eCopy Interview:

Paul Carman from Document Boss talks to Ed Schmid, CEO of eCopy

There has been a continuous effort by many ECM and document imaging companies to drive the notion of a “Paperless Office.” While I think we would all agree that we are far from this ideal state, a great deal of work has been done to make the digitization of paper easier and more effective.  One of the real global leaders in the effort has been eCopy, a company that, since 1992 has stood at the forefront of capturing paper information.  Through their pioneering efforts, the ability to scan and capture information can be easily undertaken by office copiers, MFP’s and other common office devices.
Document Boss’s Paul Carman recently sat with Ed Schmid, the founder and CEO of eCopy, to better understand their business and their success formula.

Q. Can we begin with a brief history and introduction to eCopy, and tell us about your business vision and strategy?

A. In 1992, I was an entrepreneur in search of a business idea. Looking around, I noticed that even though computers had improved many work processes, there had been little improvement when it came to paper-based processes. Unmanageable piles of paper were still scattered across desks everywhere.
I realized that the main cause of this situation was because information could not travel easily between paper documents and computer systems. Organizations needed a solution that bridged the gap between paper-based processes and electronic document workflows, for example, e-mail, EDM, and fax servers. What I envisioned was a technology that would be easy enough for any office worker to incorporate paper documents quickly, easily and securely into electronic workflows.
I put together a development team and one of our initial products was software that worked with a scanner to digitize and send documents as attachments via e-mail. The product was appealing and customers were interested, but we soon found that there were two major barriers to adoption.
First, few office workers had access to scanners, and even today, standalone scanners are still a rarity, especially when you compare the number of scanners to the vast number of e-mail users. Second, in the early 90s, Internet e-mail was not yet available, so users could only send documents internally using their company network. This severely limited the utility of our software.
By the late 90s, the situation changed in two significant ways. First, copier manufacturers began converting their devices from analog to digital and began connecting them to computer networks so they could print as well as copy. Most users didn’t know it yet, but the device they knew as a copier or a multifunction peripheral (MFP) was also a powerful network attached document scanner. Second, Internet e-mail started on its journey to becoming the business-critical application it is today. People everywhere began adding e-mail addresses to their business cards. In short, when users began to have access to MFPs and Internet e-mail, our software business took off.
Fast forward to today; the business challenge for our customers is the need to capture, store, and distribute paper-based information among co-workers, suppliers and customers. eCopy recognizes that organizations are struggling with the need to incorporate paper-based information into electronic workflows.
Too often, organizations have two work processes tackling the same business task – one electronic workflow moving at Internet speed trailed by a paper-bound process that slows everything down. This approach hardly provides instant access to information and frequently results in misplaced information.
Today, faxes, overnight couriers and re-typing documents just are not good enough, or fast enough. A fax simply cannot deliver clear, original-quality pages. Despite heavy usage, overnight delivery slows down business processes too much to be effective. And re-typing documents into document management systems is too mundane and time-consuming.
Our software solves these problems. eCopy is an innovative provider of open and flexible solutions that integrate paper-based information into existing business processes and enterprise applications. Organizations use our software to easily access, modify, distribute and share information to add value to their businesses. eCopy products address the accelerating business need to convert paper-based information into secure digital documents so organizations can keep up with the pace of e-business processes.

Q. Which markets are your key markets and account for the majority of your sales?

A.

The dominant share of our business is concentrated in five markets (please see the pie chart above for a breakdown by vertical market). What’s most interesting to us is how the markets have evolved. For example, if we were having this conversation three or four years ago, I would have said legal was our top market. Law firms and legal departments were early adopters of MFPs and, with all the paper they handle every day, were quick to adopt our software. Today, financial services and government are our largest markets. We see having a strong position in a number of verticals as a major strength in our growth strategy.

Q.  Where (regions) do you have the greatest presence? What is your business percentage per region?
A. We started with a business primarily concentrated in North America. Today, the U.S. and Canada represent about 65 percent of our revenue. However, we have a made a significant investment in Europe and are seeing the benefits of this effort. In FY2006, European order volume grew 102 percent over the previous year to more than US$14.2 million. In FY2007, Europe will represent 30 percent of our business. We also have operations in Asia which make up about five percent of sales.

Q. Can you discuss some of the opportunities available to you? Where do you see the biggest growth opportunities?
A. Our software currently has nearly 20 percent penetration of MFPs sold through the Canon distribution channel in North America. Our biggest area of opportunity is to reach this level of penetration in Europe and Asia and around the world with our other MFP manufacturer/distribution partners, including, HP, Konica Minolta, Lanier, Ricoh, Savin, Sharp, and Toshiba. This fits with our corporate vision of providing a standard document capture operating platform across MFP brands, so that office workers can use the same scanning procedures at any of an organization’s networked MFPs.
Another area of opportunity is China and India. We see significant potential in these countries.

Q. Is your sector or area sector showing good growth dynamics?
A. According to IDC, there were nearly one million scan-enabled MFPs shipped in the US in 2005. By 2010, IDC expects the number of scan-enabled MFPs shipped to double. In other words, the number of hardware devices that can be used with our software will grow by 100 percent. As the market share leader for MFP software, we are very excited about these strong growth dynamics.

Q. In a wider sense, can you talk about the drivers that are at play, and then relate it to your company and give us a sense of how you’ve been able to tap into these drivers?
How does that all relate to the customer? What is their need and how are you meeting it?
A. There are a number of drivers in play, but the most important one is that our customers need to work with and move paper documents in the same way they would electronic documents so they can keep up with the pace of e-business processes.
As I noted earlier, organizations typically have two work processes tackling the same business task – one electronic workflow moving at Internet speed, trailed by a paper-bound process that slows everything down.
Sometimes organizations try to solve this issue with centralized document capture capabilities where the document is sent by interoffice mail to a high-speed scanning department. This is a very appropriate solution for some document capture needs.
But for other business processes, it is much more efficient to have the document owner capture the document instead of a centralized production scanning expert. This is because document owners typically know the document and the process best, and they can choose the exact right time to store the document in the repository rather than wait in a queue for someone else to do it. But if the document owner is going to capture the document, the software must be easy enough for any office worker to use. This is where we have a significant advantage over our competition – providing an intuitive user interface which results in a minimal learning curve for new users.
When it comes to specific drivers for our industry, one of the most important is regulatory compliance. Often, our customers have electronic processes in place but need to get paper into these processes. We provide an ideal solution for these situations.
Another driver is the flourishing collaborative software industry. Many of our customers are seeing significant benefits in using collaborative software to share documents with co-workers, partners, customers and other stakeholders. eCopy provides an ideal method to get paper documents into these collaborative products.

Q. How would you characterize the current business and economic environment?
A. The business environment is very good right now, but it is important to note that eCopy has a history of doing well during both good and bad economic conditions. Our products are not very expensive, have very clear ROI and, in tough times, organizations are looking to make small investments that have fast payback.

Q. The ECM space has seen many acquisitions over the last several years. Can you talk about these and their impact on your results? Is acquisition a strategy you are involved in?
A. There has been no impact. Organizations are still using all these different ECM products and we still need to partner with them and provide integration with these products. This will make it easier for our customers to use eCopy as the point of entry for paper documents.
As for our acquisition strategy, eCopy would consider acquiring a company that could provide us with technology advantages and expertise in specific vertical markets.

Q. How would you like to see your business develop over the coming 12 or 18 months? Are there any key initiatives or targets that you are gearing up for?
A. I would like to see eCopy:

• Expand our business in new geographic markets in Europe and Asia.
• Sell more software embedded on the MFP rather than running outside of the MFP. This approach makes it easier for MFP vendors and IT departments – and will further accelerate adoption.
• Provide more encompassing solutions for the healthcare market and horizontal applications such as invoicing and expense reporting.
• Strengthen our position as the industry standard scanning application for MFPs.

Q. Are those objectives likely to be achieved through organic growth or do you have an ear to the ground for acquisition opportunities as well?
A. As I mentioned earlier, we would consider making an acquisition if the right opportunity presented itself, but these objectives can also be accomplished via organic methods.

Q. What are the components of your revenue? How much of your revenue comes from maintenance and services?
A. Our revenues are made up of product sales, maintenance and support contracts and professional services. Currently, only a small proportion of our revenue comes from maintenance and services. Our channel, the office equipment dealer channel, does not typically sell software services. This is a new area for OEDs. One of our goals is to grow our maintenance and service businesses so that our services revenues are more balanced with license fees. Our early efforts to increase maintenance and service revenues have yielded dramatic results.

Q. Who are you running up against in terms of competition? Who do you consider to be your primary competitors?
A. Our primary competitors include EFI, NSi, Omtool and Nuance. Independent market analysts have placed us in the market lead. For example, Brian Bissett, editor of the MFP Report, has written about us: “while the growth in eCopy’s order level in FY2006 was lower on a percentage basis than in prior years, the actual year-over-year increase – almost $17 million – was the largest in the company’s history. The order figure also appears to be larger than the total sales in the same segment by any or all of eCopy’s closest MFP competitors (i.e., Notable Solutions, EFI, Omtool, and Nuance).”
In other words, eCopy is by far the leader in the market segment.

Q. So will there be consolidation on the horizon? What are your thoughts about consolidation?  Is it a threat? - An opportunity?
A. I don’t think we will see consolidation in the MFP document capture market segment, but it is likely that companies from outside will make acquisitions. MFP document capture is growing faster than any other segment of document capture. As I have mentioned, the number of scan-enabled MFPs will double by 2010. The number of organizations using these devices for document capture is growing very rapidly and this is attracting attention to our segment.
Another point to consider is that MFP capture is a complementary technology to centralized document capture, which is a market segment where some have already made significant investments. ECM vendors are finding that they need to be able to offer their customers both centralized and distributed document capture. This is contributing to the interest by ECM providers in our segment.
In addition, MFP manufacturers see MFP capture software as helping to drive the sales of devices. As in the computer industry, software sales drive hardware sales. Some measure the ratio at as high as one dollar of software for every 10 dollars of MFP hardware. Even if MFP vendors believe more conservative estimates, there is no question that they are seeing scanning software as an increasingly critical area.

Q. What enables you to play successfully in this space?
A. There are four reasons why we have been successful:

• Intuitive products that any office worker can use
• A long history and deep experience working with MFP manufacturers and their distribution channels
• A good understanding of our customers’ needs
• An unmatched list of ISV partners and a very appealing developer program that enables our ISV partners to make money by connecting their products to our products

Q. Can you give us a quick sense of your financial strengths and your ability to achieve your strategy and growth plans?
A. We’ve had positive cash flow while growing our business at more than 35% per year over the last two years. In our last fiscal year, we sold nearly 26,000 licenses of our flagship product eCopy ShareScan®, an 82 percent increase over the previous year. Additionally, we dramatically grew sales in our Canon distribution channel and launched fast growing businesses in the Ricoh, Sharp, and Toshiba channels. Over 100 organizations have joined our eCopy Connections Alliance Partner program and have or are developing Connectors to our Open Platform Architecture, strengthening our position in the enterprise.

Q. Has it been a challenge for management to maintain the focus as you’ve grown and do you have the team in place now to make sure you can execute on your objectives going forward?
A. Yes, it has been a challenge, but we have a very good team in place to help maintain our growth.

Q. What are going to be the main challenges for you to overcome?
A. One of the biggest challenges is geographic expansion. It’s not easy to maintain a high degree of excellence when you have people and offices opening all over the world – but we work hard on maintaining our company culture and commitment to innovation and quality as we grow. Another difficult task is maintaining our entrepreneurial spirit as the company grows. You must find the right people who can still be entrepreneurial inside a bigger company. To do this, we’ve put in place Business Unit General Managers who are responsible for “small businesses” within eCopy. 

Q. The entire field of Document Management, Content Management and Business Process Management has been set for explosive growth over the last several years.  However, actual growth has not matched those predictions.  What’s wrong?  Are vendors not performing?
A. In a lot of cases, it is because the technology is too difficult to use for the average office worker. eCopy has experienced explosive growth because our software is easy to learn and use.
In the case of Content Management systems, they typically don’t have distributed capture capability to include paper documents in their workflows. As a result, organizations are forced to have two different workflows for the same business task. One electronic workflow that moves at the speed of e-Business and one paper document workflow that is slow and inefficient. Organizations need to address all their requirements before implementing an enterprise application.

Q. Where do you want to take the company in the long term? What will your company look like in 3 – 5 years?
A. We want eCopy to continue to be a highly customer responsive company that helps users of our software solve problems and take advantage of opportunities. At the same time, we want eCopy to continue to be a great place for our employees to work.

Q. What are the mission and the vision that drives your company?
A. The vision that continues to drive our company is to provide software that enables any office worker to easily incorporate paper-based information into business software applications.

Q. What are the three or four best reasons for customers to look towards your company?
A. Our customers should consider our company’s:

• History of success - eCopy has had 13 consecutive years of record order volumes.
• Record of continuous innovation - eCopy invented many of the capabilities that are now highly-used, standard offerings in MFP document capture. Our competition frequently copies our approach.
• Fiscally conservative policy - Although eCopy has grown dramatically in recent years, our policy is conservative in regard to the investment of resources. Our business plan is to be a major player for the long haul.