E-Color, Inc.
Executive Summary
E-Color, Inc. 739 Bryant Street San Francisco, CA 94107 (415) 777-8500 x14 (415) 777-1230 fax Email: investor@ecolor.com
http://www.ecolor.com
The information contained in this business plan is confidential and is intended only for the persons to whom it is transmitted by E-Color, Inc. Any reproduction or divulgence of the contents of this plan, in whole or in part, without prior written consent of the company is prohibited. By accepting this document, the recipient agrees to preserve its confidentiality.
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I. Executive Summary
E-Color has set the standard for color quality, accuracy and consistency on the Internet. Thirty top Web sites have signed up with E-Color, Inc. (“E-Color”) to solve fundamental infrastructure problems faced by today’s B2B and B2B2C Web merchandisers: • • • 60% of Internet viewers do not trust the colors they see on their monitors. 30% of Internet shoppers have decided not to purchase a product because the true color of the product was in doubt.1 Prior to True Internet Color web sites had no control over color accuracy viewed on the Internet.
BUSINESS MODEL AND MARKET E-Color solves these problems with a hosted Internet service called True Internet Color®. Sold on a subscription-based, ASP business model for $1,500 - $35,000 per-month (depending on configuration and market segment), True Internet Color enables merchandisers to duplicate the color accuracy of their printed catalogs and collateral materials on-line. Color, texture, and fine shadow details are displayed correctly and consistently to each Web client—just as the site creator intended. The True Internet Color network launched during Christmas 1999 on bloomingdales.com. E-Color is the first mover in a market sized at over $21.2 billion dollars2. The company enjoys a 9-12 month lead over competitors. Plus we have seven patents issued and/or pending. E-color exploits a preexisting OEM distribution channel through which users get prompted to “set up” for True Internet Color3 when configuring new PC hardware. These factors give E-Color a decisive competitive advantage in becoming the industry standard. TRUE INTERNET COLOR SERVICE
Every Web site benefits by displaying more accurate, clear, and consistent imagery. Such imagery enables consumers to develop a connection with brands on-line. Because the Internet lacks the sensory experiences of taste, smell, touchor often sound; enriched Web imagery is the only tool available to communicate brand identity on-line. Benefits of True Internet Color include: • • • Higher conversion rates and lower returns for B2C sites Lower selling and sampling costs for B2B sites Increased customer satisfaction and retention.
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The first wave of Internet investors built the infrastructure for transacting business quickly and reliably over the Internet. True Internet Color enhances those investments by making merchandise and samples portrayed on the Web more realistic and compelling to buy. DISTRIBUTION OF CLIENT ENABLING TECHNOLOGY E-Color provides consumers with an indicator icon documenting the presence or absence of True Internet Color4. The True Internet Color indicator icon is a mark of trust that bolsters consumer confidence that items viewed on an E-Colorized site are safe-to-buy. The icon gives visible feedback to the user in the same way that the “unbroken key” icon in Netscape, and the open/closed lock icon in Internet Explorer, reinforces a related trust message to the end-user.
This page is in True Internet Color!
This page is NOT in True Internet Color!
Most Internet companies must spend from $5.00-30.00 of their investor’s money for each client acquired. By contrast, E-Color gets free distribution through an established OEM channel to “tune up” users for True Internet Color. E-Color has already distributed over 14 million client products through longstanding relationships with 50+ OEMs such as ATI, Compaq, Creative Labs, Hitachi, Hewlett Packard, IBM, LG Electronics, Samsung, and ViewSonic. New consumers receiving products from these OEM makers receive the True Internet Color indicator icon and are automatically prompted to “tune up” for True Internet Color during setup of their new PCs, monitors, graphics cards, printers, and other peripherals. Over the 12 months started in April 2000, EColor will encourage 30 million clients to tune-up for True Internet Color through our OEM channel. (Consumers can also perform the one-time tune up when visiting any E-Colorized site.) After completing E-Color’s simple, set 'n forget process, there is no need to tune up again at new E-Colorized sites5. Because of E-Color’s multiple client distribution channels, and our large, rapidly growing installed base; competitors will find it difficult to catch up to the size of E-Color’s extensive client network. PROGRESS SINCE SERIES A FINANCING In November 1999, E-Color negotiated a $9 million Series A financing. Post-money valuation was $31 million. Lead investors were 2M Invest A/S, the Invus Group, Ltd., and others. At the time of the Series A pricing, E-Color had not gone live with the True Internet Color imaging network. In less than 6 months, the company now has 30 Web site customers in a range of B2B and B2B2C market segments, with key customers signing up weekly. We’ve proven market acceptance of our price point and our business model. Also, we’ve locked in on-going client distribution. E-Color has shown an ability to scale our technology and infrastructure to satisfy exploding worldwide demand. We’ve completed our transition from a client software vendor to an ASP. At the same time, we’ve leveraged the OEM channel to initialize millions of clients into the True Internet Color imaging network every month (a huge competitive advantage over future competition). Major research companies such as Forrester research and others now track the market for True Internet Color-like infrastructure products and services. Additionally, major publications such as Forbes, The New York Times, The Industry Standard, Inter@ctive Week, Women’s Wear Daily, the San Francisco Examiner and others have written articles featuring E-Color’s True Internet Color service. As a result of our success, True Internet Color is becoming one of the “best practices” for designing Web pages. Major Web strategy and design firms including EDS, Viant, Frog Design, Xuma, Price Waterhouse Coopers and others refer clients to E-Color based on True Internet Color’s proven benefits. In addition, the company has begun a cooperative marketing relationship with Akamai referring customers for our service.
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MANAGEMENT E-Color’s seasoned management team is experienced growing businesses to profitability. Bill Hilliard, EColor’s President, has held senior executive positions at MicroTouch Systems (MTSI) and Phoenix Technologies (PTEC). At MicroTouch, Hilliard was General Manager of OEM and International Sales, responsible for 13 percent of total company revenues. At Phoenix, Hilliard grew their HP LaserJet and Adobe PostScript cloning business from inception to over $8 million per-year on a run-rate basis. Tammy Baker, VP Engineering, previously served as VP Engineering for Encanto Networks, before which she was VP and General Manager of Novell’s Internet Commerce Division. Keith Ball, CTO, worked hand-in-hand with Tammy as lead architect for her engineering efforts at Novell, Encanto, and now E-Color. Peter Bernard, VP Products/Marketing, also worked for Phoenix Technologies, building their brand presence in non-PC markets. He was responsible for product management and marketing at their PICO division, which was the company’s fastest growing and most profitable division. Since the time of the Series A financing, key advisors and board members have joined E-Color’s advisory team. The Board of Directors now includes Phil Schlein, former President of Macys California and Rich Sorkin, formerly CEO of the ZIP2 internet service. A newly formed Technical Advisory Board includes: Peter Danzig, VP of Technology at Akamai; Ron Gentile, former head of color science at Adobe Systems; Yoni Hashkes, former VP of Live Picture and the architect of Sky TV; Charles Poynton, SMPTE Fellow; and Mark Fairchild from Rochester Institute of Technology. SERIES B FINANCING
Summary Financials ($ in millions) actual forecasted forecasted forecasted forecasted forecasted 2000 2001 2002 2003 2004 1999 36 84 154 262 425 548 $ 0.23 3.68 0.00 3.91 $ 7.16 3.42 1.31 11.88 $ 26.85 17.56 4.42 48.83 7.08 51.61 1.21 52.82 $ 72.14 22.37 9.90 $ 104.41 $ $ $ $ 20.60 62.26 1.03 63.29 $ 151.69 27.73 25.85 $ 205.27 $ $ $ $ 74.26 95.42 1.03 96.45
Headcount at the end of the year
True Internet Color Revenue $ OEM and Upsell Revenue 3.50 Service Revenue Total Revenue $ 3.50 Operating Income (loss)
$
$
$
$(3.41) $ $ $ $
(9.81) $ 1.63 2.83 4.46 $ $ $
(9.24) $ 18.51 1.77 20.28 $ $ $
TIC Revenue Backlog (monthly rev x 12) Deferred OEM Revenue at year end $ 5.22 Total Deferred Revenue at year end $ 5.22
E-Color is now raising $15-20 million in Series B financing to grow the business. Additional funding carries E-Color to profitability in Q4, 2001, and enables us to secure a dominant market share while architecting subtle lock-in, switching costs and additional revenue-generating features into our network. There's no doubt about the large demand for color accuracy on the Web. And it’s a very tough thing to do. Profitability is high for the one who solves this problem and becomes the leader. E-color is the first to offer a workable solution. We have a huge head start on competition because of our successful OEM channel. The company’s long-term advantage is enormous due to our management team, patent position, network of installed clients, and True Internet Color indicator icon. Competition is coming, but it is well behind. Competitors face: (a) patent hurdles, (b) a huge client installed base whose understanding of accurate internet color is tied solely to our True Internet Color indicator icon, and (c) difficulty keeping up with our interrelationships with other infrastructure and strategy companies like Akamai, Viant, Price Waterhouse Coopers, and others. Since competitors need to define themselves in relation to E-Color, we see them as market validation, not as a significant threat.
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Footnotes:
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60% of Internet shoppers do not trust the colors they see on their monitors. 30% of Internet shoppers have decided not to purchase a product because the true color of the product was in doubt. Source: CyberDialog Research. E-Color Web sites include both B2B and B2C sites whose message depends on color accurate Web display. E-commerce examples include fashion, photography, graphic arts markets, cosmetics & other high-touch consumer products. B2B examples include control of brand identity, plus representation of samples in sell sheets and in catalogs; over intra-nets and extra-nets; and in other industrial applications where communicating color and/or accurate image detail are an important part of the message embodied in the Web site.
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E-Color Total Available Market - 2003
B2B2C Market Segments
Apparel (stores, catalogs, designers, e-tailers) Cosmetics & Luxury Brands (designers, stores, catalogs, e-tailers) Gifts, food, beverage, flowers Enterntainment, Magazines, Adult Home Furnishings Travel and Leisure Misc Small Sites Art and Stock Photo Collectibles and Antiques End User Upgrade Purcahse of 3Deep/Colorific Online gaming
# of sites
7,500 10,000 5,000 3,500 1,500 3,000 1,000,000 650 750 500,000 150
Average Annual Subscription
$150,000 $100,000 $50,000 $60,000 $100,000 $40,000 $99 $80,000 $50,000 $29.95 $30,000
Annual Market Size
$1,125,000,000 $1,000,000,000 $250,000,000 $210,000,000 $150,000,000 $120,000,000 $99,000,000 $52,000,000 $37,500,000 $14,975,000 $4,500,000
TOTAL B2B2C TAM TOTAL B2B TAM
Wholesale Trade/Manufacturing* Real Estate, Rental, Leasing** Industrial Distributors/Merchant Wholesalers** Telemedicine*** Graphic Arts / Design*** Education** Advertising Agency*** 817,561 289,871 375,155 100,000 35,000 50,000 1,000 $6,000 $10,000 $6,000 $20,000 $20,000 $6,000 $200,000
$3,058,475,000
$4,905,366,000 $2,898,710,000 $2,250,930,000 $2,000,000,000 $700,000,000 $300,000,000 $200,000,000
TOTAL B2B2B TAM Bandwidth and Associated Services TAM (30% of total) Total E-Color TAM in 2003
* Coatings, Paper/forest products, plastic products, machined products, textiles, etc. ** Goldman Sachs estimates on number of establishments per category in US in 1997 (assume no more in 2003) *** Management estimates on number of establishments worldwide
$13,255,006,000 $4,894,044,300 $21,207,525,300
E-Color benefits from favorable growth trends in still picture and video imaging for the PC platform. The company’s value increases with the growth of the Internet, with increasing graphics computing power on the desktop, and with increasing bandwidth to the home. Longer term, E-Color’s technology will be adapted to offer image quality enhancement features for streaming media, and for TV applications such as Web TV, cable TV, and home theatre.
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For a True Internet Color Web site to provide accurate color, the consumer must perform a one-time, 4 screen, set ‘n forget process. This process can be completed off-line when a user “sets up” their new PC or peripheral device (i.e., when users are already conditioned to perform such “set-up” procedures), or it can occur later at any True Internet Color-enabled Web site. After the setup process has been run at any one site, or off-line, there is no need to set up again at a future E-Colorized Web site. The “set up” process requires no downloads, plug-ins, client-side JAVA, or other inhibitors. E-Color distributes PC client products called Colorific and 3Deep at no charge to PC and peripherals makers because these products compel new computer users to perform EColor’s one-time, True Internet Color setup. Essentially, 3Deep and Colorific users “calibrate” their systems because they want the benefits offered by EColor’s Colorific and 3Deep client products (such as screen-to-printer color matching, enhanced color fidelity, more realistic game play). And while doing so, consumers consent to E-Color logging the resulting “calibration data” within the E-Color network. Through bundling arrangements with major PC and peripherals makers, E-Color will distribute over 30 million client software products over the 12 month period started in Q2, 2000; leading tens of millions of clients initialized for True Internet Color at every site displaying images over the E-Color network. E-Color has applied for patent protection for the concept of a notification icon or other indicator communicating the presence/absence of color correction. The True Internet Color indicator icon ties consumers’ perceptions of color accuracy to the E-Color brand. This indicator icon lets the consumer know whether the site being viewed is color-corrected. Web sites that implement and co-promote True Internet Color to their client base are unlikely to risk scaring away consumers by removing the feature—leading to a long-term annuity stream for E-Color. This dynamic is similar to that seen with SSL security technology, which is very hard to remove from a site once, the site’s users have come to depend on its existence on the site. E-Color has developed a patent-pending technique for creating “meta-cookies” storing the consumer’s configuration data in a way that can be accessed by each and every E-Colorized Web site. INVESTOR@ECOLOR.COM +1 (415) 777 8500
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