On Monday, CIO.com reported that the notorious hacker group Anonymous which has been behind many high-profile attacks, including one that paralyzed tourism and info sites about Orlando, was now setting its sites on Google+. Its user group had been booted from the new social network, and in retaliation, the hackers’ news site Your Anon News reported that it knew of an “operation” targeting G+. READ MORE
For 10 years, Karl De Abrew and Sam Chandler had a happy, productive relationship with Adobe, developing plug-ins to enhance Acrobat PDF software and consulting with the software giant, based in San Jose, California, on developer support. And Adobe seemed just as happy with ARTS PDF, De Abrew and Chandler’s Melbourne, Australia-based company; it even sponsored ARTS PDF’s online community of PDF users, Planet PDF. By 2003, ARTS PDF had 30 full-time employees and half of its $3 million in annual revenue came from Adobe-related projects. But the two partners were plotting a move that once would have seemed insane–severing the relationship and instead competing with Adobe with a PDF product of their own. The problem was the way Adobe had begun treating third-party developers like ARTS PDF. Since the release of Adobe Acrobat in 1993, such developers had been key to Adobe’s strategy. The company created the application with an open standard, giving any developer access to the software’s specifications and a free license to create applications to extend its capabilities. Hundreds of third-party developers had based their businesses on Acrobat. ARTS PDF, for example, scored a big hit with a plug-in that, among other things, allows users to activate Web links in PDF documents, and sells the software on its own website, PDF Store. But Adobe’s CEO, Bruce Chizen, who took over from co-founder John Warnock in 2000, had grown wary of working with outsiders. Warnock used to refer to the hundreds of third-party developers as Adobe’s “ecosystem.” Under Chizen’s leadership, however, the company began reengineering the third-party plug-ins itself, incorporating them into new and increasingly complicated versions of Acrobat. That sparked concern among developers. If consumers could buy Acrobat software loaded with the latest extras, they would no longer need plug-ins. De Abrew and Chandler were as tuned into the PDF community as anyone, and they knew what was coming: Their plug-in business was disappearing before their eyes. At the same time, they sensed that there was a market for an Acrobat alternative. People were changing the way they used PDF applications. Instead of using the software simply to create and read files, more businesses were embracing the PDF format as a collaboration tool to let workers share digital documents, inserting revisions and comments along the way. Acrobat can do all those things, but the cost can sting when a company needs to push out the software to large groups of employees. What’s more, many companies don’t need Acrobat’s whiz-bang graphics capabilities, which tend to slow down performance. De Abrew began asking customers what they thought about Adobe. Their responses backed up his hunch. He says he heard complaints from many executives who were tired of paying between $350 and $450 per user to license the software. Acrobat, they said, was sometimes overwhelming and confusing. They wanted a cheaper version that was faster and easier to use. And if ARTS PDF built it, they’d buy it. De Abrew and his colleagues had been kicking around the idea of creating an alternative to Adobe for years but had never seriously pursued it. Now it seemed like a good idea. Adobe was huge, with revenue of $700 million. But a 2003 research report found that the PDF market had the potential to reach $1 billion. De Abrew and Chandler were confident that ARTS PDF had the industry knowledge and engineering chops to pull off a cheaper, scaled-down version of Acrobat. What’s more, the open PDF standard meant anyone could develop applications to compete with Acrobat, so there was little possibility of a lawsuit. The way De Abrew and Chandler saw it, they had two options. They could stick it out and hope that Adobe reconsidered its approach toward third-party developers, the chances of which seemed pretty slim. Or they could try to get a slice of the PDF market for themselves. That would mean alienating their biggest partner. It would also mean refocusing most of their limited resources on developing the new product and all but abandoning the plug-in business that had been so profitable. The stakes couldn’t be higher: If the competing product failed, Adobe wasn’t likely to let them return to the fold. There would be no turning back. The Decision One muggy afternoon in December 2003, in the 100-plus-degree heat of the Australian summer, De Abrew and Chandler sat down with their four-member board of directors at the company’s headquarters and began sketching out a strategy for going up against Adobe. The mood was tense, but as the group looked out a conference room window at the city’s skyline, they knew there was nowhere to go but forward. “We decided we’d rather have our own Acrobat and a shot at a growing market than a slice of a declining one,” De Abrew recalls. Shortly after the meeting, the company’s engineering team, which is based in Nitra, Slovakia, started work on the new product, Nitro PDF. It would be a leaner version of Acrobat’s powerful and feature-rich software and would retail for $99, less than a third of the price of Adobe’s entry-level offering. Thanks to their contacts with Acrobat users and developers worldwide, they already had a strong sense of what the market wanted, not to mention an instant test group for prototypes. De Abrew and Chandler were up front about the move with their contacts at Adobe, which was putting most of its effort into pricier, high-end offerings, and the business relationship between the two companies remained intact. Meanwhile, ARTS PDF went through a radical restructuring, redirecting 80 percent of the company’s employees and cash flow–which formerly had been spread evenly among its plug-in business, Web store, online community, and consulting group–to developing and marketing the software. The other divisions continued to exist, staffed by a skeleton crew and receiving minimal marketing and development dollars. Thanks to this strategy, ARTS PDF was able to stay profitable throughout the entire ramp-up process–and it didn’t have to lay off any full-timers. Eighteen months after starting, ARTS PDF’s team of 60 part-time and full-time engineers completed the application. But the real work was just beginning. In the past, the business had sold its products only through its online store, telephone sales, and a global network of corporate resellers. Now, De Abrew and Chandler began courting big-box retailers. Since they had no retail contacts, they hired a publishing and distribution partner with an established network to negotiate deals for them. They also added staff to their small sales office in San Francisco to establish a bigger U.S. presence and started a word-of-mouth marketing campaign by distributing free beta versions of the software to hundreds of users through the Planet PDF website. In April 2005, De Abrew and Chandler officially unveiled Nitro PDF at a software trade show in Orlando. An Adobe executive speaking at the event mentioned the release in her keynote speech, briefly referring to new competition as she talked about the changing PDF industry. She didn’t show a hint of hostility, but the general reaction from the Adobe team was chilly. In years past, the two groups would have greeted each other like old friends. This time, the conversation was curt. Throughout the conference, the ARTS PDF booth was packed with people interested in learning more about Nitro PDF, and the company left the event with dozens of sales leads, Chandler says. It needed them. Shortly after the conference, Adobe pulled its sponsorship of Planet PDF and launched a competing site, AcrobatUsers.com. It also stopped giving ARTS PDF consulting work. Ricky Liversidge, a director of product marketing at Adobe, says the company’s decision to compete with Acrobat did not come as a surprise. “That changed the relationship to a form of ‘coopetition,’ ” Liversidge says. “In this industry, that’s nothing new. We face that with many different companies.” ARTS PDF isn’t quite the “other Adobe,” but the company is on track to sell 100,000 units this year, according to Chandler. De Abrew and Chandler expect revenue to ramp up significantly this year, fueled by sales at nine major retailers, including Amazon, Office Max, and Circuit City, and 19 corporate resellers around the world. The company’s main concern, Chandler says, continues to be its loss of revenue from the plug-in business. ARTS PDF will eventually start to feel that loss as its Acrobat plug-ins, which the company is no longer developing, become obsolete. “We’ve bet the farm on Nitro and restructured the entire company around our new direction,” Chandler says. “We are playing with the big boys now, but we remain utterly convinced that it was the right decision.” The experts weigh in Corporations won’t buy it ARTS PDF has bet the store on this strategy. There is demand for a lower-cost version of PDF software. That said, I don’t think many large corporations will jump over to Nitro, even if the lower price means they can buy more copies for their employees. Corporate users expect a high level of service from software providers–that’s one of Adobe’s strengths. Smaller companies can’t deliver the same service. Tim Bajarin President Creative Strategies Campbell, California It’s a matter of trust It’s a double-edged sword. Increasingly, I get calls from clients who are upset with Adobe’s pricing model. There are many companies that will say, “Hey, we just need these basic functions and we don’t want to spend the extra money for Acrobat.” On the other hand, Adobe is an extremely well-known company. It’s very hard to overcome that kind of brand loyalty. It’s almost like somebody coming out with an office suite to compete against Microsoft. People know Adobe. I’m not sure they would trust another brand. Rita E. Knox Research vice president Gartner Research Van Nuys, California Creative marketing is key It sounds like a smart strategy, but it won’t be easy. De Abrew and Chandler saw some chinks in Adobe’s armor, studied the marketplace, and found out what people wanted. The question is whether they have the resources to promote Nitro PDF with enough marketing and advertising. They really need to get their message out if they are going to make inroads against a big company like Adobe, which has much deeper pockets. Dave Dolak Founder Marketing by Dave Dolak Charlottesville, Virginia What do you think? Should ARTS PDF have gone head-to-head with Adobe? Sound off at casestudy@inc.com.
“The encryption has been broken,” said a foreign-sounding voice. At that news Ron Johnson and Lori Scherping found themselves in the middle of every business owner’s worst nightmare Ron Johnson and Lori Scherping live and work in their own small corner of paradise. They’re comfortably settled on three and a half acres in the Arizona desert, where they frequently rise at 5:30 a.m. to weight train on the covered patio of their 2,700-square-foot home while their dogs, Diesel and Ranger, frolic in the expansive backyard. The couple’s commute is about half a minute — the time it takes to walk to the converted garage where they run their Web-based business, UltiMutt. From there, the couple design and sell posters that combine their passions: dogs (Scherping) and motivational quotes (Johnson). Revenues are relatively modest ($300,000 projected for this year), but the company supports the two and gives them what many would consider an enviable life. But you would not have envied Johnson and Scherping last April. It was late in the day on April 10 when Johnson received a call from Jacqueline Haag, a customer in Colorado Springs, Colo. Haag had just finished an unsettling conversation with a “foreign sounding” man who claimed to be with “Web security” and identified himself only as Khalil. “I had ordered some posters from UltiMutt that night, and half an hour later I got this phone call from a very strange man,” recalls Haag. “His English was difficult to understand, but he blurted out my credit-card number. He said to me, ‘I’m a security person, and your card has been stolen. The encryption has been broken.” The man told Haag that her card had been stolen from the UltiMutt Web site and that she should call the company’s 800 number listed there. But Haag called her credit-card company first, only to discover that shortly after her $35 charge to UltiMutt had been processed, another charge for $658 had gone through. She canceled the card immediately, then called Johnson. Johnson didn’t quite know what to make of the call. Haag could have lost her card information someplace else. Maybe she didn’t really understand online ordering. And “the encryption has been broken” comment? It sounded like something out of a bad espionage thriller. Nonetheless, Johnson thought it best to be prudent. He called his Web host, Web2010, in Orlando. “I relayed the customer’s story and asked them to scan our logs for any unauthorized file access or any evidence of hacking,” says Johnson. A technical-support person promised to get back to Johnson by 7 the next morning. Next, Johnson decided, just as a precaution, to pull UltiMutt’s order-log file off the server and to give the new file a different name. In a final attempt to test the waters for signs of a security leak, Johnson logged on to his own Web site and placed an order, christening a brand-new credit card with no other charges on it. He would check it first thing in the morning. “I took a deep breath and said, ‘OK, it’s being taken care of,” he recalls. Exhausted, but confident that he had done all that he could for the day, Johnson crawled into bed and slept soundly. A less sanguine Scherping tossed and turned beside him. She would not sleep well again for two weeks. “I have a warriorlike mentality. I knew I needed to do four things: stop the hacking, understand it, find the thief, and control damages with our customers.” –Ron Johnson
First place Sumerset Custom Houseboats (See ” Web Awards 2000: General Excellence.”) Second place Dollars for Dialing Company: DirectWireless.com Web address: www.directwireless.com Why it won: This unadorned site generates at least 10 times in annual revenues what it cost to build. Company revenues: $2.4 million Site-launch cost: $25,000 Judge’s view: “While this is not the most elegantly designed site … it puts forward a no-frills, get-down-to-business attitude that should appeal to active, self-directed shoppers.” –Mark Leiter In 1997, Rob Marler, who was selling Nextel cell phones in central Florida, was living the sales rep’s nightmare: his customers wanted to buy things he couldn’t provide. They were asking for accessories like batteries, chargers, and cases, “and there weren’t any,” he recalls. Those items were always out of stock. “It seemed like a forgotten sales opportunity,” Marler says. He and a Nextel colleague, Brian Bangle, quit their jobs to start a wholesale business selling accessories to Nextel dealers. Next, they opened their Direct Wireless retail store near Orlando, adding products for Motorola, Nokia, and other brand-name phones. In 1998 they launched a Web site. A year later they renamed the whole company DirectWireless.com, acknowledging some of their repeat customers’ growing preference for ordering goods online. Currently, only about 10% of their customers make their subsequent purchases online, a percentage Marler hopes to increase in coming years. Today the 10-employee company offers 750 products, including hard-to-find accessories for older-model phones and for the latest models of pagers and handheld computers. The Web accounts for about 10% of the company’s revenues, but Marler expects that figure to grow with the market. (He estimates that there are 100 million cell-phone users in the United States this year, up from 79 million last year.) Initially, DirectWireless.com outsourced all its Web work, but “it cost $150 an hour and took a couple of weeks to get a new graphic or text on the site,” Marler recalls. Now a full-time Web staffer does the same work in minutes. Not that DirectWireless.com focuses on design. Judges unanimously mentioned the site’s stripped-down look. “Designed to win sales, not art awards,” noted judge Mark C. Thompson, but he added that he found accessories for his own phone faster on DirectWireless.com than he did on the “much prettier Motorola site.” Marler, who owns but rarely uses a cell phone, now wants to attract a new generation of customers: teenagers. “If we acquire them as customers today and keep them until they’re 80, we’ll be servicing every phone they ever use in their lifetimes,” he says. –Anne Stuart Third place Sweat Equity Company: Affordable Supplements Inc. Web address: www.affordablesupplements.com Why it won: The site helped to grow the company’s business in nutritional supplements so quickly that they now represent 95% of sales. Company revenues: $250,000 Site-launch cost: Less than $500 Judge’s view: “The site loads quickly and lists products immediately; it has a clear search capability, clear information on products, and an easy purchasing method. The ROI is huge since they designed the site themselves.” –Mark C. Thompson Dave Gray of Colby, Kans., thought he could muscle more money from the bodybuilding supplements he and his wife, Kristi, sell at their gym, the Fitness Club. At the time, sweaty athletes fresh from their workouts were buying about $2,000 worth of the supplements each month. Gray figured he’d be doing well if he made one sale a day online. So with no experience, Gray cobbled together and launched an E-commerce site in March 1999. He saw results within days, making his first sale to a weightlifter in England. Within six weeks, Web sales matched over-the-counter sales. As their fall season began, the Grays were doing 95% of their supplements sales over the Web, averaging more than 32 orders a day for projected sales of $750,000 this year. They still run their health club, but online sales account for 80% of their revenues, which reached $250,000 last year. Gray developed the business by focusing on a specialty audience: serious athletes, primarily body-builders, weightlifters, and football players. “MotherNature.com sells vitamins and herbs. We’ve stayed totally away from that,” he says. “If we do sell a vitamin, it’s because it’s targeted specifically to an athlete.” He buys in volume so he can deeply discount products like mineral supplements, muscle-building hormones, and powdered meal replacements. And Gray, who is an experienced weightlifter, knows whereof he sells. The Grays and two full-time employees answer hundreds of E-mail questions on everything from effective exercises to the pros and cons of protein supplements. While he can’t yet cite figures, Gray believes those personal responses convert to sales often enough to justify the effort. Gray, who calls himself “really cautious, the do-it-yourself kind,” chuckles when he hears about E-commerce start-ups that have spent six figures launching their Web sites. “I didn’t even buy Microsoft Front Page,” he says. Instead, he built the site himself with shareware he found online, mostly at CNET Download.com. He spent about $300 for software that handles credit-card processing and $50 on a scanner. Gray maintains the site; two employees handle order fulfillment, and a third does the product photography. Judges felt the site’s look and feel reflected its skinflint roots. “Weak and confusing navigational architecture, cluttered purchasing process,” wrote Nicholas DiGiacomo. “Ugly in a Yahoo sort of way,” agreed Mark C. Thompson, but added, “It definitely achieves the company’s business goals.” –A.S. Conversation with Mark C. Thompson Judge: ROI Trying to keep up with Mark Thompson is like chasing a hummingbird. That’s because he never stops moving. During this phone interview, for instance, he’s driving from Silicon Valley to San Francisco. En route, he stops for lunch and polishes off a chicken sandwich, all while talking nonstop about why Internet ROI isn’t an oxymoron. If anybody knows about E-commerce investments, it’s Thompson. Currently, he’s chairman of Integration Corp. of Mountain View, Calif. Previously, he spent 12 years at Charles Schwab & Co., most recently as executive producer of Schwab.com. Thompson, 43, says return on investment relates to how well companies know their customers — and how well they treat them. More Thompson musings: On the winners: “These companies jumped out at me because they appeared to quickly solve the problem the customer would be coming with: They want to buy sports supplements. They want to buy accessories for a mobile phone. They want to custom-design a houseboat.” On the losers: “I’m always surprised when you can’t actually complete a transaction on a site. Most people aren’t coming to browse. You need to have empathy for the poor customer who’s trying to get things done.” On designing for success: “There’s going to be a shift away from the designer Web site — one that’s used to showcase a company — towards a new pragmatism. [For example] Yahoo is enormously successful. Yahoo isn’t pretty. It’s fast, it’s effective, it’s on target. That should be a lesson.” –A.S. Annual Web Awards 2000 General Excellence Marketing Customer Service ROI Innovation Community Judges Please e-mail your comments to editors@inc.com.
