Robert, this strategic brief, written last February, may be helpful in comparing BCB to Dictaphone.
BCB Holdings Inc., through its two wholly-owned operating units (BCB Technology Group and Granville Research Inc.), is positioned to take a serious slice of market share away from Dictaphone Corporation, currently the leading vendor of dictation, recording and voice logging technology. The reasons for this are as follows :
1) BCB has developed patented, superior systems that are demonstrably more competitive than similar offerings from Dictaphone.
2) BCB's growing network of independent dealers and distributors is more flexible and less costly to manage and support than Dictaphone's direct sales force of 1,600 marketing representatives.
3) Although currently undercapitalized, BCB is not encumbered by major debt. Dictaphone, on the other hand, currently carries more than US$337 million of total debt while almost half of its balance sheet is made up of goodwill and other intangible assets.
4) Through its acquisition of Granville Research Inc., which designs and implements Internet-based networks, BCB has the capability of integrating its technology with any organization's overall data and communications network. Dictaphone does not
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Dictaphone's Vulnerability
Dictaphone, which first registered its name as a trademark in 1907, has stumbled in making the transition from developing and marketing analog (tape-based) equipment to digital (PC-based) technology. Worried about cannibalizing its existing products, it began offering proprietary, hybrid systems in the late 1980s that could only be serviced through Dictaphone. This was done deliberately to protect service revenues which traditionally accounted for up to 35% of its top line and more than half of its bottom line.
The decision to market only proprietary, closed-architecture systems unquestionably dulled Dictaphone's competitive capabilities. Its products could not keep pace with the market demand for completely digital systems that employed open, PC-based architectures. On April 27, 1995, the Wall Street Journal published an article that referred to Dictaphone's technology as "outdated" and in need of significant development.
It was not until almost a year later that Dictaphone reacted. On March 12, 1996, Dictaphone announced it had secured exclusive North American distribution rights for a digital court recording and reporting system called For The Record from Future Technology Resources Pty Limited of Australia. A month later, on April 17, Dictaphone signed an agreement to acquire VDI Technologies Inc., a small developer of Windows NT based digital dictation and transcription software applications. Calling 1996 "a rebuilding year", Dictaphone invested heavily in R&D and announced it was spending more than US$1 million on training "to compete better in the new world of digital systems, computer telephony and open architecture systems".
Despite this investment in technology and training, sales for Dictaphone remained flat and the market's embrace of Dictaphone's new digital products has been cool. 1996 sales totaled US$333 million, down 4% from 1994 revenues of US$347 million. Projected sales of US$339 million this year, if met, will mark a revenue increase of just barely 2%. Clearly, Dictaphone continues to struggle with this "new world of digital systems". Yet, this is exactly the environment in which BCB thrives.
BCB's Competitive Edge
Since its incorporation in 1992, BCB Holdings Inc. has focused on developing open-architecture, PC-based digital recording and voice file management systems that add value to existing PCs and PC-based networks. All of BCB's systems are essentially made up of special cards, which are easily installed inside PCs and servers, plus application software and peripherals such as microphones and foot pedals. This modular approach offers flexibility unique to BCB. Systems are easily and efficiently configured to meet specific end user needs at highly competitive costs.
Early on, BCB's development team tackled and solved one of the major obstacles holding back PC-based recording systems. That was the challenge of moving voice files - which tended to be huge compared to text - from workstation to workstation through standard local area and wide area networks.
The solution was the development of a unique packet-streaming, client-server architecture which allows BCB systems to capture and digitize speech, and then move these voice files through a small buffer. As the buffer is filled, the voice data is broken down into 8 kilobyte "packets" which are carried, or "streamed", through the existing network, from the server to the designated workstation where the files are played. This was a significant breakthrough because the process does not interfere with other data moving through the network. In a nutshell, BCB had found an innovative way to move voice, as a store-and-forward application, over any network.
Named PC DART (Digital Audio Record and Transcribe), BCB applied for, and has been allowed, a U.S. patent for this unique system architecture. To this day, it remains a core competitive advantage for BCB.
For example, this basic architecture means that BCB's systems can run under any network. That's why today, BCB's digital dictation and recording systems will run under NovellO, Windows NTO, LantasticO, and even more obscure network operating systems such as Banyan VinesO. This means that the end user is not forced to make a major technical decision about what network to choose when considering installation of a BCB system.
That's not the case with Dictaphone. Its "open" systems are designed to run under Windows NT. Furthermore, because Dictaphone has not employed a packet-streaming architecture, most of the network's resources have to be dedicated to Dictaphone's applications. Trying to move voice files under Dictaphone's system on an open network runs the risk of quickly bringing that network to its knees.
Other innovative features of BCB's PC DART digital systems include a CTI (computer telephony interface), which allows users to dictate remotely by telephone (including cellular), and an interface to a slide-switch microphone which many heavy dictation users (such as lawyers and doctors) prefer to use.
BCB's Leadership in Voice Compression
BCB also leads the market in the use of voice compression. Compression enables faster transmission and more efficient storage of voice files because the files are smaller. BCB's first PC DART system utilized ADPCM (Adaptive Differential Pulse Code Modulation), which encodes and compresses speech at a rate of 4 Kilobytes per second. This, in itself, provided a remarkable performance improvement over the use of PCM (Pulse Code Modulation), a standard on PCs, which encodes audio signals at an average rate of 20 Kilobytes per second. Using ADPCM meant BCB's system managed voice files that were, on average, five times smaller than standard PCM files.
In fact, the performance advantage achieved by PC DART using the combination of a packet-streaming architecture and voice compression was one of the factors enabling BCB to win its first major sales victory in March, 1994. At that time, after a competitive bid process, BCB was awarded a contract worth more than $650,000 to install a digital recording and transcription system at Canada's House of Commons. Since that time, this installation has almost doubled in size (incorporating a total of 96 audio input channels and 90 transcription workstations), making it one of the world's largest digital recording systems. Its flawless performance over the past years proves the superiority and reliability of BCB's system architecture.
To reinforce its leadership in voice compression, BCB acquired PC RoaR Inc. in November, 1995. At that time, PC RoaR had built a prototype sound card which utilized TrueSpeech, an algorithm which compresses speech at just one Kilobyte per second. Developed by DSP Group Inc., TrueSpeech had been licensed to Microsoft Corp. for use in its Windows operating system. This meant that any PC with a standard sound card running under Windows would have the ability to play TrueSpeech files. BCB quickly understood that by incorporating TrueSpeech into its product line, it could hold the advantage of sending compressed voice files over the Internet in addition to local and wide area networks.
After intensive research and development, BCB successfully revamped its entire product line to take advantage of both TrueSpeech and Microsoft Windows. This included development of PC Talk Software, a low-cost suite of software that includes personal voice recording, telephone logging and voice e-mail applications, plus powerful Version 4.0 voice file management, system configuration and reporting software which enables PC DART systems to be customized through simple "point and click" menus.
While almost bringing the company to it knees to complete this major development effort, it has given BCB a considerable and definitive market advantage. BCB is currently the only vendor offering a commercial digital dictation and recording system that provides Microsoft Windows-compatible voice compression capabilities that are transparent to the end user. What this means is that the compression takes place without the end user having to take any extra steps. It is done either in real time through hardware, using BCB's special compression cards, or in batch mode through a software routine built into Version 4.0.
As a result, BCB is the only digital recording systems vendor who can provide systems which allow vendors to move voice files for store-and-forward applications over the Internet (or Internet Protocol-based networks such as intranets and extranets). BCB is also the only vendor who enables digital voice files to be archived on any digital media with the indexing and retrieval software imbedded. This means voice files can be easily and accurately retrieved through any PC or network that can read storage media such as hard disks, optical disks, CD ROMs, digital audio tape (DAT) and digital video disks (DVDs).
By comparison, most of Dictaphone's current systems either employ PCM audio encoding or ADPCM voice compression. This translates into a system handling voice files anywhere from 4 to 20 times larger in size than BCB's. And without a packet-streaming architecture to break down those files, Dictaphone's systems fall far behind BCB's in terms of performance and network resource efficiency.
That's why in head-on competition where system capabilities, performance and overall cost are the criteria for selection, BCB wins against Dictaphone. This was the case with the 13th U.S. Judicial Circuit in Tampa, Florida where BCB is now installing its systems in 15 courtrooms. More recently, Riverwood Health Care Center in northern Minnesota ended a 30-year relationship with Dictaphone when it decided to install BCB's new PC DART system. And on February 6, the Canadian Senate chose BCB over Dictaphone, awarding BCB a $127,000 purchase order for the installation of a digital recording system.
Again, one of the factors contributing to BCB's latest sales victory, was a recent innovation called the BCB Playall Audio Player. A software-only solution, Playall turns any Windows-based PC into a transcription workstation by enabling any wave file, including compressed audio files, to be played through a standard sound card and providing professional playback control functions.
BCB's Advantage Through Granville
In revamping its systems to enable use of the Internet, BCB has become keenly aware of the opportunities this new global networking technology creates, particularly for voice-based applications. It was with this in mind that BCB acquired Granville Research Inc. in May, 1997.
Granville designs and implements Internet-based networks which puts it at the forefront of companies taking aim at the Internet integration market. According to IDC Canada, that market is growing at 60% per year in Canada and already represents a $2.1 billion market in the U.S.
Proof of Granville's expertise is its development of a fully integrated network which will link Canada's 30 largest property and casualty insurers with 3,750 brokers across the country. A key component of this new insurance industry network (called CSIOnet), is an innovative new applications and communication server called 'AppliComm' that provides an active interface and message handling capability between mainframe legacy systems and the Internet-based network.
Developed by Granville, AppliComm is unique in its provision of a true multimedia platform, capable of integration with voice, video and graphic applications. It also offers a flexible CTI (computer telephone integration) link, which works with most PBX and Centrex telephone systems, for computer telephony applications. The versatility of AppliComm and its turn-key integration makes it suitable for applications in most industry sectors.
It is on this platform that Granville is developing voice-based applications using BCB's digital recording and voice compression technology. For example, Granville is developing a voice e-mail system for CSIOnet based on BCB's PC Talk software. Granville's knowledge of network design and computer telephony, combined with BCB's expertise in digital voice systems, enables delivery of turn-key solutions for high-margin niche markets. This will provide a growing foothold for BCB in key markets such as the insurance and financial services industry.
In addition, Dictaphone does not posses this expertise, which gives BCB a significant edge in an increasingly Internet-focused digital work environment.
BCB Positioned for Growth
There is a proven appetite for BCB's technology. Through the 1997 fiscal year, despite a severe shortage of working capital, limited distribution capabilities, minimal marketing and an overriding focus on major new product development, revenues still increased 60% from $1.12 million to $1.69 million. This year, although again constrained by a lack of working capital, BCB should be able to sustain that 60% growth rate.
This is just one more indication that BCB has the tools and technology in place to win substantial market share from Dictaphone. However, as history continues to prove, good technology by itself does not win. BCB's products have to be brought to market intelligently, quickly and aggressively.
In this regard, work is already underway. Last August, BCB began rehabilitation of its distribution system, recruiting independent dealers and distributors that combined knowledge of the dictation and recording market with PC and networking expertise.
These efforts have already resulted in an agreement with CLM Sales Inc. of Atlanta, Georgia, the leading independent distributor of dictation equipment in the U.S. The agreement with CLM gives the 37-year-old company exclusive one-year distribution rights to BCB's products in 13 eastern U.S. states. The balance of the U.S. market is covered through individual deals with 22 independent dealers. All of the agreements were negotiated against minimum revenue commitments that total $3 million for the current year.
BCB's Plan for Growth
BCB's immediate plan for growth are built around the following action items:
ú Expand BCB's channel management field team from 3 to 6 people;
ú Aggressively recruit and train independent Lanier Worldwide Inc. dealers (Lanier offers mostly analog recording products);
ú Selectively recruit and train former Philips Inc. and Digital Voice Inc. dealers (recent channel reorganizations have made them available);
ú Prepare and distribute (through dealers) sales support tools such as turn-key demonstration software, on-line sales literature and testimonial videos;
ú In co-operation with dealers, plan and implement a focused, country-wide, road show of BCB product demonstrations in major U.S. cities and markets;
ú Recruit and train a 4-person sales, software customization and installation team focused exclusively on the courtroom and legislative systems market;
ú Expand production and technical support staff as needed;
ú Continue to integrate BCB systems with third party products such as PC DOCS document management software, CADI case management software and UHER Informatik digital handheld recorders.
If these action items are quickly executed, BCB can build a major beachhead in the U.S. market that should lead to high revenue growth through the upcoming three years, achieving annual revenues of more than $35 million by FY2002.
Although this still pales in comparison to Dictaphone's revenues and market reach, it will be a formidable improvement for BCB and will provide the opportunity to build real and sustainable market momentum. Given the demonstrable superiority of BCB's products over Dictaphone's, there is tremendous room for growth.
Currently Dictaphone employs 3,000 people and has 300,000 customers. 1,600 of Dictaphone's employees are marketing representatives covering 190 cities in 5 countries. By comparison BCB employs 38 people and has less than 1,000 customers. The U.S., U.K and Canada are currently handled by 3 full-time and 3 part-time marketing representatives. Obviously, if BCB can beef up its market presence through dealer recruitment and training, focused marketing and direct sales support, a considerable dent can be made in gaining market share at Dictaphone's expense.
BCB's outlook has never been better. Major product development has been completed while a variety of successful installations and a growing sales backlog proves BCB's products are marketable. In addition, an experienced and dedicated management team is in place and the foundation for a focused distribution infrastructure is already under construction and showing positive results.
Now, the only major restraint to BCB's potentially explosive growth is access to capital. However, as both sales and market victories over Dictaphone grow week by week, it is only a matter of time until enlightened investors awake to the opportunity BCB provides.
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