Kapow Helps Kofax Address SPA/First Mile

Okay, so here's my first stab at explaining Kofax's acquisition of Kapow Technologies which was announced earlier today. Based in Palo Alto, Kapow is a data integration ISV with some $16 million in annual revenue. Kofax agreed to pay a net of approximately $46 million. (We'll get into more of the financial details in our next premium issue of DIR.)

On a conference call today, Kofax CEO Reynolds Bish explained that Kapow has three primary lines of business:

• enterprise application integration
• content migration from one ECM-type system or database driven application to another
• competitive or marketing intelligence involving monitoring social networks and tracking trends occuring on them

He also noted that over the past four years, Kapow has transitioned from an on-premise software model to a subscription model and that, including maintenance, more than 70% of Kapow's revenue is currently generated through a recurring billing cycle. Kofax plans to continue to sell into all of Kapow's current markets.

But, the really exciting part from a Kofax standpoint is how Kapow's software will help Kofax better pursue its Smart Process Application (SPA)/First Mile of the customer interaction strategy. SPA is a market defined by Forrester sometime between late last year and early this year. Kofax embraced it because of its higher growth potential than document capture.

 Here's some of what Forrester principal analyst Craig LeClair had to say about SPA (excerpted from a previous DIR article.): “SPAs are packaged apps designed to address end-to-end process needs. They can be used to address processes that businesses have been struggling with like invoice and claims processing, and customer onboarding....SPAs combine capture, BPM, social tools, and analytics as enablers to build focused applications."

Kofax is then trying to combine an SPA focus with its aforementioned strategy of addressing the "First Mile" of customer interactions. Here's how Kofax CMO Martyn Christian described this "First Mile:" “The First Mile is really that bridge between systems of engagement and systems of record,” he said. “It involves processes like scanning paper, but it could also involve an app on a cell phone. Our goal is to capture customer information and start to look at building cases and collaboration around it, before the data ultimately ends up in an ERP system or whatever system of record it’s headed towards.”

Basically the First Mile is about most effectively connecting systems of engagement on the front end with the back-end systems of record. But, one of the catches to doing this is that it involves connecting multiple disparate systems - something which Kofax, as primarily a document capture ISV, didn't really have a legacy in.

So, the first step in addressing this shortcoming was acquiring BI and data analytics ISV Altosoft. Altosoft gave Kofax the ability to pull data from disparate system for analyzation and decision-making. The acquisition of Kapow builds on that by enabling Kofax to more easily connect to multiple applications.

During today's conference call, Bish did a fairly good job of explaining the advantages of simplifying application integration when you are competing in the SPA space. "When we talk about SPA, we talk about being able to bridge the gap between systems of engagement and systems of record," he said. "To do that means we have to integrate our technology with both of those types of systems. For example, as part of an SPA you might have to do look-ups into your systems of records to validate information coming from your system of engagement. You also have to export data to a system of record or some other repository.

"Historically, to make those connections, we've had to rely on API programming, which can be time consuming as well as expensive, as it can require extensive professional services. Kapow will enable us to do integrations better, faster, and cheaper, which will accelerate deployment of SPA solutions. Reducing our professional services will also enable us to remove some potential barriers to selling SPA solutions."

The bottom line is that the Kapow acquisition seems to be an important step toward Kofax's goal of transitioning from a document capture specialist to an SPA vendor with a broader market to address. It is another example of how Bish continues to push the company forward through investment in new technology of the profits earned primarily through Kofax's current capture business. Clearly Bish (and the Kofax board) see the capture market as evolving and are not satisfied and stand pat and let it pass them by. 

Imaging 411 Targets VARs, Offering Higher Margins on Service

Following is an excerpt from an article entitled, "Imaging 411 Pumps Life into Hardware Service Market" that appeared in our July 19, 2013 premium edition of DIR.

There are several components to a document imaging sale. We typically talk a lot about the hardware, software, and professional services associated with a deal, because those items typically produce the big upfront price tag. (Unless of course it’s a SaaS or MPS driven deal—but, while gaining momentum, those are still exceptions rather than the norms in our market.) But, there is also typically recurring revenue that can be earned through software maintenance and hardware service contracts.

One difference between these recurring revenue sales and the upfront sales, however, is that while any number of vendors may be competing for the upfront sales, the number of options for maintenance and service is typically limited. Software maintenance, for example, because of the nature of the beast, is usually offered only by the ISV who developed the software. As a result, the ISV typically gets to set the terms with no questions asked.

Hardware service has historically been somewhat more flexible, and at one time many resellers were actually certified to service scanners, which enabled them to control their own pricing. However, while some scanner vendors like Canon still certify VARs, other market leaders like Kodak and Fujitsu have increasingly encouraged resellers to offer only the manufacturer’s authorized service at a price dictated by the manufacturer. The result has been successful service programs for the manufacturers, which has helped them offset some of their falling margins on hardware sales, but it has also put the squeeze on resellers who also have to deal with falling hardware margins and now have to deal with more restrictive service margins as well.

Imaging 411 is attempting to reverse that dynamic and once again make scanner service an important profit center for VARs. The Long Island, NY-based organization is offering scanner service packages to VARs—advertising significantly higher margins than the VARs get reselling similar service packages from leading scanner manufacturers. Imaging 411 recently brought on board long-time scanner industry sales and marketing executive Don McMahan as its VP of sales to help it drive some aggressive channel growth.

McMahan was originally hired by Imaging 411 as a consultant in 2010 when he launched the service provider’s Maintenance VAR Program (MVP). “One of the big components of the MVP program is that we offer deal registration,” said McMahan. “This signifies that we are not competing with our resellers. In addition, we are offering VARs two to three times the margins they get on service contracts from leading scanner vendors.”

Imaging 411 was launched in 2004 as a VAR, with the value-add of being able provide its own service. Its co-founders, Gary Armstrong and Joe Paradiso, are former Lason executives who helped manage service for a large conversion services and imaging systems integration business. Over the years, Imaging 411 began to increase its focus on service on both microfilm and document scanner equipment.

“In each of the past five years, Imaging 411 has enjoyed at least double-digit growth in terms of revenue and new accounts,” said McMahan. “We’ve landed some major national accounts with more than 100 locations—including Databank, which we publicized last year. We also landed a contract to provide in-house scanner service for one of the biggest office integrators in the U.S.”

A lot of the Imaging 411’s early customers are former Kodak Service & Support customers. “We went after Kodak customers and partners first because the dollar values associated with some of their accounts are so high and Kodak’s programs aren’t very flexible,” said McMahan. “One of our differentiators is that we pride ourselves on being easier to do business with."

McMahan said that Imaging 411 currently has about 20 reseller partners. “We are definitely growing our channel,” he said. “That said, I think 30 partners, that really want to do a good job, would be plenty."

Imaging 411 offers coverage throughout the United States through a combination of its own field engineers and contractors. It also provides Level II support to supplement its field personnel. “Our price book is basically the same as the manufacturers’,” said McMahan. “We match all the service SKUs sold by Kodak, Fujitsu, Canon, etc., and we offer more flexible pricing.”

“The bottom line," McMahan added, "is that even if the service market is shrinking, for a smaller company like Imaging 411, the opportunity is too great to pass up. We think the market is plenty big enough to support another major player.”

Kodak Event to Focus on Leading Edge Information Management

Here's an excerpt from an article that appeared in last week's premium edition of DIR:

From Sept. 22-25, Kodak DI will be hosting its second annual Global Directions Conference at the Gaylord National Resort and Convention Center in Washington D.C. The event features a keynote by Ray Kurzweil, the noted technology inventor, author, and visionary who is currently employed as the director of engineering at Google. Kurzweil, who is probably most widely known for his work on artificial intelligence, but was also an early pioneer in the area of applied OCR, will talk on “The Next Wave of Intelligent Information Management.” According to the Global Directions Web site, the talk “sets the stage and explores the exponential increase in computing power, computing intelligence, and the inexorable impact they will have on transforming information management for the enterprise.”

This is in line with the event’s theme of intelligent information management. “We look at Global Directions as an educational conference,” explained Tim Palmer, VP of worldwide marketing for Kodak DI. “We want to help advance the thinking of the whole industry around understanding information and taking friction and cost out of business processes.”

The other opening day keynotes reflect this broad focus that expands well beyond the traditional areas of business for Kodak DI. In additional to Kurzweil, high level executives from IBM, Google, Salesforce.com, and Microsoft will take the dais to discuss topics like big data and analytics, smarter enterprise search, the death of the desktop, and the future of business collaboration. There will also be a panel discussion moderated by Michael Hickins, editor, Wall Street Journal/CIO Journal, that will pull together multiple keynote speakers, including Kurzweil.

“We are taking a very broad view of where Kodak DI intersects with traditional business and new business going forward. We are looking to have our brand and division associated with end users, service providers, manufactures, resellers, etc., as they think about what they need to do to go to market in the future.

“If you consider the concept of information workflow, traditionally capture for us has meant scanning paper documents. But, we realize that information is coming from more and more sources and the growth of digital information as input is increasing exponentially. In the future, we need to help businesses capture information not only from paper, but from multiple other sources.

“‘Collecting’ is probably a better term than ‘capture,’ when you talk about taking this one large stream of information and getting it all to the right places, routing it, understanding it, semantically and contextually, and making sure you have the right associations and the right conclusions are being made.”

We asked Palmer, if Kodak’s Info Insight platform, which brings semantic and contextual understanding to the table, will be prominently featured at Global Directions. “It certainly fits on the far right of the information workflow model,” he said. “But, the event is focused on themes that are much wider than our current product offerings.”

A look at the agenda
After a Sunday evening reception, the full first day of Global Directions, Monday, Sept. 23, will be full of keynotes presented in a general session followed by an exhibitor showcase where dinner will be served. Tuesday and Wednesday will feature four tracks of breakout sessions, with no more than two or three sessions overlapping at a given time. Tuesday evening will feature a “Monuments by Moonlight” bus tour of downtown D.C.

Kodak is hoping for 300-400 attendees, or about double the number from last year’s inaugural Global Directions, which was held in Las Vegas [see DIR 9/28/12]. “We are looking to make a giant leap forward with this year’s event,” said Palmer. “We felt last year was pretty successful, and we definitely learned a lot, but this year we feel we are really offering a world class conference.

“We think we have a strong enough program to attract senior IT executives at end user organizations and business process owners. Primarily we are marketing to end users with the understanding that if they show up, systems integrators and resellers will certainly follow. We are marketing the event throughout the U.S., as well as internationally. We expect a decent turnout from Central and South America, and our team in Europe is looking to bring over some top end users customers—at least a double-digit number. Just because of logistics, we think it may a little tough to attract attendees from Asia-Pac.”


Kodak is also looking for sponsors and exhibitors. It is looking for a total surpassing 20. “Anyone that believes they can make a contribution to the future of intelligent information management is encouraged to exhibit at Global Directions,” said Palmer. “We expect plenty of end users to be on hand looking for those types of partners. We are taking a broad view of this conference as an educational opportunity, and we are looking for a similarly broad representation of exhibitors.

“The bottom line is that I think we are at the beginning of a very exciting period of time that will play out over the next 5, 10, and even 25 years. I sense another revolution in the way we are going to use information. With the presentations and networking at Global Directions, we hope to help attendees bridge the gap between this revolutionary vision and the practical first steps that need to be taken. We are hoping people are able to come away from our event energized and with at least a few things that they can put into action when they get back in the office on Thursday [Sept. 26].”

Plustek Introduces New Departmental Scanner

Today Plustek announced its new SmartOffice PS456U document scanner. It's a color duplex model rated at 80 ppm. Has hard card and longer document capabilities and a 100-page ADF. Software bundle includes ABBYY FineReader for OCR and PDF creation, as well as NewSoft Presto PageManager and BizCard and some other Plustek stuff for Asian OCR as well as one touch "button" scanning. There is also some solid image processing, including auto-thresholding and multi-image output. All this comes at a list price of $849.

It's available from authorized Plustek resellers and Value Added Distributors NewWave Technologies and Ingram Micro.

Cool logo for Mobile Capture App

Got to love Scanny,....logo for a mobile capture app that utilizes OCR to transform static text (from like books, for example) into text messages. It does other things too. Runs on iPhones. Free version here.

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.