Kofax Takes On The Top Tier
With advanced functionality in its Ascent platform, as well as new products for the low end, capture software vendor Kofax intends to saturate all market segments. VP of Marketing Anthony Macciola reviews recent acquisitions and product releases that position the company for its next strides.
By Tom von Gunden
Information capture solutions vendor Kofax, a division of DICOM Group, is less than a year away from celebrating the completion of its 20th year in business. From its inception in October 1985 through the early 1990s, Kofax made its most significant market inroads as an OEM contributor of boards and toolkits to PC-based document imaging systems. Then, in 1994, Kofax released the initial version of Ascent, its flagship capture software platform. Ten years later, Kofax can now boast of Ascent rollouts in more than 13,000 installation sites, with more than 60,000 licenses sold.
For most of its history, Kofax has been commonly regarded as a provider of products for the midmarket. But, over the last couple of years, the company has been aggressively expanding its market reach in both directions. For example, in 2003, it released Capio, a low-end scanning product, and Xtrata, a low-end forms processing solution. As for targeting the high end, Kofax has been augmenting the Ascent platform, often by acquiring smaller niche companies and incorporating their technologies into subsequent Ascent releases. The increasingly advanced functionality of Ascent is already landing Kofax deals with very large enterprise-class customers. In May 2004, the company announced that $13.4 billion financial services provider Countrywide Financial Corp. purchased Ascent as its front end capture solution. Once that rollout has been completed, Ascent will be helping Countrywide capture and process more than 700,000 documents per month.
One day after the Countrywide announcement came news from Kofax of another marquee contract in the enterprise space. In a deployment that will pay Kofax up to $20.9 million over five years, the U.S. Social Security Administration will use Kofax imaging technologies, including Ascent, to convert paper documents associated with claims for disability benefits.
Throughout the evolution of the Ascent platform, Kofax has remained committed to pushing its products through the reseller channel. According to Kofax VP of Marketing Anthony Macciola, that reliance on the channel will continue even as the company works to expand its enterprise-level presence. I recently met with Macciola at Kofax' Irvine, CA, headquarters, where we discussed Kofax' product evolution, its growth by acquisition, and its unabated commitment to selling through the channel.
Tom: Kofax has long been regarded as a channel-friendly company. Can you describe some of the thinking behind the initial decision to rely on resellers?
Anthony: We've never really sold directly to end users. Prior to the release of Ascent, all of our tools and board products were sold through distribution. Any reseller that had a relationship with one of our distributors could purchase and sell the products. When we looked at how to take our first capture software offering to market, we had to decide whether to use a direct sales model or to leverage the channel. We soon concluded that there are prohibitive costs and restrictions associated with a direct sales model. It's expensive to hire and maintain a direct sales force large enough to give you wide geographical coverage. So, if you can afford only a small direct sales team, you quickly reach the limits of the number of accounts that sales force can reach.
The decision to go with a channel model actually affected how Ascent was designed. In addition to wanting the product to have solid functionality for the actual users, we wanted our resellers to be able to go into a customer site, install the product, and have it up-and-running in a half hour or less. So, we designed Ascent so that only a minimal skill set would be required to deploy it. At the same time, we wanted the software to be highly customizable. Customers want to be able to configure products to fit their particular needs, and resellers appreciate the opportunity to drive revenue from services, including customization.
Many vendors retain a direct sales force to handle large enterprise deals. How will Kofax handle enterprise sales, as more and more of those opportunities arise?
We're willing to let any sized deal go through the channel. Take, for instance, our deal with the Social Security Administration. At $20.9 million spread out over five years, it may be the largest deal to date in the capture space. That deal went through a reseller. That's a pretty good indication that we don't allow only the low-end and midmarket deals to go through the channel.
But, Kofax does handle a portion of its sales directly, doesn't it?
Yes, but it's a very small portion. In some instances, resellers will come to us with large deals that are beyond their means. They'll come to us, and sure, we'll take the deal. But, we still pay the reseller what the commission would be had the reseller completely handled the deal. Of course, there are times when a Fortune 100 or Fortune 200 company will come to us directly, and there's no reseller involved. However, if there's any indication that a channel partner is already in communication with that company, we'll make sure the partner is rewarded. But, those are rare instances. The lion's share of our revenue still comes from the channel.
And, will that revenue model continue?
Yes, and our product lines will clearly reflect differences in the sizes of deals, as well as the types of partners that typically handle them. We now have, for example, an advanced forms product that's a subcomponent of Ascent. It's a very high-end product, the kind that many companies would likely push through direct sales. What we've done, instead, is segment our channel programs to accommodate that kind of difference. Realizing that 10% to 15% of our partners more closely fit the profile of a systems integrator or enterprise application provider than they do a VAR, we created an upper echelon in our channel program. Partners that qualify for that segment are eligible to get certified on the high-end products. That strategy ensures that, like any of our products, our advanced forms solutions will be sold through the channel.
Are there any new initiatives targeting Kofax' more traditional channel segment?
Well, we continue to develop and release new products designed for the other 85% of our partners, the ones that don't have the inclination or the resources to sell our high end products. One of our newer products, Xtrata, was architected as a low end forms solutions. In fact, it came about in direct response to requests we were getting from our channel partners. Many admitted they had been ignoring as much as 75% of the forms processing opportunities out there. A lot of the smaller installation opportunities weren't complicated enough to require a full-blown solution like Ascent.
Capio, our low end scanning client, also emerged, to a large extent, in response to channel feedback. And, we have continued to interview many of our channel partners about the tangible benefits of using Capio. The next version will reflect much of that additional input. We're also looking into Capio's capabilities in terms of how it interacts with our other information capture solutions. Stay tuned for developments on that front.
How do you go about getting feedback from your channel, particularly in terms of the trends and needs resellers are seeing in the end user community?
We have a product advisory council. We take a cross section of our reseller base and poll the people who are doing the most installs, according to different price levels. We bring them in for a day or two to toss out ideas of what we're looking at doing and to get their feedback. In fact, at our last session in January 2004, we had the advisory council review products that won't ship until 2005 or even later. We continually try to be forward-thinking in terms of our go-to-market strategies.
You mentioned customization and the challenge of meeting the needs of various end users. A lot of end users are looking for solutions specifically designed for their vertical or departmental requirements. At the same time, many resellers are looking to specialize in one or two niche applications. Is Kofax aligning its products to address these trends?
There's no question we have traditionally designed products for horizontal applicability. We always worked under the assumption that resellers with niche expertise could add vertical skin to a horizontal solution. And, to a large extent, that still happens. But, we have recently begun to understand that, if we package versions of our solutions for particular applications, a sizable portion of our channel is likely to use them. Our first foray into a packaged solution is Ascent for Payables. It includes fairly advanced capture technology yet is still an out-of-the-box solution tuned for AP (accounts payable) operations. Our resellers are telling us that having a targeted solution helps them sharpen their marketing efforts.
Let's take one last run at the topic of channel sales, this time from the perspective of end users. What are the benefits to end users when they buy from the reseller community?
When an end user purchases directly from the vendor, oftentimes they don't have someone locally to rely on for support. While our customers can always get direct support from us, they seldom have to do that. Our resellers are certified and trained, and we require them to maintain that certification on an annual basis. We find that many of our deployments start out with one value proposition, but then capture needs arise and grow across the organization. Having someone local, who understands the mechanics of your organization and how your IT department functions, can help you seize opportunities to make the solution work more pervasively. Plus, there are lots of incentives for resellers to remain engaged with each customer: product upgrades, service contracts, new departments to bring onto the platform, and so on. It's in the reseller's interest to make sure that the end user's investment is fully leveraged over time. Both sides benefit from a local or regional relationship.
Speaking of end users, what trends are you seeing out there in terms of how capture needs are evolving?
Well, one thing we're discovering that may surprise some observers is that enterprise content management solutions, including capture, are still in the early adopter phase. You might assume document scanning is a pervasive activity, but if you look at the opportunities that remain out there, it has barely scratched the surface in terms of market penetration. As a result, we're seeing a renewed interest in information capture software. People are beginning to see the value of concepts they may have looked into but disregarded a few years ago: things like image capture and forms processing. For whatever reason — compliance being a key one — they're now seeing a more compelling justification for bringing on capture solutions.
Yes, there has been hesitation in some corners. I've heard from some end users that they initially shied away from deploying basic scanning and forms processing technologies. They had been scared off by reports of low read rates and OCR (optical character recognition) inaccuracies.
We hear that, too. It's not uncommon for us to head into an installation site and have someone in the meeting be cynical because they may have tried capture years ago and had abysmal results. But, when they look again, they're amazed at the accuracy the technology can now provide. OCR accuracy has gone up dramatically in the last five years. When it comes to processing invoices, for example, we almost always run our VRS (VirtualReScan) tools on the front end. That helps ensure that the OCR engine will be able to accurately pull information from the forms.
Now that we're on the topic of forms, feel free to comment on the acquisition of Mohomine, which, as I understand it, brings functionality that should greatly enhance Ascent's forms processing capabilities.
That's right. The Mohomine acquisition brought in functionality that will enable us to handle unstructured forms. That functionality is currently getting wrapped into Ascent, which can already handle structured and semistructured forms. Particularly in environments where capture is motivated by needs for compliance, records management, or business process automation, customers are attempting to handle a lot of different document types. Many documents of record come into organizations in unstructured form. Correspondence, including e-mail correspondence, is a common example. The Mohomine technology can classify unstructured content and associate it with retention policies. And, the classifier is natively designed to work on electronic documents, including e-mail.
I'm also interested in the recently announced DICOM Group acquisition of Neurascript. I've visited with folks at Neurascript and have seen demos of the technology. The key differentiator seems to be its ability to read information from unfamiliar forms: in effect, to process forms without relying on a limited set of pre-established templates. How does Kofax plan to make use of those capabilities?
Well, as I mentioned in discussing the acquisition of Mohomine, advanced forms processing is an area we've been aggressively targeting for the past two years. During that time period, we've been integrating Neurascript's technology: in essence, operating as their exclusive U.S. reseller. In fact, a couple dozen of our VARs have already been through training and certification on the Neurascript technology.
For one thing, bringing that technology in house strengthens our tools platform. The technology works as a sort of subset of Ascent. It doesn't capture, and it doesn't deliver. It basically focuses on the data transformation element. It has to plug into a backbone to inherit the collection and delivery functions. In addition to plugging into Ascent, it also plugs into FileNet and Captiva. It can also plug into server environments. These plug-in capabilities help us be more competitive in the enterprise tools space, independent of the benefits they bring to our own Ascent product. The Neurascript technology also complements the Mohomine technology we acquired. Merging the Neurascript and Mohomine technologies enhances our ability to meld electronic processing with paper processing.
In addition to external influences, such as compliance, and internal factors, such as the Mohomine and Neurascript acquisitions, are there any other drivers that may help speed Kofax' penetration of the enterprise market?
Yes, we're getting solid traction from the trend toward distributed scanning. Because we focused on departmental installs for so long, we often have a foothold somewhere inside an enterprise company. So, when IT decides it wants to put capture on a centralized, cross-enterprise platform, we're already in there. Often that initiative is driven by the need for distributed capture across the enterprise. In that scenario, we're usually selling to the IT folks. They have a keen interest in connecting a centralized administrative interface to various capture operations, including those in remote locations. Our ability to handle various input streams on the same capture platform helps us make a strong case for ease of management.