As founder and chief executive of retail point-of-sale systems maker CAM Data Systems Inc., Geoff Knapp isn’t in the habit of giving away the corporate crown jewels.
But when on the Internet, he’s decided he ought to do as the Internet startups do.
After months of internal debate about how best to transform the company from its bricks-and-mortar business to the budding e-commerce arena, the company will give away its $3,400 flagship retail management system on the hope that these businesses will soon flock to the web or expand their physical stores , and ask for the company’s e-commerce upgrade in the process.
It’s a strategy that’s been attempted by every Internet company since Netscape, but unlike many of those startups, CAM has an established, profitable business model to lose. The company counts Rainbow Technologies president and CEO Walter Straub among its directors, along with Fred Haney, president of Venture Management Co., Palos Verdes Estates, and Scott Broomfield, chief executive of Redwood Shores database application maker Centura Software Inc.
The free software offer is a risk, Knapp admits, but if his gambit is correct and customers begin flocking to the web, the payoff could be huge for the 190-person Fountain Valley operation.
And as a Nevada resident (he commutes between his home there and Orange County weekly), Knapp knows a thing or two about taking a gamble.
“The hardest part is getting people to believe we’re actually doing this,” says the 41-year-old. “My sales team thought I was crazy. But really, we gave up nothing.”
As part of the new strategy, the company will offer single-user versions of its Retail ICE (Inventory Control Expert) and Retail STAR. The software manages functions such as inventory, accounts receivable and sales order processing. A newer version this summer will include accounts payable, bank reconciliation, and general ledger capabilities.
If it’s a risk, Knapp says, it’s a calculated one. Since few small businesses could afford the software anyway, he doesn’t expect to lose much of his current revenue. Larger businesses will still have to pay for the multi-user and multi-store system, and the services end of CAM’s business, installing and managing the traditional point-of-sale systems, will remain intact.
More importantly, Knapp says, the company’s newest offering makes it so easy to add new stores,including online outlets,that many customers will be reluctant to overhaul the systems with a competitor’s when they make the inevitable journey online. That’s when the company will sell a painless upgrade to its iSTAR e-commerce product, which generates reoccurring revenue, averaging $1,000 per month per customer, instead of one-time sales.
The company is in the process of changing its name to CAM Commerce Solutions to reflect its e-commerce shift.
Most smaller retailers have only begun going online, leaving a huge virgin territory for companies focused on the low end of the business.
CAM’s system manages inventory through a database that keeps track of all the information a retail operation would usually manage plus a little extra,such as a picture of each inventory item,that makes going online simply a matter of setting the program for the web-ready option. The system keeps track of synchronizing information and comes packaged with data services, thanks to deals with Concentric Network Corp. and Baldwin Park-based software firm Cubig Corp. CAM purchased Cubig last year along with its entire development team.
“(With the software), retailers build their web sites without even realizing it as they’re building their retail store,” Knapp says. “For them, the Internet is not a new market; it’s just a new channel. As far as they’re concerned, the web outlet is store No. 3 in a three-store retail chain.”
While many low-cost web services such as Yahoo! and iMall offer services designed to get small businesses on the web, all of them require retailers to create a new database from scratch of merchandise that does not synchronize easily with their bricks-and-mortar counterparts or existing point-of-sale systems.
If CAM’s strategy pays off, the changes may be coming just in time for the company. CAM has enjoyed consistent year-over-year revenue growth for its last nine quarters, but earnings have remained well under $1 million per quarter and slipped to $200,000 for its most recent three-month filing. Investors are betting on higher margins in the future: the company’s stock, which hovered around $5 per share last summer, has more than quadrupled since the company hinted at the direction it planned to take.
Knapp estimates that his company has invested $2 million to develop the e-commerce strategy over the last few years.
Integration is Key
Most analysts say retailers will have to do a better job of integrating their online and offline operations , a concept that includes everything from allowing in-store returns of items purchased online to letting customers check inventory on the web before going to the store , if they hope to survive against national e-commerce players. And Knapp is convinced his software does just that.
Though he views the software as a defensive strategy for smaller retailers against their global competitors on the Internet, Knapp says they have some real advantages over their online Goliaths, including a better understanding of the local market, a strong local brand awareness and, usually, profitability.
CAM is working on an upgrade that will automatically post out-of-season and slow-moving merchandise on Internet auctions and is negotiating with outside companies to provide outsourced services for a complete package.
“One of our strengths is a large customer base that’s very attractive to companies we do business with,” Knapp says. “You hear a lot about the ‘killer app’ that changes the market. Well, I think this is going to change everything.” n
Title: Chairman, chief executive, CEO, CAM Data Systems Inc.
Residence: Henderson, Nev. (commutes weekly to OC).
Resume: Bachelor’s in marketing, University of Oregon, 1980. Founded CAM Data after graduation
Family: Married, three children
Hobbies: Snowboarding, water-skiing
CAM DATA Systems, Inc.
17520 Newhope Street
Business: point-of-sale and e-commerce software, integration services
Stock symbol: CADA (Nasdaq)
Market cap (as of last week): $45.2 million
1st-quarter financial results: $200,000 profit on $6.6 million in sales
Major shareholders: Geoffrey D. Knapp, 12% stake worth $5.6 million at last week’s price of 17 3/8; Oberweis Asset Management, 5.5%; Walter W. Straub, 3.4%.