Can you tell us a bit about Commtouch (CTCH)?
Gideon Mantel, CEO: Your timing is fantastic, by the way. Small-cap Israeli stocks have been hammered over the past 9 months. With the shekel appreciation, funds in the states lost money just on 
the currency divergence. Commtouch (CTCH) has a unique piece of technology. We have the ability to look at a huge stream of data and monitor and recognize patterns. Essentially, we function in the cloud [Ed.: the cloud refers to computing resources being accessed which are typically owned and operated by a third-party provider on a consolidated basis]. Scalability, performance, cost and results can be very attractive in the cloud. Over the past 4 years, we’ve used our technology to address secure messaging problems: that is, we aim to stop spam and viruses propagated over email.
How do you distribute your anti-spam solution?
GM: We have traditionally worked solely via OEM agreements. Because we focus on the enterprise, it’s our opinion that it’s more important to sell software bundled together as all-in-one solutions, not best of breed.
Can you give us an idea about Commtouch’s financial performance?
GM: We have almost 100 OEM partners which have helped us to achieve between $15 and $16 million of top line sales which given our scale translates into $0.16-$0.19 per diluted share. We have $16 million in cash, $2 million of which is in AAA-rated ARS. We’ve been cash flow positive for 2 years
Commtouch processes 2 billion emails/day. We are, in a way, content aggregators. We see everything that goes over Internet. We see broadly as opposed to Google, which sees traffic only over one domain. The business is growing 35%-40% year over year. We’ve announced an end-of-year launch of a web security product which would combine URL filtering and a malicious site database. We believe that this market is at least the size of email security market We know because many of our existing customers have needs in the space. In effect, by the end of 2008, we’ll be doubling our addressable market. We’ve also announced that we are investing $1.5 million in R&D to get us there.
How do you expect customer spending to change in a bad macroeconomic environment?
GM: Overall, the IRR for antispam solutions is like 2-3 months. No one we know of is thinking of cutting this. Additionally, the OEM model is very leveragable. It’s almost a money machine. 100% of revenues is service with almost all of it recurring, with very few customers going away. Our P&L is pretty predictable. That said, the OEM model in a service environment has a lot of challenges. It takes a long time to sign and recognize revenues. It generally takes 1.5 years before you start recognizing revenues in this model. We’re already there and that positions us well to sell new solutions through our model.
Tell us about the web security market.
GM: Websense (WBSN) bought Surf Control. Listen to the recent conference call where the CEO says that they’re getting out of the OEM business. IBM (IBM) bought ISS which had bought Cobian. That leaves the big players out of the game. Most solutions are static solutions, meaning they are database driven. Commtouch will provide a real-time web filtering system in the cloud. We have a huge advantage because we already see 2 billion emails per day and have the vision to see where problems stem from. Eventually, all smart phones will have web filtering/URL systems in the years to come. Smart phones will have to tap the cloud when they surf on the Web. We’re basically a cloud vendor. All the pieces and stars are aligned very nicely. The end result, from my perspective, is a big dream with a great reality.
And the anti-spam market?
GM: In anti-spam, we are definitely the OEM leader. We continue to sign 5-7 new deals on a quarterly basis. The quality is improving in our customer base. We announced Aladdin (ALDN) and CheckPoint (CHKP). For us, the Far East is an important growth market. We already have 22 OEM customers in Far East. It’s always a constant war to maintain great detection.
Commtouch is investing in its future via the web security launch. Are you willing to jeopardize profitability to achieve future growth?
GM: The Commtouch story is about profitability, growth, and cash. We made the decision to not make our $6 million but instead make $4.5 million and invest $1.5 million in future growth. We are looking to be an acquirer of technology that will complement what we have today and enhance our existing products. We won’t compete with our customers; we’re not going directly to the enterprise. I don’t think that we’re looking to be acquired.
What could go wrong in the thesis?
GM: The economy impacts everyone. However, we are in a defensive sector. We don’t envision anyone cutting their spam service to save a few thousand dollars. The fact that we are looking at service revenues lessens the impact. We need to stay on top of the bad guys. We’ve done a great job but we need to continue to do so in the future.
What about the strength of the Israeli shekel?
GM: It has impacted us. We’ve communicated all the details to the market. We are very open and the damages weren’t that big. When we budgeted for 2008, when the shekel was at 4.10 per U.S. dollar, we used 3.80. We cut some expenses when we saw the move in the shekel. The impact in Q1 was $80k or so and probably will be a little higher in Q2. Our forecasts are intact.
What are you doing to get the story out about CTCH?
GM: Our CFO does roadshows. We are constantly talking to investors both in Israel and in US. Personally, my time spent is elephant hunting to attract those few investors who are committed to building and staying with a position in Commtouch. Our trading volume is increasing after a couple of months. So, in that sense, a mutual fund investor is more of a target than a hedge fund. We did a reverse split at the end of 2007. The main reason was to get on institutional investors’ radar screens. The stock was significantly higher than it is today with the intention to move from the NASDAQ Small Cap exchange to the NASDAQ Global Markets. Unfortunately, the market fell apart right after the reverse split, which didn’t help.
Thanks.
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An interview with Commtouch (CTCH) was featured as part of our new subscription newsletter, Israel Opportunity Investor. You can find out more about the company and the opportunities we cover at www.israelnewsletter.com
Sales 2.0 technologies
Web 2.0 technologies, like our new website, blogs, wikis, tagging, etc. are more than just some AJAX and cool, simple apps. The better technology and platforms have begun to take shape and are currently powering Sales 2.0 and making people real money. I’m currently employing some of these technologies and platforms to sell my business: investment research and management.
First and foremost, Sales 2.0 has begun to redefine the traditional sales funnel. Because web technologies are involved, a certain level of new automation has crept into the sales process. For me and others competing in today’s marketplace,
Sales 2.0 has done a couple of things:
- Increase the circumference of the funnel
- shorten cycle times in terms of how long it takes to get through the funnel
- Increase conversions
Increasing the Circumference of the Funnel
What I mean by this is that given Web 2.0 technologies, I’m finding that I’m able to get a dramatically greater reach with my marketing efforts, effectively creating wider and more frequent ways to connect with potential clients. From there, given Sales 2.0 tech and platforms, I’m able to push more people through a wider funnel.
casting a wide-r net: Web 2.0 technologies are effectively being used by sales organizations to build brand over a wider reach. Companies like mine are using these technologies to build huge marketing machines in a much softer, gentler, and more precise way: via content. Oodles of it. I work in the financial advisory field and am using my blog to effectively reach folks around the world who are interested in what I have to say. Because my firm is small, I have a relatively shallow reach. I work with blog aggregation firms like SeekingAlpha to ramp up my exposure. SeekingAlpha, due to its content base of hundreds of blogs, has negotiated distribution deals with Yahoo Finance and E*Trade, deals I could never have negotiated on my own. Now, my content shows us exactly in front of the types of people who are my potential clients.
I’m using metrics tools like Google’s plug-and-play Analytics to track my efforts and in step, I add more marketing/content gas to those sites providing the best feeders to my core business. Enabling my content with RSS allows me to get my content out there. Sites like RSS hosting/tracking firm, Feedburner, allow me to position my content to become portabilized and allow users to read my content wherever they may be. As I’m building a Sales 2.0 organization, it’s more important for me to reach a larger audience as this point than it is to drive direct traffic to my own blog.
reputation building or becoming an expert: these technologies provide companies and individuals to build their own brands in increasingly narrow niches. I run my blog on the WordPress platform. WordPress has developed an app so that my blog posts also show up on Facebook. Not only does this further my reach beyond my blog and any aggregators to whom I’m submitting content, it also gets my content onto Facebook. My existence on Facebook is centered around groups and people who overlap my sphere of influence, specifically investing in Israeli technology companies. By putting this content directly into their news feeds, I’m continuing to build my reputation as an expert in public market investing in Israeli companies.
I’ve just begun to use Twitter to microblog some of my market commentary during the day. As more and more mainstream users adopt twitter-like apps, I am sure that this will compete for other media as a way to build reputation and distribute my expert opinion.
I’m using sites like Vestopia and Stockpickr to increase sales. Both sites allow me to create model portfolios and submit them to a community of like-minded investors. Vestopia tracks real trades I make in my investment account while Stockpickr tracks play money, but both allow me to put my best ideas forward to potential clients. Another step in building my repuation as an expert in my niche.
Previously, as head of business development and sales at SeekingAlpha, LinkedIn was an invaluable tool for opening up deals and closing them. Creating a well-thought out profile was essential when I used the LinkedIn messaging system to target potential partners for content syndication deals. I was able not only to target the appropriate person for the deal, but they were much more likely to respond from an internal LinkedIn message than they were to a cold email or phone call. Why? Because they could see and filter out why I was approaching them. By the time we connected, the relationship was already in context. I closed deals with Dow Jones, Reuters and Etrade from approaches made via LinkedIn. Additionally, I participate in LinkedIn’s Answers to answer questions posted by my network to show that I know what I’m talking about in my field.
Salesforce.com and other CRM solutions like 37 Signals’ Highrise and Zoho are building more than rudimentary APIs for me to hook in other office/business critical solutions that I’m using, like Google AdWords. I’m using Meetup to plan, manage, and communicate with numerous seminars that I’m holding as a way to garner new business.
All these things are providing mechanisms for me to connect with as many warm leads as possible and bring them into a process that I can begin to close a proportion of them.
one-to-one sales: Sales 2.0 technologies essentially allow one to widen the mouth of the traditional sales funnel by creating a cheap and wide-reaching distribution network and given the ability to build brand/reputation along very narrow borders, companies are able to cast their message to the appropriate audience in a way that was never possible previously. The result is that I’m consistently marketing to my existing and future customers.
Sales 2.0 is all about relationship marketing. My future clients are reading my content on my blog, on SeekingAlpha and on Yahoo Finance. The next step in the process is to make the relationship a little more intimate by soliciting an email address. I accomplish this by using a email services company, like Contstant Contact or StreamSend. These service providers provide hosted email services including easy-to-use auto responders. So, when a prospect comes to my website after I’ve caught their attention on SeekingAlpha, I offer a quick, easy — and free — giveaway. A whitepaper. The user inserts his email address in the javascript email capture box I’ve embedded on my website and they’ve now entered my sales cycle. They get personalized emails from me with important information regarding markets, picks, etc. All these emails have a call to action to buy my product. I continue to convert my blog traffic to paying subs via this method — using all Web 2.0 type tools.
making customers into distributors: Sales 2.0, given its integration into the tangle of relationships that is Web 2.0, has some interesting outcomes. Satisfied customers actually become value-added distributors for my business. The more users I have tracking my portfolios on Vestopia or Stockpickr (see above), the more legs my sales and marketing efforts have. In turn, users who track or follow my followers are also exposed to my content. In turn, what’s occurred, is that my customers or soon-to-be customers reinforce my positioning as an expert in my field and in turn, act as quasi-distributors lending approbation to my efforts.
Shorten Cycle Time
Automation
I spend most of my time creating content and allow the hooks into various Sales 2.0 platforms to work their magic. Every article I write shows up on my Facebook profile because I’ve integrated Wordpress and
Facebook (see above). My email auto-responders treat every new trial subscription to my research the same way. A series of personalized, automated messages go out, creating a conversion channel for my readers. RSS feeds are pushed out automatically via Feedburner. Feedburner even has an automated RSS-to-email plugin that allows me to offer email subs to my web content and continue the sales conversation that way as well.
Something worth noting is that many of these apps have taken software and turned it into a hosted, web service. This means I just pay for usage, implementation is really simple, and the service company takes care of updating the service, not me.
Increase Conversions
The Sales 2.0 funnel is inherently more stickier than its predecessors. Potential clients enter my wide-mouth funnel and have access to my research, my blog, my real-time market commentary. It’s not hit or miss advertising. Instead, potential clients who don’t buy right away continue to hear, see, and feel my messages. They stay connected to me longer and instead of just slipping through the funnel, they hang out for a while. While cycle times are sped up, more conversions actually take place.
Integrating Sales 2.0 apps into existing apps
I think we’re still in the early stages of using Sales 2.0 apps and platforms and just beginning to integrate them into existing business critical platforms that we use to conduct business.
In the chart to the right, I’ve tried to describe the process of integrating these services. As they become
more integrated, not only are sales activities more and more automated, the ability to market directly 1-to-1 becomes greater as well.
1st Stage: Sales 2.0 in the Sales Process
We and many like us are currently using Sales 2.0 platforms and most of the time, these are standalone activities. Meaning, while I blog, use email services firms, facebook, twitter, most of these activities are accomplished individually. I blog on Wordpress, send email via StreamSend, and use Facebook and Meetup to get the word out there about my services using content as the marketing message.
The point is that while some of the apps are integrated in a minimal sense (the wordpress blog app allows me to blog on Wordpress and it shows up on Facebook) , essentially all these activities are distinct from one another.
2nd Stage: Integrating into other sales apps
As APIs get better and easier to work with for small businesses, more and more of these Sales 2.0 technologies mentioned above will get integrated in existing workforce management apps. By this I mean that the division between *new* sales apps (salesforce, email services, meetup) and *old* sales apps (ACT, Outlook, Excel) gets blurred.
3rd Stage: Integration with Company-wide apps
After integration between old and new sales apps takes place, the next step in the Sales 2.0 movement is to integrate these apps into mission-critical business apps like Office, Outlook, Finance/Payroll etc. We currently use ACT as our contact manager, Outlook as an email handler, and an in-house financial app/process. As our software gets better and more tightly integrated. APIs and platform-agnostic hosted services will eventually allow me to tie everything together and manage sales together with all the other functions
Summing Up
Sales 2.0 is not merely Sales 1.0 with some cheap and easy software. It’s a game changer. Given cheap and easy to deploy tools, I use content to market myself to millions of potential clients, effectively enlarging the circumference of the traditional sales funnel. Sales 2.0 then allows me to cycle through more leads in shorter times and convert more than I would through traditional, expensive methodologies.
