice information from paper. ReadSoft recently launched a new cloud version of its invoice capture software as well.

According to Bob Fresneda, president of ReadSoft North America, Expert Systems was doing between $1.5 million and $2 million in annual sales -all of which is counted as recurring revenue due to its subscription-based model. ReadSoft paid $6 million for the business.

Is ICR Technology Underutilized?

Don Dew of advanced document recognition ISV Parascript recently authored an article on the benefits of intelligent character recognition (IDR) technology that he has asked us to share with you. It discusses how ICR technology is underutilized on documents that include handprint and even cursive writing.

Here's an excerpt from Dew's article, "From name, address, social security number, phone number, or any other unconstrained or cursive information entered on a form, advanced ICR solutions can capture this data with a high degree of accuracy and make it available for use within the organization. Based on research performed by AIIM and Parascript last year, only 6% of organizations are automating this level of recognition. At the same time, survey participants estimated that they would achieve a considerable level of productivity savings if they were able to automate the recognition of hand-written text."

Here's the link to Dew's complete article on our DIR Web site.

Just for some background, Parascript develops advanced recognition technology that does both OCR and ICR. Historically, it has been best known for its cursive recognition, which is utilized by the USPS in their envelope and parcel sorting operations. Parascript also offers a document recognition-centric toolkit that includes both OCR and ICR. Parascript recently released a new version of this SDK, as well as a new version of its FormXtra Capture application, which it is moving through a recently revamped reseller program.

Harvey Spencer Associates Launches Voice Recognition Study Related to Dodd-Frank

Related to the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (commonly referred to as Dodd-Frank), Harvey Spencer Associates (HSA) has announced the launch of a new multi-client study to identify opportunities for the use of voice recognition technologies to reduce the costs associated with compliance discovery of trading records in the banking and financial services industries. Basically, Dodd-Frank requires that traders in stocks and bonds record all communication related to their business of trading. And those records have to be made available for audits for a year, and delivered fairly quickly when asked for. Deadline for complying with this is Dec. 31. Thus, the current opportunity for implementing voice recognition software.

Spencer is known to most of us for his work in the document capture software market. Here's how he describes his expansion into voice recognition (a move which capture software ISV Nuance actually made several years ago): "It is part of expanding HSA to defining capture as ‘capturing transactional information from unstructured big data elements,'" Spencer stated in an e-mail to DIR. "Defining the inputs as documents; voice; photographs; and video, the intent is to build expertise in these different underpinning technologies which all use pattern based understanding combined with business rules (it’s really forms processing with different inputs) to extract meaningful data.

:In the case of the Dodd-Frank compliance issues, it is a matter of being able to add enough metadata to the trader’s voice recordings in order to reduce the time spent on searching and discovery.  As with forms processing in the past, we do not expect that technology can deliver 100%, there will always be manual effort – what we want to do is identify the value of partial recognition/understanding and the supplements to voice recognition that can achieve this."

Kodak's New Deal

Well, forget everything you read about Brother buying Kodak DI. Not going to happen. Kodak got a better deal from the U.K. Kodak Pension Plan (KPP). How much better? Well, in addition to receiving $650 million in cash and non-cash considerations (for both DI and Kodak Personalized Imaging (PI), which was also up for sale under Kodak's bankruptcy proceedings), the deal also settles $2.8 billion in claims that KPP had against Kodak Corporate.

Granted, claims in a bankruptcy case are not typically worth 100% of face value (or even close to 100%), but still, technically, Kodak Corporate came out $3.45 billion on the books ahead for divesting itself of DI (for which Brother had bid a net $277 million) and PI, which I'm estimating is a little more than twice as big as DI. (In 2012, combined, the two units generated a reported $1.46 billion in revenue, with DI somewhere around $400 million.) I'm guessing that in separate auctions, which is what was supposed to happen prior to the KPP deal, Kodak corporate would have been lucky to get $1 billion combined. So this is a big win.

On top of things, apparently one of the requirements of Kodak corporate's emerging from bankruptcy was that it settle with KPP, which was listed as Kodak's largest unsecured creditor. So, this announced sale takes care of multiple requirements. It also gives DI and PI and solid landing spot.

Dolores Kruchten, president of DI, said to think of KPP as a "financial buyer." "KPP operates independently of Kodak and has more than 1 billion British pounds of assets under its control," she said during a conference call this afternoon. "They have the capability to make investments and actively support our DI business."

Basically, it sounds like KPP plans to continue to operate DI and PI as a business. Said Steven Ross, chairman of KPP, as quoted in a press release, "The businesses that we are acquiring will deliver long-term cash flows to support the plan’s obligations. The financial stability that KPP will provide for the Personalized Imaging and Document Imaging businesses will be beneficial to those businesses’ employees, customers and partners.”


Kodak still has to submit its plan to sell DI and PI to the bankruptcy court for approval, but Kruchten said she does not anticipate any problems with closing the deal. Brother is stepping aside, and Kruchten did not have any insight into what it was being compensated for serving as the "stalking horse" in an auction that will never happen. Kruchten said that Kodak was obligated by law to announce the Brother deal, even while continuing to work on a deal with KPP.


"Brother understood that if we reached a deal like this, where we were able to bundle DI and PI together, its stalking horse bid would be terminated," said Kruchten. "The deal with KPP was not finalized when we reached an agreement with Brother. As you know, no deal is final until ink is on paper. When we made the agreement with Brother that was the only signed deal we had. You know what they say about a bird in hand."

Perceptive Capture Selected for Invoices by Kohler

Quote from the press release:

"We tested a number of available automation solutions, and Perceptive Software’s platform was able to extract more than eighty percent of field data from Chinese and Thai invoices sight unseen, far better than any of the others,” said Ming Zhang, Sr. Systems Analyst, IT Asia-Pacific Corporate Services for Kohler Co."


Being used for invoices that solution is powered by Brainware software, which Lexmark/Perceptive acquired last year. " The technology will be implemented within Kohler Co.’s SAP enterprise resource planning system over the course of a three-stage rollout to include shared services operations in the Asia-Pacific, North America and EMEA markets."

Kohler is a global leader in the manufacturing of kitchen and bath products, engines and power generation systems, tile and home interiors, and an international host at its award-winning hospitality and world-class golf destinations. For more information on Kohler Co. and its products, please visit www.kohler.com.

A Little More Commentary on Brother's Bid for Kodak

A lot of media outlets are reporting that Kodak Document Imaging has been sold to Brother for $210 million. I'm not certain whether or not this is actually the case. As I stated in yesterday's post, the Brother bid is actually a "stalking horse" bid, which is bankruptcy proceedings is technically the low bid in an auction that will take place following the acceptance of a stalking horse bid. The question that I cannot seem to find an answer to is what percentage of stalking horse bidders end up being the final buyer.

This piece does a nice job in explaining some of the "The Pros and Cons of Being A Stalking Horse Bidder for Assets In Bankruptcy." It explains that the stalking horse bidder has an advantage because it basically gets to sets the terms of the sale - what will be included and what will not - and once those terms are set, it's pretty hard to change them apparently. So, anyone else bidding is basically bidding on what Brother has carved out of Kodak as representing DI.

Somewhat related to that, here's what said George Conboy, president of Brighton Securities, had to say about the Brother bid. (I'm quoting from this Rochesterhomepage.com article.) "The price is a little bit light but what we can't be certain Kodak said it would be selling a certain portion of that business, probably majority but can't be sure what they are obtaining as of now."

One question, of course, is is Brother buying the Kodak brand for the DI products and services going forward?

If someone should outbid Brother, as the stalking horse it would likely be owed some sort of compensation, maybe something equal to a small percentage of the deal. I hope to have more later today - after an interview with Kodak executives.

Brother Puts Up Stalking Horse Bid for Kodak DI

Brother Industries has posted the initial "stalking horse" bid in the auction for Kodak Document Imaging. The way I understand it is that the $210 million offer will serve as the minimum bid in an auction that will take place throughout May and close in June. According to the press release on the bid, "Kodak will seek U.S. Bankruptcy Court approval of the bidding procedures at a hearing in late April and is targeting final court approval of a transaction in June."

When Kodak announced it was selling Document Imaging last August, it was advertised as a $400 million profitable business coming off a record year. There is not doubt that the uncertainty surrounding Kodak corporate's bankruptcy has negatively impacted Kodak DI's sales, but $210 million still seems like somewhat of a bargain. That said, the deal also includes  Brothers' accepting $67 million in owed service contracts - presumably stuff that can continued to be renewed, so it shouldn't have negative impact on the bottom line.

Brother would be classified as a strategic buyer as it was recently moved into the document scanner market with the release of some mobile and desktop workgroup models.When I last talked with Brother executives, they said they indicated the vendor had plans to keep moving upstream and an acquisition of Kodak would certainly be one way to do that.

Rumor has it that several venture capital/investment firms were also looking at Kodak, so perhaps there will be a higher bid between now and June. But, remember the prediction I made back in January, "Kodak DI will be acquired by a major printer vendor." The ball is in play.

Capture vs. SPA growth

In this week's premium edition, which just came out, I have a feature comparing Harvey Spencer Associates growth rates for the capture market to Forrester's as published in a study recently commissioned by Kofax.
Anyhow, here are two charts I came up with that I felt were relevant to the story (the x-axis represents billions of dollars in software revenue):

                                                                                                                                                                    
Basically, it's Spencer's contention that SPA is primarily capture technology, so the bottom chart is a more accurate representation of HSA's numbers vs. Forrester's than just comparing the black and orange lines on the top chart.

Declining PC Sales and Document Capture

One of the biggest high tech stories of the past couple days seems to be this precipitous drop in PC sales, which IDC reported fell 14% in the first quarter of 2013 compared to the first three months of 2012. The most obvious reason for this is the increasing adoption of tablets and smartphones for computing that was formerly exclusively done on PCs. This reminds me of statement Visioneer President and COO John Capurso made to me a few weeks ago about mobile computers becoming the new PCs.  Looks like a very prescient thought right now.

I happened to be on the phone earlier with document capture software market industry analyst Harvey Spencer, and I asked him if he thought declining PC sales might affect document capture sales. He thought not very much.

We initially conjectured that it might negatively impact document scanner sales, but concluded that might not be the case either, as most current PCs have enough horsepower to run whatever  document scanner a user would need to run anyhow. Spencer added people are already doing more scanning on MFPs than ever before, and that this indeed may be having a negative affect on document scanner sales, but if people are going to buy a document scanner, they don't necessarily need a new PC to run one anymore.

Spencer added that he felt the increase in cloud computing may be negatively impacting PC sales as "users no longer need more powerful PCs to run new applications; they can now license the latest version of Office, for example, on the cloud." This is an interesting dichotomy, as Windows 8 was supposed to drive more PC sales, but Microsoft's latest version of Office would appear to be working in the opposite direction.

Spencer concluded that he expects cloud deployments will begin to have an effect on document capture revenue this year, with some large implementations being purchased through a subscription model rather than a traditional capital expenditure. Not a major impact yet, but the beginning of a trend that bears watching.

Bish's Nasdaq plans for Kofax

An excerpt from a story on Kofax' Transform appearing in this week's premium edition of DIR:

Kofax CEO Reynolds Bish believes a listing on the Nasdaq could have positive affects. “It has taken us quite a bit of work to prepare the information required by the SEC to list on the Nasdaq,” Bish told DIR. “Now that that has all been completed, we want to move ahead with our listing. Previously, I said I’d like to get it done by June 30, but that will likely be delayed due to a poor second quarter (ended Dec. 31). I’m thinking we will still file in the current calendar year, but not until we’ve demonstrated that we’ve turned around our business and built some momentum.”

Bish’s plan is to list Kofax on the Nasdaq through the provisions of the JOBS (Jumpstart Our Business Startups) Act, which was passed last year. According to Bish, listing through JOBS is an easier process than following the traditional listing route, which requires compliance with Sarbanes-Oxley. “Our plan is to make available on the Nasdaq the minimum number of shares we are allowed,” said Bish. “The Nasdaq listing will enable all our shares to be traded on both exchanges [Kofax is currently traded on the London Stock Exchange (LSE)], and eventually, we expect the majority of our trading will move over to the Nasdaq. This will be a positive because historically companies like ours are valued at a 30% premium on the Nasdaq compared to the LSE.”

Jazz Sound & Software Development

Came up with this one after a few nights out on Frenchmen Street in New Orleans, while in town for the AIIM Conference, Canon ICS National Reseller Meeting, and Microsoft Dynamics Convergence.

Frenchmen Street was recommended to me by the drummer in the band playing at the Canon Conference. It's an area a few blocks outside of the French Quarter and features multiple bars with jazz and other types of musical acts performing nightly. But, I'll compare trying to find the right act to software development.

The first night on Frenchmen we got there kind of late and the first band we heard had solid sound - a couple of strong horn players, but only played two songs before they called it a night. We'll call that version 1.0. It proved the concept for us and made us want to go on to the next level.

Version 2.0 was better - a strong band in a bar a little up the street. We heard several great songs, but they were crossing over a little into rock'n roll, so it wasn't pure jazz. The next night, we hit three more places, the first one being too crowded and the second - definitely too loud and too much rock. Then finally, when we were about to give up on things, we made on last stop at Vaso's on Decatur and Frenchmen and found a great trumpet player leading a band with some true jazz sound. Version five was the killer app!

Version 6.0, the next night, started out a Vaso, but was a disappointment, but version 7.0 really  hit it out of the park.

The lesson here I think is that finding a good jazz bar is like software development often is - it often takes a few tries before an ISV comes up with a truly successful product - even if the concept is proven as solid in version 1.0. Multiple times I've seen software companies struggle out of the gate before finally figuring out exactly what they need to do to successfully market their product and accelerate their growth. I'm not sure what this really proves, but I think it says that patience and persistence are important qualities when developing software, as well as finding the right jazz sound.

Options for Mobile Scanning

For several years, I've been pretty adamant encouraging vendors to fill what I feel is a hole in the document scanner market. That is connecting mobile scanners to mobile phones. I mean they are both marketed as mobile devices, why can't one talk to the other in a truly mobile, i.e. wireless, fashion?

Last month, I ran this article on Canon's WU10 appliance, which can be used to power a Canon mobile scanner, and contains a wireless radio that can transmit scanned images directly to a smartphone. In the article, I mistakenly described some of Visioneer's technology which accomplishes the same thing. Visioneer's Xerox Mobile Scanner contains a custom built Eye-Fi card that enables it to capture multi-page PDFs and transmit them wirelessly to smartphone. I was only familiar with an older version of the Visioneer mobile scanner, and I apologize because apparently this new version has been on the market for more than a year.

Visioneer President and COO John Capurso pointed out my mistake. This let to a discussion on smartphones and their role in the capture and printing space, which was predicated by a previous blog post: Document Scanners, MFPs, and Mobile Phones. My premise in that post was the tablet computers and smartphones pose a bigger threat to the MFP market than they do to the document scanner market (you really have to read the post for that to make sense.)

John does not see smart phones as a threat to either set of devices. His position is that mobile devices are (going to be) the new PC. "Mobile devices are going to be the focal point of a lot of usage of MFPs and scanners," he said. "They are going to be the peripherals that we utilize with our mobile devices, just like they are the peripherals that we utilize with our PCs today."

Great point. Basically, here's the use case he defined. If I receive a document on my mobile device that I need to print, I wirelessly access my network through my smartphone/tablet and print it on the most convenient printer. Conversely, depending on what type of document I need to capture to my mobile device, or to the cloud by passing it through my mobile device, I connect wirelessly (presumably utilizing some sort of capture app) to a dedicated document scanner or MFP (or if it's a single page document just maybe use the camera on the mobile device), drop the paper in the feeder, and drive the scanning process through my app.

Does that all make sense? It's all about creating paper capture options for the end user, which are mobile, wireless, and hopefully easy to use. Then, of course, you need to combine those paper capture options with some other data capture options on the smartphone/tablet and you've got yourselves a business solution for the future!

Cheers. I look for many of you at AIIM 2013 Conference.

A Look at Kofax's First Mile Marketing Strategy

Just got back in the office from another Kofax Transform event. Don't know many years I've been covering this event - at least since 2006. This year's event was in San Diego, and the weather was fairly awesome. The event itself was strong too, with close to 600 attendees from 25 countries.

One of the themes was Kofax's introduction of  a new marketing message that is being built around the idea of building out the First Mile (TM) of customer interaction:

That picture is Martyn Christian, CMO of Kofax, presenting on "Delivering on the First Mile." Basically, Kofax's message is around connecting "systems of engagement" with "systems of record," and it was a good thing that John Mancini, president of AIIM, and Geoffrey Moore, author of Crossing the Chasm and other books, were around to help explain this marriage. Both Moore and Mancini have spoken and written on this topics for several years. But, from my standpoint at least, Kofax is the first vendor I've heard that has developed a coherent strategy for really connecting the two.

And this strategy is built around SPAs, or smart process applications. I'm not going to get into a huge explanation of what SPAs are right now, but Forrester's Craig LeClair does a pretty good job of it in this article that appeared in last week's premium DIR.

Basically, the First Mile message is that businesses need a set of technologies to connect their evolving set of customer interactions with their back-end line of business systems. In other words, customers are communicating with businesses in an increasing number of ways - paper, e-mail, social media, call centers, etc. And businesses are under increasing pressure (due to the potential speed and ease-of-use of properly executed digital transactions)  to process these communications in an efficient and customer friendly fashion. Capturing paper communications effectively is certainly one avenue to this, but so is capturing e-mail and mobile interactions - and not only capturing these communications, but enabling customers to input them in a way that is intuitive and user friendly. Kofax is attempting to deliver on this promise with a combination of multi-channel capture, BPM, and analytics technologies

All that was pretty cool, and there was a lot more that went on at Transform that I will be covering through various avenues (multi-channel communication?) over the next few weeks. Also, next week I'm headed to New Orleans for both the Canon's ICS Division (formerly IFS) national reseller meeting and the annual AIIM Conference, as well as a stop in at Microsoft Dynamics Convergence. Let me know if you are going to be in town and want to connect.

Document Scanners, MFPs, and Mobile Phones

Mobile capture is a hot topic. A couple years ago, Harvey Spencer Associates projected a 50% CAGR for the mobile capture software market through 2015 - at which time it would reach $1.5 billion. Last time, I talked with Harvey, he wasn't backing off that figure. Capture market leader Kofax, whose Transform conference I am currently attending in San Diego, has also been bullish on capture opportunities - and probably with good reason. If you remember, it was by far the hottest topic at last year's event. And I'm looking forward to the breakout session on "Creative Uses of Mobile Capture."

But this column is not being written to argue whether or not mobile capture will take off, let's just assume it does - even with some help from oddball products like the Scandock. The question is will it cut down on the sales of document scanners? I think the answer is no, as most people will consider any mobile capture being done as additive to the batch scanning that is done with document scanners. After all, not many people are going to do batch scanning with a smartphone, which is typically what you do with a document scanner. Of course, I guess mobile capture could potentially reduce the size of the batches that need to be scanned.

However, it's my opinion that MFPs are the hardware that is in real danger with the continuing penetration of smartphones and tablets. Tablets especially are great devices for viewing documents - meaning you don't have to print the docs - which directly impacts the MFP space (and potentially hurts the document scanning space as well but less directly- because there still has to be governance built around any business documents viewed with anything, which is why multi-channel capture becomes so important to ISVs and VARs going forward).

What prompted this post was a conversation I had last week with someone who was doing ad hoc scanning on their MFP and couldn't figure out why MFPs just weren't going to replace document scanners. I tried to explain that this was a conversation we'd been having for years...but he was not convinced. And that got me thinking about smartphones and why they wouldn't replace scanners either...but MFPs.

Let me just draw one picture for you. In today's computing market, people want to do more with less. You want 100 apps on your smartphone, not 100 computing devices. And for the past 10 years, document scanners have done nothing but pack more functionality into a smaller footprint. Document scanners are sleeker, simpler to use, and higher quality than they ever were before. Can the same really be said about MFPs? I don't know the MFP market as well, but I've certainly seen a few devices in recent years that looked a lot like Frankenstein's monster due to their having so many add-ons and moving parts and pieces.

The bottom line are living in an increasingly digital world, and document scanners have always been about promoting that digitization. In contrast MFPs are still pushing printing as the primary driver. And, although they do a great job at printing, it's a dying market. Lexmark has come to this realization and that is why it has invested so heavily in software - led by its investment in long-time imaging leader Perceptive Software.

No, MFPs will never replace dedicated document scanners - but smartphones/tablets could replace MFPs.

OCR/ICR Survey Highlights Infographic

We originally highlighted the results of this AIIM survey, (sponsored by Parascript) when it first came out last summer. (Download the entire report here).

Some interesting outtakes, some of which have been highlighted below in an outstanding infographic:

• 55% of respondents who were scanning documents were key entering data
• Only 32% were using OCR with ICR and cursive recognition utilization significantly lower

 Check out the rest of this info:

Data Extraction from Forms infographic

Kofax Acquires BI and Analytics ISV - Altosoft

It's a move Kofax has been talking about for about a year now - at least since last year's Transform Conference when CEO Reynolds Bish told DIR, "One technology we may be looking at is analytics that can be embedded in our solution.” This morning's announcement of the acquisition of Altosoft is the realization of that vision. Based in Media, PA (just west of Philadelphia), "Altosoft’s software provides rapid, no-coding development of near real time reporting and dashboard applications through the use of a data integration and analytics engine utilizing in-memory techniques."

Basically, here's how I see BI and analytics fitting within the Kofax capture and BPM platform (and some of this was laid out at Transform 2012. Kofax has a full suite of technology for capturing data from paper, electronic documents, e-mails, and mobile devices. With the acquisition of Singularity, it also has a BPM framework of building and executing processes related to captured information. The BI and analytics fit in between these two pieces and help the Kofax platform execute these processes more intelligently because users can now better make sense of the data being captured.

This all ties into Kofax's new focus on Smart Process Applications (SPAs), an emerging space defined recently  by Forrester. In a recent conversation with Craig LeClair of Forrester, he described SPAs as combining technologies like capture, analytics, and BPM to address specific pain points for business - rather than providing broad infrastructures like ECM and ERP systems. LeClair basically said the time for infrastructure systems has passed and businesses now care more about addressing specific applications with multiple technologies than about installing the technologies themselves.

LeClair gave me the example of a coffee shop improving its incident report process by replacing paper forms with e-forms on tablets, as well as utilizing the tablets picture taking capabilities. From a Kofax press release, "SPAs automate both structured and unstructured work activities in support of collaborative processes. SPAs contain all or most of the following core features: document and content capture for incoming documents, forms, and faxes relevant to the business activity; embedded analytical tools designed for the business activity; collaboration capabilities for people to create content needed for the activity; and BPM tools for executing the steps involved in the activity."

Forrester is projecting the SPA market to grow from $600 million in 2012 to $3.9 billion in 2016.

Kofax, which had $87 million in the bank as of Dec. 31, 2012, paid $13.5 million for Altosoft, with additional earnouts available in over the next three years. Altosoft's 2012 revenue was $3.4 million with an EBIDTA of $500,000.

Hyland Acquires AnyDoc

Well this is one that might have occurred 10 years ago...Document imaging-centric ECM ISV Hyland Software has acquired AnyDoc Software. It's always been a good fit, as both companies have sold primarily through reseller channels and certainly have complimentary technology. Hyland and AnyDoc, in fact, share several channel partners who integrate AnyDoc's capture on the front end with Hyland's ECM on the back.

A couple years ago, Hyland made a move to go more aggressively after the capture space and even introduced some proprietary invoice capture technology that was designed to leverage its OnBase repository's integration with line of business systems. On top of that, there were rumors that Hyland was doing a fairly efficient job replacing AnyDoc capture technology with its own capture at some of the customer sites of Hershey Systems- a higher education integrator that Hyland acquired in 2010. But, our question for Hyland has always been, "Why re-invent the wheel when there is already a market full of great capture software out there?"

Of course, all that should be under water under the bridge now, as AnyDoc and its mature and proven capture technology are now part of Hyland.

Back in the mid-1990's, AnyDoc was one of the pioneers in automated data capture from documents. And, in the late 1990s, it was about the same size as Hyland. Since then, Hyland has grown to more than $230 million in annual revenue (per a recent article in the Plain Dealer), while our estimates have AnyDoc still at under $20 million. The reasons for this are likely multiple, but one definitely is that Hyland has done a much better job cultivating and growing its channel than AnyDoc has.

For example, while AnyDoc was one of the pioneers in automated invoice capture, it decided to go primarily direct with the initial version of its invoice capture software because it felt the technology was too complex for its reseller channel at the time. You can imagine the conflict that created. Meanwhile, while Hyland has introduced some direct sales into its mix, it's also done a good job moving upstream and really securing a lot of the top resellers in the document/imaging workflow space.

The synergies between the two companies should be great. AnyDoc's software, which was never its weakness, will now be available to the entire Hyland channel. Plus, Hyland larger support and development team will be able to help it move forward. In fact, there are already some ex-AnyDoc employees working for Hyland. Hyland gets a mature and robust capture product, which should only assist with their efforts in the ECM space - where leaders like Documentum, Open Text, and IBM, have also acquired capture ISVs.

TIS Projects Strong Growth for 2013

As it pre-announced in early January, Top Image Systems' 2012 fourth quarter numbers were somewhat disappointing. For the the three months ended Dec. 31, 2012, TIS reported just a 1% increase in revenue to $7.4 million. This brought its year-end total $31.3 million - still a 9% increase over its 2012 revenue.

TIS CEO Ido Schechter seemed optimistic about the capture ISV's prospects for 2012. He is quoted in the financials press release, "For 2013, we are providing guidance of revenue growth between 13% and 20%, indicating revenues of between $35.3 million and $37.7 million. We expect non-GAAP operating income in the range of $4.6 million to $4.9 million."

As we reported, earlier this month, TIS has re-organized its sales force to better sell its entire set of solutions on the global level. In addition to its document capture software, which is popular in digital mailroom, invoice capture, census, and other types of forms processing applications, TIS recently introduced a suite of capture products for mobile devices.

Part of the reason for TIS' optimistic revenue projections certainly has to do with the potential of the market related to mobile transactions. From their financials press release, "Gartner estimated that the mobile transaction market was approximately $170 billion in 2012 with 200 million mobile payment users, and estimates it will grow on average 40% per year to approximately $600 billion in 2016 with 400 million users. The pipeline of deals, variety of viable, revenue-generating use cases and market potential we are seeing for mobile capture is enormous.”

Harvey Spencer Associates has also projected low double-digit growth for the document capture market annually through 2016. These two markets combined should put TIS in a good position to realize its 13-20% growth projections for 2013.

A Closer look at Kofax's half-year numbers

Lot of interesting stuff in Kofax's report regarding its half year numbers .

First off, the Irvine, CA-based ISV's numbers were down fairly significantly:

• total revenue for the quarter was $63.7 million, which represented a decline of approximately 8% in constant currency from the previous year's second quarter (Kofax fiscal year ends on June 30, so its 2013 Q2 ended Dec. 31)
• software license sales were down significantly  - 24% - compared to the Q2 numbers for fiscal 2012. For Q2 2013, license revenue was just $25 million.

As usual, Kofax had plenty of reasons for this shortfall:

•  Apparently 2012 fiscal first half was unusually strong. CEO Reynolds Bish. "We noted that the prior year period had a very significant record. So the revenues for the first half of last fiscal year were significantly ahead of anything we had reported for that period in the past."
• That said, Bish gave two reasons why Q2 2013 revenue was lower than anticipated:

1. "We had a very large mid-seven-figure transaction slip out of the quarter into a future quarter. We still expect to close that at some point, but are not able to accurately forecast that."
2. "Our software license revenues in the Americas was also lower than we anticipated, principally because of all the changes that we began implementing in our overall sales organization during October."

Okay, so that's most of the bad news. Kofax EBITDA was also down almost 40%, but the company still managed to generate $15 million in cash through the first half of the year and has $87 million in cash in the bank.

Lot more interesting stuff that we'll get into some more details on in our upcoming issue of DIR, but basically Kofax hired Forrester to double-check some of Harvey Spencer Associates' numbers of the capture market. While Forrester's market size number were actually slightly larger than HSA's, their growth figures for capture were somewhat lower. And Bish blamed the Q2 software license decline squarely on Kofax's traditional capture business, while in the meantime spinning Kofax's future direction toward the newly defined SPA (smart process application) market.

SPA basically combines mobile and traditional capture with BPM and analytics to create high-end vertical applications. Forrester listed SPA as just a $600 million market in 2012, but with CAGR of close to 60% through 2016 - a much higher growth figure than it has for the individual capture and BPM spaces.

Bish concluded that he is optimistic in Kofax's immediate prospects for improving results, in part due to a revamped sales structure (we'll get into more detail in DIR), as well as, well, less than stellar Q3 2012 results that will be easy to improve on: "So, we certainly expect to report relatively significant year-over-year growth during the current quarter, expect that to continue into the half-year, and as a result of that, we have a pretty high level of confidence of returning to reporting more consistent software license and total revenue growth."

At last check, Kofax stock was trading at less than two and three-quarters British pounds per share on the London Stock Exchange, a drop of about 15% from what it was trading previous to the half year results being announced.

Top Image Sysems Reorganizes Sales Force

Top Image Systems, the Tel Aviv-based ISV that specializes in document capture solutions, recently announced it would reorganizing its worldwide sales force. According to a press release, "The Company is setting up a Global Solutions group to develop, manage and support market-driven solutions worldwide." Michael Schrader, who was formerly the managing director of TIS EMEA, has been appointed CTO and SVP, Global Solutions for TIS.

Historically, the majority of TIS' revenue has come EMEA, with invoice processing and digital mailroom solutions providing the primary markets. TIS also has a strong business in census processing worldwide. Last year, TIS launched a suite of mobile capture products aimed initially at the U.S. banking market and opened on office in New York City.

With the new re-organization, it sounds like TIS is now going to be selling both the mobile technology and its invoice and digital mailroom products worldwide. CEO Ido Schechter has been put in charge of TIS customer facing Field Operations Group.

Like many other public companies, TIS should be announcing its year-end 2012 results shortly. It has already projected 2012 revenue to come in at around $31 million, which represents close to 10% growth, but is lower than TIS previous guidance. In an earlier press release, TIS blamed delays in some major deals and the falling value of the Euro for the shortcomings.

There has been little mention of sales of the mobile capture technology yet, although the U.S. office has been only open since last summer. TIS has tried on previous occasions to market its traditional capture technology in the U.S. and has had some success in recent years working through its partner TransCentra - a partnership that began with J&B Software.

However, now TIS is a larger and more established company. It has also done acquisitions in the U.K. and Asia-Pacific, and with the U.S. office, it certainly has a global sales footprint established.

Kofax receives Data Matching patent

Document capture and BPM ISV Kofax has received a patent related to matching data captured from scanned documents with data from a back-end system like an ERP application. This a fairly common practice in many document imaging applications, especially involving invoice capture - one area that Kofax says it is already using the technology.

The patent is number 8,345,981 with the US Patent and Trademark Office. It's entitled "Systems, methods, and computer program products for determining document validity." Basically it describes a process for applying OCR to a scanned document, extracting information from it, identifying a complementary document in the back-end system, mapping the information on the scanned document to the info on back-end system document, and checking the info captured by OCR against the info. on the back-end system document.

Kofax originally filed for the patent in Feb. 2009. I'm not sure how its approval is going to affect the market or if Kofax plans on enforcing it, but it seems to me the practice that Kofax has described is in pretty widespread use, especially in the area of invoice capture today, and it was already being done prior to 2009. In the press release, Kofax notes that it plans to expand use of this technology into the EOB processing space.

Kofax Introduces New Digital Mailroom Technology

Kofax has introduced a new application called Kofax Mailroom Automation. It basically introduces some of Irvine,CA-based ISV's BPM technology into the world of mailroom capture.

We've been talking about the digital mailroom in the document capture industry for years. In fact, current Kofax CEO Reynolds Bish was one of the first big proponents of the technology in his days back at Captiva. And there have been several implementations of the digital mailroom worldwide to date, in several different fashions. Most ISVs in our industry look at it as an extension of line-of-business capture in areas like claims processing - only adding more lines and document types into the mix. Of course, then there are companies like Earth Class Mail that advertise the ability digitize everything and distribute it electronically - or at least give users the option of turning down paper copies of magazines...it's complicated.

Kofax Mailroom Automation falls into the first category, as Dermot McCauley, VP, solutions product marketing, explained that Kofax is going after primarily transactional documents. Kofax has always gone after these types of documents and even has installed what it calls digital mailroom applications. But, the new application introduces the ability to both track and manage better what comes into the door.

McCauley gave us the example of a customer of a bank applying for a loan and sending in the application in the mail. But, in this case, the customer is a foreign citizen and doesn't realize that the loan application required a picture of his passport is included. With Kofax Mailroom Automation, the bank would be notified that a piece was missing and the customer could even automatically be sent a correspondence asking for a copy of the passport. "The problem with many [capture-only] digital mailroom solutions is that they end up sending an incomplete or erroneous set of documents to a line of business applications, where someone has to deal with it there."

There are also some other new features around tracking and monitoring all mail in Kofax Mailroom Automation. Pricing will be based strictly on page count and will embrace Kofax's multi-channel capture philosophy. 

More in next week's issue of DIR!

Zagami Contracts with Beyond Recognition

Back in September, we did a story on an innovative classification and full-text indexing operation out of Tennessee called BeyondRecognition. Basically, its claim to fame was having successfully indexed 2.3 billion images that were given to it in boxes full of CDs and DVDs with little-to-no indexing information attached to them. BR used some glyph scraping and matching and threw some other semantic type understanding into the mix and successfully completed the project.

BR has productized its technology and is marketing it to the legal space, for help with discovery, as well as anyone else that requires classification and grouping of large volumes of documents. BR also can incorporate innovative data extraction techniques.

BeyondRecognition recently announced that is has signed on former AIIM and TAWPI Chair Bob Zagami as a member of its Advisory Board. Zagami is a veteran of the document conversion services market, most recently serving as an executive with DataBank IMX. For BeyondRecognition, Zagami will act as an authorized sales agent for BR with the intent to focus on large-scale document management processes for Fortune 500 companies. Read the complete press release.

NSi Acquires Print Management ISV

Document Capture ISV Notable Solutions, Inc. has expanded its business with the acquisition of the Enterprise Output Management (EOM) business and operations of Barr Systems. Based in Gainesville, FL, Barr develops software for managing printing from mainframe, ERP, and other data-driven applications. It's software can also be used to direct and control print jobs at both high-volume production and general office printers.

To date, NSi has made its living primarily selling capture software for MFPs. It has reported impressive growth over the past few years and in 2011 landed a multi-million with the U.S. Department of Defense. NSi's main competitor in the MFP capture space is Nuance, with its eCopy software. In 2011, Nuance acquired print management ISV Equitrac and has reported several large wins as a result of the synergy between the two product lines. NSi will position Barr's EOM software in the same way the Nuance positions Equitrac.

In addition to managing print to paper jobs, Barr's software can be used to output reports into the same workflows and back-end systems that NSi's AutoStore capture can. Barr's software can also be used to track print jobs and provide secure printing.

More on NSi's exciting acquisition in the next issue of our newsletter. Here's the complete press release.

TIS Reports 'Q4 Shortfall

Document capture ISV Top Image Systems reported that it's year-end revenue will be approximately 8% lower than the low end of its previously announced guidance. TIS expects to end the year with revenue between $30.9 million and $31.5 million, which still represents 8-10% year-over-year growth, which is about in-line with Harvey Spencer Associates projections for the capture market in 2012. TIS also expects to report a non-GAAP operating profit of $4 million to $4.2 million, which represents 10-15% growth over the previous year.

In a press release, TIS blamed the shortfall on two major factors: delays in closing several major deals (now expected to close in 2013) and the devaluation of the Euro vs. the U.S. dollar (TIS does the majority of its business in Europe, but trades on the Nasdaq.)

From the press release, "In parallel, several orders that were to close in 2012 are expected to be finalized in 2013, and the pipeline of potential sales internationally and in the United States has increased. Therefore, management remains confident regarding its ability to deliver solid growth in 2013 and will announce formal guidance in conjunction with the release of full-year results."

TIS also announced today a win for an invoice processing solution with a large U.K. retailer. The retailer liked TIS' multi-channel approach for ingesting multiple invoice formats: "paper or electronic, in any format – including pdf files by means of the unique eFLOW® PDFR (PDF Reader), xml and other popular e-invoice file types – all via one efficient workflow - integrated with SAP - on one consolidated platform." Click here to read the full press release.

Canon Introduces Unit to Enable Wireless Scanning

One of the conversations I've had multiple times over the past year has to do with how behind the times scanning technology is. No, not the scanners themselves, which are smaller, faster, cheaper and produce better quality images than ever before. In fact, in regards to "speeds and feeds," there is not much further vendors can go...But connecting a scanner to PC is pretty much being done the same way it was five years ago, when USB scanning was first introduced.

Basically, you load a driver, plug in your scanner through the USB port and scan to your computer. Of course, there has been a movement toward capturing document images with mobile phones designed to circumvent scanners altogether. But, the problem with mobile phone cameras is that image quality isn't nearly what you get from a dedicated document scanner. In addition, if users are capturing more than one or two pages, it can become very cumbersome.

A few years back, at AIIM 2010, I asked for some technology that could possibly connect the high-quality mobile scanners that were being produced with smartphones which were beginning to flood the market. Well, since then, Visioneer has introduced Eye-Fi technology into its Mobility scanner for wirelessly capturing JPEG images directly to smartphones.

Canon now has introduced a device that can wirelessly connect its personal scanners wirelessly to PCs, MACs, and mobile devices like smartphones and tablets. The new WU-10 has a USB port a scanner plugs into. It powers the scanner (through a rechargeable Canon camera battery) as well as sets up a wireless network connection between the scanner and a user's device of choice. With a PC, a user can scan just like they had a wired USB connection. With a mobile device, they can scan through a free downloadable app.

Canon will be showing the WU-10 at the CES show in Las Vegas. It lists for $169. The device has been available in Europe for a few months, but according to Canon executives, it's still too early to tell if there are any particular markets where it is gaining traction. That said, it seems like a great way to combine the high-quality images produced by dedicated document scanners with the mobility of tablets and smartphones.

BancTec Article on Co-Sourcing

Document and payment processing specialist BancTec has invested a lot of resources in the past few years increasing its footprint in the business process outsourcing (BPO) market. But according to Michael J. Alfonsi, BancTec's managing director of financial transaction processing services & finance transformation solutions, the BPO market has not grown as fast as many people had expected. From a recent article entitled, "Rethinking Document Outsourcing and Co-sourcing:" "One would think the economic downturn would have accelerated the growth in BPO, but it did not. The prevailing view on the reason why is that for many BPO adopters, the so-called low-hanging fruit has already been picked, and the next level of outsourcing, which involves full functions, got stalled as capital was being conserved during the downturn."

As a solution to this, Alfonsi is suggesting BPO providers expand their business into the area of co-sourcing.  "BPO is no longer an either/or proposition, and companies now can have both/and," he says. "Both/and is a graduated solution in which basic tasks go to the outsourcer, but both the outsourcer and the client discover the right point at which the analytics or the expertise – the very productivity – is optimized for the partners."

For more details on how to create a successful co-sourcing strategy, check out Alfonsi's full article. 

A Crowdsourcing Capture Acquisition

At Harvey Spencer Associates annual Capture Conference this past September one of our fearless predictions was that the crowdsourcing market would converge with the recognition applications. While we're not quite there yet, but we are definitely getting closer. Waltham, MA-based Lionbridge, one of the market leaders in crowdsourcing solutions, yesterday announced it had acquired Virtual Solutions. While not an automated recognition ISV,  Virutal Solutions, which is based in Camp Hill, PA, near Harrisburg, is clearly in our market. Historically, it has offered a document imaging-based service for capturing data from primarily state tax forms.

Virtual Solutions has some pretty cool technology for distributing only snippets of documents to ensure security and also has a team of home-based keyers in the U.S. to satisfy the requirements of state tax agencies. Coincidentally, we published a story this past August, in which we discussed Virtual Solutions as a crowdsourcer, even though they didn't advertise themselves as such at the time. 

Lionbridge is a $450 million organization that does the bulk of its business in translation services. It has recently expanded into more general crowdsourcing services and offers its technology as an alternative or compliment to BPO or traditional outsourcing services. It plans to leverage Virtual Solutions' task management platform to help it grow its crowdsourcing business. It also looking at expanding into document imaging-related market like claims and mortgage processing.

According to the press release, "Lionbridge expects to acquire Virtual Solutions, Inc. for a total estimated purchase consideration consisting of $3.6 million to be paid upon closing using Lionbridge’s existing cash resources, $1.0 million of deferred cash consideration, and a $3.0 million earn-out potential payable in cash over the course of three years, subject to the attainment of certain annual revenue metrics."

More on this, including interviews with principals from both sides in an upcoming issue of our newsletter.

Bish Puts Positive Spin on Kofax Results

Kofax's Q1 fiscal 2013 results were announced today. Certainly not great numbers by any means. Total revenue of $60.1 million, which represented slight (2.8%) net growth, but a .8% decline when measured in organic constant currency. Software license sales and professional services numbers were down with only increasing maintenance revenue preventing a more serious dip in revenue. And, historically, relying on increasing maintenance to drive revenue growth has not been a good sign for an ISV.

Here's an article from a U.K.-based tech Web site that does a nice job summing up Kofax's performance. Although the company is now headquartered in Irvine, CA, it still trades publicly on the London Stock Exchange.

It is worth noting that Kofax's adjusted EBITDA for the quarter was pretty much the same as last year and the company still generated $11 million in cash, ending the quarter with $90 million in the bank.

Here was CEO Reynolds Bish's spin on the numbers, "Our first quarter produced seasonally weak software license and professional service revenues and continuing growth in maintenance service revenues due to increasing renewal rates with total revenues being consistent with historical trends. This was accomplished during a quarter in which we changed our head of global sales and services in order to strengthen leadership in those areas and began implementing initiatives to gradually improve sales execution and productivity. We’re therefore pleased to report essentially the same EBITDA as that realized in the prior year period and strong cash generated from operations."

Bish also reaffirmed his guidance for the whole fiscal 2013, "which is for mid to high single digit total revenue growth on a constant currency basis and an adjusted EBITDA margin of at least that reported in fiscal year 2012."

It's my opinion that capture market conditions are changing and although Kofax is pushing forward with more cutting edge products like Mobile Capture and Web Capture, which are both highlighted in the press release on the financials, Koafx still has a large legacy traditional client/server-based business to support. Not that the market for client/server capture is dead by any means. But, trying to support this quarterly $50-million-plus  legacy business, while ramping up in new areas that might be influenced by subscription-based pricing - well, it's a bit of a conundrum. We kind of agree with Bish that the profitability number is impressive, especially (and he doesn't mention this, at least in the press release [haven't listened to the conference call  yet])  when you consider the investments Kofax is making in its new products lines and potentially new business models.