Caere Corporation

views updated

Caere Corporation

100 Cooper Ct.
Los Gatos, California 95030
U.S.A.
(408) 395-7000
Fax: (408) 354-2743
Web site: http://www.caere.com

Public Company
Incorporated: 1976
Employees: 272
Sales: $54.53 million (1996)
Stock Exchanges: NASDAQ
SICs: 7372 Prepackaged Software; 3577 Computer Peripheral Equipment, Not Elsewhere Classified

Caere Corporation is a worldwide leader in the design, production, and distribution of optical character recognition-based (OCR) information management hardware and software products. Capturing more than 50 percent of the global OCR market, Caere’s core product line revolves around its flagship OmniPage software family, including OmniPage Professional, OmniPage Limited Edition, and OmniPage Direct. Together with WordScan Plus, the OmniPage family accounts for approximately three-quarters of the company’s annual sales. The company also designs and distributes Recognita Plus, acquired in January 1997, which adds to the company’s OCR product base with a text recognition capacity of more than 100 languages. Caere’s OmniForm, developed in conjunction with Colorado-based Formonix, which the company acquired in April 1997, applies OCR technology to the scanning and creation of electronic forms. Caere extended the OmniForm line with the February 1997 release of OmniForm Internet Publisher, which allows users to convert paper-based forms to Internet and Intranet ready electronic forms such as invoices, purchase orders, expense reports, and questionnaires.

While software has become the company’s primary revenue generator, Caere has also built a line of OCR hardware products, including hand-held and slot-reader systems, sold largely to the original equipment manufacturer (OEM) market. Caere’s hard-ware products are directed toward high-speed transaction processing applications, such as bar code systems and magnetic stripe readers. The company’s 800 Series Combo Reader integrates OCR, bar code, and magnetic strip reading to provide remittance processing, banking, point-of-sale, routing, and payment processing for government and military agencies, post office use, public utility use, and private wholesale and retail use. The Model 1200 Travel Document Reader, introduced in 1996, enables the reading of passports, identity cards, and other travel documents. The company’s 1500 Series Document Processor is a desktop reader/sorter for high-speed document processing.

The second prong of Caere’s hardware line is its bar code readers, including the Easy-Scanner 1000 and 2000 Series bar code systems, which cater primarily to the high-end of this market. The Model 1731 Integrated Laser features Caere’s bar code processing technology combined with a hand-held laser scanner developed by PSC Inc. Caere also designs and distributes document processing support hardware and software, such as its M/Series II OCR Accelerator Board, which can add document processing capacity of up to 750 pages per hour.

OCR has retained a relatively small niche in the global computer market since the first OCR systems were developed in the 1970s. However, a new generation of low-priced, highly accurate scanners introduced in the mid-1990s, and a surge in interest in OCR capability, driven in part by the rapid growth of Internet and World Wide Web activity, promises to carry OCR into the mainstream and home computing markets. Through software bundling agreements with scanner manufacturers, which package upgradable ’light’ versions of Caere’s software, the company has positioned itself to capture a share of these markets. In 1996, Caere shipped more than two million bundled units, double the year before. These shipments have translated into increased upgrade purchases of the full version of Caere’s OmniPage and other software products, and to rising revenues for the company. In 1996, Caere, led by chairman and CEO Robert Teresi, recorded $54.5 million in sales.

Founded by Robert Noyce in 1976

Caere was founded by Robert Noyce in 1976. Noyce was by then already a legend. After working at Shockley Semiconductor Laboratory in the early 1950s, Noyce, with Shockley colleague Gordon Moore, formed Fairchild Industries in 1957, where Noyce led the invention of the integrated circuit. In 1968, Noyce and Moore—famous for the prescience of his Moore’s Law, which posited that chip performance would double every 18 months—cofounded Intel, soon joined by another former Fairchild employee, Andy Grove. Noyce later went on to form and lead Sematech, the U.S. government-backed consortium created to secure U.S. dominance of the worldwide semiconductor industry.

In the early 1970s, however, Noyce became interested in the practical application of the newly robust computer processor technology. Noyce focused on developing methods of automating data entry. In 1973, he founded Caere Corporation to develop products based on recently developed OCR technology. OCR enabled computers to ’read’ documents by converting text and graphics images into digital code. OCR equipment worked much like copy machines, taking a picture of the document and, instead of reproducing it on a sheet of paper, recreated it for manipulation by computer software. Early applications of OCR had already been implemented in the bar-code systems being introduced in the early 1970s. In 1977, Caere brought out its first series of products, hand-held and slot reader OCR systems. These early systems were expensive—costing $50,000 or more—and required user programming to “teach” its software to recognize characters. Nonetheless, OCR offered the promise of enabling the treasured dream of the “paperless office.”

In 1983, Caere debuted a second line of products, its 200 series of bar code scanners. These were compatible with many of the common computer interfaces, including minicomputers, serial terminals, and the young IBM personal computer line. Bar code readers had quickly found popularity in a variety of industries, applications, and environments, from the shop floor, to warehouse and inventory control, to administrative and accounting functions. OCR, meanwhile, while steadily developing its capability, remained priced beyond mainstream reach. Scanning remained limited to a small range of typefaces, and suffered from poor accuracy levels on lower-priced equipment. Yet OCR technology had begun to find its way into such document-intensive business as law firms and insurance companies. Caere’s growth paced the limited growth of the OCR industry. By 1986, the company’s net revenues had only reached $9.68 million. Caere was profitable, however, posting earnings for the year of $1.5 million.

New Products and New Success for the 1980s

Caere’s position—and OCR acceptance—rose dramatically in 1988 when Caere introduced the first in its OmniPage software family. Introduced first for the Apple Macintosh and a few months later for the IBM PC and compatibles market, OmniPage featured artificial intelligence that enabled scanners to read entire pages of text and graphics, recognize columns and tables, and, using complex algorithms, interpret a variety of typefaces and type styles— even several different typefaces in a single document—without first being taught to recognize them. OmniPage also allowed the user to manipulate the scanned text file’s columns, tables, and graphics, edit the text, convert text into a variety of word processing applications, and search the document for missing words. Initially priced at under $800 for the Macintosh version (the PC version was bundled with a controller card, for a cost of less than $2,000), OmniPage opened up the OCR and scanning market to a new range of users, include the growing desktop publishing market. OmniPage also posted industry-leading accuracy rates of more than 99 percent, making it a practical, and financially attractive, alternative to typist-based data entry.

The effect of OmniPage on Caere’s revenues was immediate. By 1989, sales had jumped past $19.5 million. Based on the national attention earned by OmniPage, Caere went public in 1989. In that year, the company attempted to build on its success by introducing a dedicated OCR computer scanning system, the Caere Parallel Page Reader. Priced at around $10,000—a competitive price at the time when OCR scanning system costs ranged from $40,000 to $250,000 —the computer system, which featured four 386-based processors working in parallel, was originally developed for the Securities and Exchange Commission, as that agency prepared to implement the digital submission of financial reports. The Parallel Page Reader, for which the technology behind OmniPage had been developed, boasted word recognition rates, which had previously been the bottleneck of OCR scanning systems, of up to 2,500 words per minute, making it possible for near simultaneous scanning, recognition, and output.

Several months later, however, Caere introduced another new product that would go a long way towards building mainstream penetration of scanning technology. In August 1990, the company debuted its hand-held Typist scanner. Priced at under $700, the Typist featured a five-inch wide scanning surface that could be moved over a document, capturing up to two inches of text per second, and automatically transferring text to the user’s word processing, database, or spreadsheet application. Using the company’s AnyFont recognition software, the Typist easily converted document text into the typeface and type size in use by the word processing software, eliminating the need to reformat scanned text. Caere’s revenues reached $27.6 million in 1990. Founder Robert Noyce died in that year, and Robert Teresi took over as chairman and CEO.

Company Perspectives:

Caere continues to play a leading role in bringing OCR applications into mainstream markets. Our strategies for success reflect changing market conditions and a commitment to help customers increase their productivity. Moving OCR into the mainstream, Caere focuses on maintaining leadership in all OCR markets. We are leveraging our resources and distribution channels to expand our desktop applications portfolio. Our strong technologies plus syner-gistic partnering investments mil enable Caere to provide multiple productivity solutions.

Led by Caere, the OCR scanning market underwent its first real boom. Scanner sales reached 420,000 in 1990 and climbed to 640,000 in 1991. Caere’s sales for that year raced past $50 million, and the company posted net earnings of some $7 million. The following year, when Caere opened a sales office in Germany to promote European distribution, sales continued to grow, nearing $60 million. By then, other companies were entering the hardware side, including Hewlett Packard and its popular, low-priced ScanJet line, and MicroTek, already a leader in color scanning.

A New Business Model for the 1990s

Caere’s growth stopped short, however, in 1993. Coupled with the effects of the worldwide recession, which suppressed computer, software, and peripheral sales in general, a new trend was emerging among scanner product purchasers. Advances in scanner hardware technology, and steadily dropping prices for computer equipment in general, led buyers to upgrade their scanning equipment, rather than updating with new software. Lower prices for scanners also attracted a wider range of first-time buyers, particularly among the burgeoning small office/ home office (SOHO) market. But a new software ’bundling’ trend had emerged in the personal computer and peripheral market, in which purchasers of computer equipment would find software, and often several programs, packaged with the equipment. While the bundled software was generally a limited version of an existing program, users, having become familiar with the basic program, were encouraged to upgrade to the full version. Caere’s competitors had reached the bundled market first. While the company held onto its dominance of the OCR software market, its revenues slid for the 1993 year below $50 million. Earnings, too, dropped precipitously, to $352,000. Caere was also hurt by its failure to enter another quickly growing category, that of facsimile software; in 1993, the company discontinued its FaxMaster product.

Caere fought back hard the following year. By mid-1994 the company had developed a new business model, focused on its flagship OmniPage software family. Caere stepped up its research and development expenses, designing new software and upgrading its existing software. The company also lowered its prices, enhancing its appeal among the swiftly widening pool of home scanner purchasers. The lowered prices helped increase the company’s retail store sales, boosting year-end revenues to $59 million. And, by December 1994, these purchasers were likely to find a “light” version of OmniPage Pro, called OmniPage Limited Edition, inside the box with their new scanner, as Caere adopted the software bundling approach. The limited edition version of OmniPage gave the user an introduction to the capabilities of the professional version. Customers were also offered lowered upgrade prices to encourage their migration to OmniPage Pro.

The immediate effect of the new business model was to depress Caere’s software revenues, despite an increase in total software shipments of more than 100 percent. At the same time, Caere exited the hand-held scanner market, crimping its hardware revenues. Meanwhile, the continuing economic crisis in much of Western Europe was hurting the company’s international sales, which shrunk below 30 percent of total sales. The company was forced to cut back its employee base, which dropped from 300 employees to 220. By the end of 1995, sales had slipped back to $52 million.

In that year, however, Caere began a drive to acquire competing and complementary scanning software companies. The company first acquired Calera Recognition Systems, in a 2.5 million share stock-swap deal, adding Calera’s popular WordScan OCR software family to Caere’s OmniPage. Caere shipped new versions of both programs in 1995; in August 1995, with the launch of Microsoft’s Windows 95, the company also announced development of a Windows 95 version of the OmniPage family. The company’s bundled software shipments topped 1 million in 1995; meanwhile, the company also expanded its retail sales network, adding the 450-store OfficeMax chain in the United States, and adding another important reseller, Vobis, the largest computer retailer in Europe.

Continuing its drive to expand by acquisition, Caere reached an agreement to acquire ViewStar Corp. and its client/server workflow and document management software. That agreement fell through in early 1996, however. Caere also invested $2.4 million in ZyLAB International, giving it a 20 percent stake and an option to acquire complete control of that company and its full text indexing and retrieval software. ZyLAB failed to meet its planned targets, however, and Caere wrote off its ZyLAB investment in 1996. In the beginning of 1997, the company found an acquisition that fit, paying $4.7 million for Hungary’s Recognita Rt, the world’s third-largest OCR software designer. In April of that year, Caere also acquired Formonix Inc., which had been developing a new product for Caere, called OmniForm. The acquisition involved an exchange of stock worth about $3.2 million.

The end of 1996 brought good news to the company. Corporate revenues had begun to climb, despite a slump in hardware sales, to $54.5 million, representing the success of Caere’s software seeding moves. Shipments of bundled software had doubled over the year before, and, importantly, the company saw a 116 percent increase in its upgrade revenues. The introduction of the Windows 95 version of OmniPage and WordScan also helped drive total software sales up 67 percent for the year. Importantly, 1996 saw the first true surge in popular and corporate interest in the Internet and especially the World Wide Web, which helped spur scanner sales. At the same time, Caere began preparing its OmniForm software, which enabled the conversion of text-based forms into electronic forms for web page publishing. OmniForm began shipping in early 1997. Given the growing interest in commercial applications of the World Wide Web, the demand for OCR forms capacity appeared a highly promising market. After nearly two decades as a niche market, OCR seemed ready finally to move into the mainstream. And Caere was poised to hold onto its position as the OCR market’s dominant player.