Emerging Vision. Just a vision?

                   It probably could have been avoided if Emerging Vision had done more research on this consultant to see what his track record was.  Also, it would have been helpful to be a little more politically active in the board of directors and in garnering stronger support among its members.

           If those two things had been done or the consultant not been brought in, chances are that the board would have voted to keep the Internet division and sell the chain.  The demise of the company had absolutely nothing to do with the Internet B2B portal division, but they were the ones who felt all the repercussions.

          Now they are trying to get some funding from a Venture Capital firm to start and then try to sell to one of the larger players in the optical market or take advantage of the business-to-business e-commerce industry, which is expected to explode to at least $2 trillion by 2004.

Emerging Vision started out as Sterling Optical.

Sterling Optical is an optical chain with 30 corporate-owned stores and about 230 franchise stores.  They are located primarily in the Northeast and in the California area. Their optical stores sell eyeglasses, frames, contacts and accessories and are often co-located with an in-house optometrist. Sterling also owns several laser vision-correction facilities.  It is traded on the NASDAQ under the symbol of ISEE and has a board of directors. Sterling Optical has not had a very impressive history financially. Net sales for Company-owned stores, as well as revenues generated by VCC, a specialized health care maintenance organization licensed by the California Department of Corporations, decreased by approximately $5,486,000, or 31.2%, to $12,115,000 for the year ended December 31, 2000, as compared to $17,601,000 for the comparable period in 1999. This decrease was principally due to a lower number of stores in operation for the year ended December 31, 2000, as compared to the comparable period in 1999, as described below. As of December 31, 2000, there were 233 Sterling Stores in operation, consisting of 32 Company-owned stores (including 12 Company-owned stores being managed by franchisees) and 201 franchised stores (including 3 franchised stores being managed by the Company on behalf of franchisees), as compared to 254 Sterling Stores in operation for the comparable period in 1999, consisting of 36 Company-owned stores (including 6 Company-owned stores being managed by franchisees) and 218 franchised stores (including 5 stores being managed by the Company on behalf of franchisees).

B2B Portal History

Sterling has lost money for several quarters now and the board of Directors knew that they needed something to help turn the company around. They decided to engage Rare Medium's Internet consulting group to create a website for them that would help them increase sales as well as create a better, more up-to-date image and Internet presence for the company. 

In the course of working with Rare Medium as a technology partner, Sterling also tasked Rare Medium with the job of determining how Sterling could best utilize the Internet to transform their business. Rare Medium assigned the job to Greg Cook, an executive with Rare who had extensive experience in the optical industry.  Greg previously was the CEO of Foster Grant, the largest importer of sunglasses in the US at the time that Greg was the CEO.  Greg suggested that Sterling create a Business-to-Business Internet Portal  to streamline the supply chain for the optical industry.  Sterling agreed and hired Mr. Cook, as the CEO of a newly formed wholly owned subsidiary of Sterling that would create the portal. Emerging Vision has evolved in this way from a retail eyewear and vision service company to an Internet-based portal supplying a comprehensive supply-chain solution for the optical industry. In fact, Sterling has developed and launched the first Internet-based portal for the optical industry to provide comprehensive e-commerce solutions to commercial buyers and worldwide suppliers of optical products and materials.  

To give the company a chance at creating a strong technology-related brand that wasn't associated with Sterling, they named the new company Emerging Vision. Realizing that this new portal would be the future of the company, the board of directors decided to do a "reversal" and make Emerging Vision the parent company and Sterling became the subsidiary. The name of the company was changed to Emerging Vision and the stock ticker symbol ISEE was changed from Sterling to Emerging Vision as the owner. 

Business Model

The plan for Emerging Vision (EV) was to use Sterling's existing supply chain to create initial demand for the portal and leverage that to drive traffic on the portal and get other companies to start using it as well. EV's hope was that after Sterling's suppliers started using the portal to transact business with Sterling, they would see the benefits of the portal and begin to use it for their own suppliers and customers, therefore bringing more trading partners onto the portal and increasing the amount of product that was traded via the portal.  Sterling jump-started the process by forcing all of its suppliers to agree to do business with them via the portal or Sterling would not continue to purchase from them.  Most suppliers agreed to the deal.

EV's portal is a pure supply-chain automation portal; it is not a market place, like most B2B portals.  EV's portal was designed to bring existing trading partners together and to automate their transactions using the efficiencies of the Internet.  EV's portal is not a shopping marketplace where companies go and buy supplies from multiple suppliers and pick and choose the supplier with the best price; partners could only trade with other companies on the portal if they had signed trading agreements with those companies.  Essentially, the portal took existing partners and automated their transactions, thus saving them money.  This is in contrast to most B2B marketplaces that allow companies to buy a product from a number of suppliers (driving down the price for every supplier).  Most companies trading on the portal would be companies that were already doing business with each other. 

The plan was for EV to host rich multimedia product catalogs for each supplier and present those catalogs to the suppliers' respective trading partners and facilitate the ordering, invoicing and shipment tracking aspects of the supply chain.  EV would then get 2% of the value of the transaction from both the buyer and the seller as payment for its services.

 Banking on Retail Expertise

The company's experience comes from a team of well-seasoned optical industry and Internet professionals who are extremely familiar with the supply chain process. Through that experience, Emerging Vision realized there is a large-scale Internet opportunity. A market study shows that, an average optical retailer can have anywhere from dozens to hundreds of suppliers. For each item supplied, the supplier may have a dozen other suppliers, distributors, and manufacturers of component goods.

“Today, many businesses are discovering they can use Internet-enabled applications to integrate their purchasing and selling systems. The results are highly profitable for all parties involved," says Cook.

The sales processes and communications between optical retailers, manufacturers, and distributors are complex and often convoluted and involve many steps. That's where Emerging Vision steps in. Its integrated trading portal greatly simplifies these communications and provides users with an average 3% savings on each of the following: communications, inventory carrying costs, savings on processing costs; and 10% savings on product prices.

        Marketing Practices

EV marketed its portal in many ways:

- Trade magazines:  EV advertised in the major optical industry magazines "Vision Monday" and "20/20".  EV's slogan is "See the better way to do business"

- Direct contact:  The most important of all marketing practices was via direct contact with each potential trading partner.  Many of these are in the Orient and this was a long and expensive process.  However, since EV's portal works based on existing relationships and not critical mass, it was important for EV to be the instigator of discussions between trading partners to convince them of the benefits of doing business via the portal instead of using faxes, telephone, etc to do business (this was very costly since much of it was international business).

- Trade shows:  EV built an elaborate booth and took it to some of the industry's largest trade shows like Vision Expo West in Las Vegas and Middo in Milan, Italy.  Live demos of the portal were conducted at these shows and quite a bit of marketing material and "giveaways" were given out at these shows.

- Giveaways:  EV had several branded items produced to give to potential customers at trade shows and meetings.  These included pens, hats, T-shirts, lanyards, bags and mugs.  EV took the approach of giving away quality items instead of inexpensive item to help further its image as a high-quality organization. 

“This was pretty tough since we never went live with our product. However, we've received feedback from several other parties in the industry that our portal was state-of-the-art and that there is still a market for it, just with another company name.”

The Company Plan

Emerging Vision recently took two major steps toward implementing its strategy to build an Internet portal. On June 26, 2000, the company announced it hired Legg Mason Wood Walker to assist in selling the 250-unit Sterling Optical retail chain and Insight Laser Centers, a majority-owned subsidiary that operates laser vision correction centers and an ambulatory surgery center. A major condition of the Sterling deal is that the optical chain must continue to do business with Emerging Vision after the sale.

"We decided to sell those businesses so we could be a fully neutral portal," explains Cook.

The company also announced it is partnering with a wide range of technology providers, including Rare Medium, Microsoft, Symix Systems and webMethods. It also is in the process of leveraging its many years of contacts in the optical industry to establish strategic alliances with participants in that industry. This would enable Emerging Vision to more quickly reach a critical mass, where it can deliver planned efficiencies and increase its marketability. Their integrated network-trading portal has been connected via the Internet to manufacturers and distributors around the world, creating a truly global e-commerce optical business. Their drive is to streamline the entire supply chain process, enhance buyer-supplier relationships, automate the purchasing process from product development to payment, and ultimately reduce sales and distribution costs through efficiency, improved communication, and increased market exposure.

Competition

This past year proved to be a year of growing pains for the refractive surgery market, with consumers beginning to develop a more thorough understanding of the surgery and results. High, middle, and discount players began jockeying for market positions with great expectations for market performance amid the high demand for vision correction. For many companies, these were followed by changes, challenges, and disappointments.

But not for Gimbel Vision International (GVI), which has a healthy 36-year history. The past year was one of change, meeting challenges and success. GVI emerged at the end of the year with a record of consistent, solid results, achieving a 45% increase in procedure volumes, revenues of $21,162,206, and earnings per share of $0.05. GVI owns or is partnered with 13 refractive surgery centers in Canada, the United States, Thailand, and China. "The Internet represents the breadth of our market recognition, with clients from around the world visiting our website to request information," says Karen Gimbel, president and chief executive officer. "Out-of-country clients represent as much as 23% of our business at any one of our Canadian centers. The Gimbel name is strongly associated with expertise and good experience."

Bausch & Lomb Incorporated is a global eye care company dedicated to helping consumers see, look and feel better through innovative technology and design. Founded in 1853, the company has annual revenues of approximately $2 billion and employs approximately 12,000 people in more than 50 countries. Bausch & Lomb products are available in more than 100 countries around the world. Bausch & Lomb offers three product lines: vision care, surgical and ophthalmic pharmaceuticals.

The Cooper Companies' CooperVision (CVI) division entered 2000 with exceptional momentum and maintained its growth through the first half of the year. CVI grew 18% in 1999 and 17% in the first two fiscal quarters of 2000, in a global contact lens market that is showing just 6% growth overall. CVI markets contact lenses primarily in North America and Europe, while Cooper Surgical (CSI) markets diagnostic products, surgical instruments and accessories for women's healthcare. CSI sales were up 78%, reflecting the recent acquisitions of BEI Medical Systems and Leisegang Medical. For the six months ended April 2000 year-to-date COO's consolidated revenues increased $14.5 million or CVI's share represented more than three-fourths of the $91.2 million total revenues. The division's strong performance is not surprising, considering the new products that have entered the marketplace. Frequency®Colors is CVI's new line of disposable planned replacement cosmetic contact lenses. The cosmetic contact lens market, about $300 million worldwide, is the second fastest growing sector of the specialty lens market (behind toric lenses, which correct astigmatism).

The 60% of the U.S. population that needs vision correction has more options than ever. From traditional eyeglasses to contact lenses, cataract surgeries and refractive surgery, including laser vision correction, NovaMed continues to expand its horizons in eye care. Its most recent growth mode is apparent in its successful focus on the fastest growing and potentially largest ophthalmic procedure: laser vision correction (LVC). For the 11 quarters through June 30, 2000, NovaMed's laser vision correction procedures have sequentially grown at a 31% average quarterly rate, approximately double the growth rate of laser vision correction procedures in the U.S. over the same period. "Our 6,644 laser vision correction procedures in the second quarter of 2000 represent an annual run rate of approximately 26,500 procedures," adds CEO, Winjum.

In just a matter of months, Santen Pharmaceutical Co., Ltd. has gone from being "the biggest company nobody ever heard of" to a highly visible U.S. marketer of two important new eye care pharmaceuticals and a well known branded glaucoma medication. The leading ophthalmic pharmaceutical company in Japan since 1890, Santen specializes in treatments for eye and rheumatic diseases, offering both prescription and OTC products. Among prescription ophthalmic pharmaceuticals, Santen also holds the third-largest share of the world market, offering a full selection of medications for a variety of eye disorders. Santen operates subsidiaries in Europe and Asia, including its California-based U.S. unit, Santen Incorporated.

In the competitive contact lens industry, UltraVision Corporation has established itself as a recognized developer of high quality, innovative vision care products. Since beginning operations four years ago, the Canadian contact lens innovator and its wholly owned marketing subsidiary, Specialty UltraVision, Inc. of Campbell, California, have embarked on an aggressive acquisition strategy, achieved an exceptional history of nine FDA product approvals, and begun a well-funded program of plant expansion. "We are working not only on building our business one lens at a time," says chairman and CEO Dr. Vincent Zuccaro, "but on building our business by acquisition." Last year's acquisition of facilities in England, Australia, and Singapore gave UltraVision access to new markets and secured a reliable supply of contact lenses at reduced costs. Now, growing demand for the company's products, which are distributed in more than 40 countries worldwide, is leading to further expansion.

The Bad Turn

The main reason for the termination of the Emerging Vision was the financial instability of the initial parent company.  Sterling Optical really started the whole thing with the intent that the Internet business would supercede the retail chain as the main source of income for the company.  They tried to sell the chain, but because it was in such poor financial shape, they couldn't really get a good offer.  With no capital raised from the selling of the stores, the board of directors decided to drop the Internet side and focus on retail. 

“Emerging Vision brought in a financial consultant to help turn around the company, but he ended up being a "hatchet man" who was really more interested in breaking the company up so it could be sold in little pieces.  The board put faith in this consultant (who ended up being their worst enemy) and the company suffered because of some of the moves made by this person.  It is my belief that this consultant was really the one who convinced the board to drop the Internet division.  So, it's a mixture of bad business and greedy politics that ended the whole thing.”

Projections

The same team that built Emerging Vision is trying to secure funding from a venture capital firm to resurrect the portal.  They are also talking to two very large optical companies about getting them to invest in the portal.  So far, they've received very positive responses and will hopefully be back in business in a couple of months.

”We've gotten good feedback and we think that there could be a chance of getting additional funding. We still intend to be a pioneer in facilitating the exchange of goods and services in the optical industry, which is estimated to be $50 billion worldwide with $15 to $17 billion in domestic sales," says Greg. 

According to their studies the industry shows great growth potential. Projections for growth in global markets range from 10% in Latin America to 23% in Asia. Plus, when it comes to Internet systems and technology, the optical industry has not experienced much development. “We are poised to take on that role."

APPENDIX:

Portal

Usually used as a marketing term to described a Web site that is or is intended to be the first place people see when using the Web. Typically a "Portal site" has a catalog of web sites, a search engine, or both. A Portal site may also offer email and other service to entice people to use that site as their main "point of entry" (hence "portal") to the Web.

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Recommendations for the Emerging Vision team

First, they have lost their clients, and now they have to start from the beginning.  Assuming they will receive some funds from the two mentioned companies, we think their success will depend on how fast they can move. The failed “introduction”, the announcements made on media, let all the major players in this industry know about what they have accomplished and what is that they want to do. So the surprise element is no longer valid. They have little time available to start their business until someone else would do.

Everything seems to be about convincing the suppliers and their clients that this portal will have a great and good impact in their business. A good job has to be done in finding the right price to ask; a higher one may determine these customers to build one of their own.

 Convincing is mostly an advertising and customer support job. The message their ads should deliver shouldn’t be a general “less cost” one; their experience in retailing should help them in finding the exact cost driven operation of a company and the savings that the portal implementation would bring. Free consultancy should be available for every new customer; as experts in the field they should be able to come up with particular solutions and  educate on portal use all customers. Is worth considering for study when and how a potential client, supplier or manufacturer/vendor, perceives the need of having a internet portal taking care of its operations. This will help predict the entrance of new users, contacting them prior to the need becoming an emergency could avoid losing them in the advantage of another competitor.

 A second problem is whether they should keep the present format of portal use between contract parties, or they should change to a free market type where the cheapest price and/or the best quality will make the rules. Both choices have advantages and disadvantages. Selling the portal only to contract parties can create an initial high demand driven by the cost savings that the portal offers. But this only in the case of a reasonable price. This scenario will not seem to last, due to the inevitable appearance of new portals with better faster services. If they want to survive in this way they have to be always the first in implementing new services, have the most advantageous price/quality ratio, and acquire first any new pair (supplier, vendor). But we don’t see how they can continue this business if another competitor will introduce a free market type of portal.

So, we think this is a better approach, the free market style of the portal, even though at the beginning is expected that clients will not rush in, on using it, especially the suppliers who want to keep their existing prices and customers. But no matter how much they try to avoid competition, the technological improvement in manufacturing and commercializing optical elements will open, sooner or later, the doors of the price/quality battlefield. The portal will be a paradise for suppliers’ clients, they can look for the best price or the best quality, they can have a feel of the market (which is also a disadvantage if not considered), or push suppliers for providing better products or lower prices.

Third, we would like to address is whether they should sell the portal or not. Of course there is no reason of discussing it, if this is the price they have to pay for receiving the vital initial funds. If not the case, keeping and managing the portal is a decision that we agree with. Selling it to one of the industry companies will create disapprovals for all the other players, and playing with the parent company and different names is not something they want to see happening again. Selling to an outsider may bring the risk of not getting the desire importance/attention from the side of the adopting company, for this portal, and from here, poor service provided, unhappy clients, lost of existing customers. But keeping it, brings the question of how will they afford to continue their business, knowing that being first in everything (customer service, new applications etc) is a must in order to discourage any attempts to build new different portals. The price they charge for having access to the portal is not going to be enough, considering the small forecasted number of initial suppliers. Additional funds can come by offering advertising space, charging special services like market research studies and trying to target with their services each member of the supply chain in order to increase the number of customers. If funds permit the construction of sub portals like one for ongoing contracts (for parties that already agreed and signed the contract, that now require a special different type of services) can be a long time source of revenues, too.

Further, a good task division of the company is, also, one of the keys for success. A corporate operations division, webportal design labs, office of the registrar, marketing department, research department, domain and hosting department and technical support department, we think, complete the list of a strong structured B2B internet based company.