by: Issues: March / April 2000. Tags: Strategy. Categories: Strategy.

It’s taken 10 years, but CEO Brian Edwards has made BCE Emergis a shining star of the e-business universe.



Ivey Business Journal: It’s been one year since MPACT Immedia changed its name to BCE Emergis and it’s been a spectacular year.

Brian Edwards: It was spectacular.

Journal: What was the main reason for that tremendous performance?

Edwards: I think there’s a whole bunch of reasons. The sector we’re in obviously is a big factor, the electronic commerce sector. But I think the performance over the last year probably comes from three major factors…I think the name change…to BCE Emergis…and putting the BCE brand on the company gave us a lot of credibility.

The second thing is that we won some fairly major contracts. In particular, a large contract with the six Canadian banks. That also gave us a lot of credibility. It was the largest electronic commerce contract ever given out anywhere in the world.

The third reason is probably that in every single quarter we surpassed expectations and had pretty tremendous revenue growth. So we really went form a $75-million company, when we did our deal with Bell, to a company that did $186 million.

Journal: How are you going to grow? Acquisitions? Internally?

Edwards: A combination of both. There will be internal or what we call organic growth. We plan on doing some acquisitions as well, primarily in the States, to establish a major position there.

Journal: What type of companies are you looking at in the States?

Edwards: An electronic commerce company that’s focused on generating revenue and earnings through transaction services. So that we put up the infrastructure on the Internet, and then we get paid as the traffic flows through our systems. We’re looking for transaction companies in the U.S. in either the financial or banking sector, or in health care. Those are the two major areas of opportunity. And even if they’re not on the Internet, we could still be interested in them because we think we can then move them to the Internet.

Journal: What do you mean by a transaction company?

Edwards: Let me talk for a second about the contract we got from the Canadian banks. It’s for something called bill presentment. Right now you can go on the Internet or your telephone and pay your bills. With the new technology, you’re soon going to be receiving your bills electronically, right on the Internet. So you’ll receive them, you’ll pay them, and you’ll also be able to manage tem, all electronically. That’s an example of a transaction. And we get paid every time a bill gets presented. The banks are our customers, they sell the billers and the consumers.

Journal: Would that be it for the type of companies that you’re looking to acquire?

Edwards: It’s actually a pretty wide range if you look at the transactions. Because the banking world is changing as well. One way it is changing is that the relationships that they had with their customers, both business and consumers, were really based on the branch organizations, on the fact they had physical locations. That’s changing to the virtual world where you’re going to do business with your customer electronically. The question is, how do you retain that customer? How do you keep them loyal? How do you keep them connected to you if you don’t have any physical, personal contact. You’re going to see the banks beginning to offer more and more services like electronic procurement, so as a small business, you’ll be able to use the bank’s network to buy products and services. You might even get some of the bank’s buying power to be able to get things at a cheaper rate. And by the way, as you do that, the bank would like to finance those purchases for you and offer other services while you’re using these electronic networks. So you’re going to see a whole series of applications delivered by the banks, and those are the kinds of transactions that we’re involved in.

Journal: Outside of the United States, is there any other country you might look at to acquire companies?

Edwards: Right now we think the U.S. is the place where we have to be well positioned. Because the North American market—primarily because of the U.S. and its size—is where all of the Internet commerce action is. The rest of the world will follow in a couple of years. If we stay a leader just in Canada, we’ll get eaten alive by the big U.S. guys when they come in. So we need to be down in the States, establish a position for ourselves, and they you’ll see us move to the rest of the world. Our acquisition last month of [Maryland-based] UP&UP is a major first step.

Journal: How does UP&UP meet Emergis’ criteria for an acquisition?

Edwards: The U.S. health care market, with its myriad costs, players and infrastructures, is perfectly matched to the benefits that the Internet offers. With our experience in transaction processing in health care in Canada, we have used the Internet to streamline costs, improve communications and increase efficiency. With UP&UP, we see a distinct opportunity to leverage our expertise in Internet commerce for the U.S. health care industry by teaming with the business partners of UP&UP, and realizing the advantages of the Internet.

We had said that we would be looking to extend our expertise into the U.S. in a strategic and focused manner and we are extremely pleased with this acquisition in that regard. UP&UP will add significant U.S. revenue and clients to BCE Emergis’ health care business, and strong business relationships with payers and providers in the United States. More importantly, we will now have an extremely strong and experienced U.S. management team, including Thomas Blair, the Founder and Chairman of UP&UP, and Edward Civera, President, both of whom have been critical to the success and growth of UP&UP. Both of these leaders will continue on with the BCE Emergis health care business in the U.S. and continue to manage the business and its employees.

Journal: Who are your peers?

Edwards: I think the interesting thing about BCE Emergis is that we have a pretty unique business model at the moment. The competitors that we have today are primarily single-product companies. And those single-product companies are going to have to evolve into a much wider product range like us, and resolve customer solutions, offer a full suite of services for that customer, rather than just one product. So we think we have a pretty unique position. Lots of competition but with a bit of a different business model. When we look at our position in Canada and our $300-million business, and the fact that most of our revenue is coming from Canada, we then say, “Canada is one tenth of the States, so who is the $3 billion competitor?” We don’t see him, which means that we have a big, big opportunity.

Journal: What percentage of revenues would you like to see come from outside Canada?

Edwards: We’d like to maintain a very strong position in Canada, but if we’re going to be a world leader, we’re going to have to look at the rest of the world for business volume. BCE Emergis hopes to increase its percentage of revenues from the U.S. during 2000. Presently, approximately 20 percent of our revenues come from the States, the rest from Canada.

Journal: I’d like to talk more generally about the e-business landscape. Could you tell me why it’s such a dynamic market? What’s driving the tremendous growth of e-business?

Edwards: I think one of the best ways for me to explain that is with an example. Booz Allen & Hamilton did a study that shows it costs a bank about $1.07 to do a transaction with a teller. It costs maybe 24 cents to do it with an automated teller machine. The Internet costs less than one cent. So one of the driving forces is the cost reduction that the banks get. Now the people that are actually going to be the billers. The electronic bill is about one-third of the cost of the paper bill. So they’re getting these cost-reduction benefits.

The other thing is when a bank looks at its business and says, “What franchise do I really have, and these technology companies coming along like the Yahoo!s and the AOLs, could they steal my franchise?” Banks have decided that if they’re not very well connected electronically, they could get bypassed, because consumers could begin to get other services. So the other thing about creating bill presentment solutions is that the banks attract customers to their site, and that helps. And when you look at it from the biller’s point of view, they get the same benefit. Right now the company sends out millions of bills, but those bills are static. On the Internet, when you send out a bill and when you get your bill presented to you electronically, you can actually click on the bill, you can go to another place, you can see more products. You now have created an interactive opportunity.

Journal: What might be the “doomsday” scenario that would kill the whole world of e-commerce?

Edwards: Obviously if people decide that they don’t think there are any benefits to doing business electronically, that could be a major problem. My sense is that we’re really moving the other way. I think more and more we’re seeing situation that are confirming that the electronic world is going to be a major player. I was really quite astounded at the AOL/Time Warner deal…where AOL took over one of the largest entertainment companies in the world. And not only that, they become the majority shareholder. When you think of it, 10 years ago AOL virtually didn’t exist, and they have now taken control of the largest entertainment company in the world. I think it says something about what’s really happening out there. It’s kind of a confirmation. People were saying, “I’m not sure this is real.” The fact of the matter is it’s being converted into something very, very real.

Journal: Is there another sector, aside from financial services, where e-commerce growth is going to come from?

Edwards: Certainly we think health care is a big market for us. Eventually physicians will get to the point where they’ll be able to do a lot more things electronically and improve efficiency. At the moment we’re focused on the business efficiencies that come from dealing with the payers and providers in the health care marketplace both in Canada and the United States—the insurance companies and the pharmacists, the dentists, the doctors, et cetera. For example, the ability to let an employee with a group insurance plan and a little card go to a pharmacy, order the drugs, have the transaction adjudicated, verified right there on the spot, and get the individual to only pay the amount that’s not covered by that insurance. This is a big market that’s going to grow very substantially, and there are a series of other economies that get built into that process. So we think health care is a big one.

The other market we think is very, very significant is the telecommunications marketplace. And part of the reason is, of course, the fact that we’re part of BCE, we do very little business with BCE as a customer today, and we’d like to grow that. We also see an opportunity to use Bell Canada as a sales channel as they try to build their presence and add value-added services to their business. And of course we’d like to think that we could build a relationship with SBC [Southwestern Bell] that now has a relationship with BCE. So we see some big opportunities in telecom.

Journal: What opportunities are there for Emergis to leverage its partnership with BCE and SBC?

Edwards: With BCE and Bell Canada we’ve got a lot of very strong relationships; those continue to build and we’re very pleased with the progress we’re making there. With SBC, it’s really very new, it’s very early days, and right now it’s more a concept. We think we have a lot of value to bring to the table. We think that there’s some good things that could come from this. However, we haven’t as yet got anything concrete going with them.

Journal: But knowing its business, SBC’s that is, where might there be an opportunity to capitalize on the partnership?

Edwards: Let me give you a simple example of something we’ve done in Canada that we could replicate in the United States. In Canada, Tele-Direct has taken the Yellow Pages and put them on the Internet. So you can now go on the Internet and find out who the dentists are in your area, who the wine sellers in your area are. What we’re doing for Tele-Direct here is helping them offer merchants the ability to actually display and sell their products on the Internet through the Yellow Pages. That kind of application would fit very, very well in the U.S. also.

The other opportunity is the whole distribution channel. They need value-added services to add to their network. We have the services that they could resell to their customers and therefore grow their business.

Journal: What types of services?

Edwards: I think electronic procurement is an example of that. They could create networks that let their customer use those networks for buying. I’m also thinking of security. More and more as we do banking transactions, as we do purchasing transactions on the Internet, the level of security will continue to increase. And each one of us is going to get an electronic signature eventually. I think the telcos are very well positioned to provide some of these kinds of services, as are the banks, by the way.

Journal: With respect to Bell and BCE, what opportunities are there to work together?

Edwards: We’re working together in a number of ways. First of all we’re working with Bell Quebec and Bell Ontario, and packaging services for them to offer to their small- and medium-sized business customers. We’re working with Bell Nexxia and helping them to package solutions for the large account market in Canada, bundled in with their network offering. So it’s really the bundling of our technology and services with the services of the telco.

Journal: What vision are you guided by?

Edwards: Let me start by saying we’ve taken the approach that we want to have a very wide product range. I mentioned earlier, the difference between us and many of the other companies that we see as competitors is that they have only one product. We have a very wide product range, and part of that range grows by making agreements with best-of-breed solution providers from around the world.

The second thing we’ve done is identified four sectors where we think we can be worldwide market leaders. One is financial services and that’s really the banking and mortgage services companies. The second is health care and that’s really health insurance, primarily the insurance companies. The third one is the telcos, and those are primarily the telecommunication companies related, if you like, to BCE. Those are the ones we think are the most obvious opportunities. Finally, it’s the transportation industry, which is the airline and cargo industry and the transactions that occur when shipping goods and services.

We have sold off the businesses that we thought were a little bit more consumer-oriented in the last three to four months, and we’re focusing on these major sectors. Because one of the things that we think is going to be important is to understand the business-to-business market, where we actually get built-in distribution. If we can sell them to their customers. When we can sell the banks, they can sell to their customers, and the insurance companies for health care they can sell to their customers. That’s one of the ways that’s making us grow at a much faster rate than even this fast-growing industry.

Journal: Is there any reason why a telco—and I’m thinking particularly in the States—would not want to do business with you?

Edwards: I think if you look at the world and the way it’s being divided up, with BCE and SBC kind of being aligned, AT&T may not be so excited about being aligned with SBC and BCE. They may view them more as competitors, for instance. I’m not even sure that they do, but they might. And so we think it probably makes more sense to work with the telcos that are related, certainly initially, and it’s probably a little easier to get in. Because even when they are related, these are such large companies that getting to talk to the right people at the right time about the services is already a challenge.

Journal: Can SBC open the door to other telcos in the States?

Edwards: They could certainly open the door to SBC. And if they’re not interested for whatever reason, then I think we would look at other telcos to see if we could align ourselves with them. But it seems more natural to do it with SBC.

Journal: You position yourself more as an end-to-end e-commerce company. Perhaps you could explain that phrase “end-to-end” and what it means, and what sort of competitive advantage it gives you.

Edwards: We really mean the wide product range. But we’re focused on the business-to-business side of electronic commerce. We’re not focused on the business-to-consumer side. Sometimes our customers might go from our products to the consumer, like the example of the banks. But we’re really focused on the business-to-business side. End-to-end means that when you go out and acquire a bill presentment service from Emergis, it opens the door to security services, Internet payment services, electronic procurement services—all the different kinds of services that we think the market is going to need. We’re building a relationship, and it helps those customers to add capabilities to the base service that we’re providing.

Journal: “Network centric” is another phrase that seems to be part of your positioning.

Edwards: That’s an important buzzword for us. It’s an important advantage. I think that’s changing a little bit as an advantage, because other people are starting to realize the importance of it. Network-centric really means that all of the applications that we run are actually on the Internet. They’re on the network. So you don’t build your own big internal infrastructure to get at these solutions. All you really need is a Web browser, and you may want to build some pipes into your existing infrastructure. But you really take advantage of all this stuff through the Web. It’s all Internet protocol-based.

Journal: Coming back to the year ahead, what do you see as the main challenge?

Edwards: We’re growing very fast. We need to good infrastructure. So making sure we’ve got the solid infrastructure to be able to support this fast growth is an important challenge that we have going forward.

The number-one priority is to become a major player in the U.S. next year. And that’s really a big, big focus on top of everything else that is priority for this year.

Journal: Who do you come up against in the States when you’re selling BCE Emergis?

Edwards: The interesting thing is that in Canada and the States we come up against the same people. If you’re trying to sell an electronic procurement solution, you’ll probably come up against somebody like Commerce One. If you’re going to try and sell somebody an EDI solution, then you come up against Sterling and Harbinger. And if you want to sell somebody a bill presentment solution, you’ll come up against somebody like Checkfree. If you wanted to come up with a security solution, you’ll come up with something like Verisign. And those are all U.S. competitors. In fact, they are in the process of trying to take a share of the Canadian market. We’re trying to go the other way.

Journal: Have you completely discounted the consumer market?

Edwards: Discount is probably the wrong word. We’re certainly not at all focused on it. We are not organized to be able to have consumers as customers. We’re getting to the consumer market indirectly. We would make a deal with Tele-Direct who would sell it to small- and medium-sized businesses. Even for the small- and medium-sized business market we have a hard time getting to it on our own. That’s why we’re using channels like the telcos to get to those markets. The banks are also people that are taking our bill presentment solution. They go and get the billers, which is the business-to-business side, but they offer the solution to consumers. But they aren’t our customers; those are the bank’s customers. Business-to-business is the focus, but the distribution channels, the distribution capabilities to the banks, the telcos, the insurance companies, can sometimes get us right to the consumer. But essentially they’re not our customers, they’re the customers of our customers.

Journal: To come back to growth, would you buy a content or a media company?

Edwards: That’s not being considered at all at this point. I think the simple answer is no. I don’t think that’s where the focus is. It’s not at all in the current thinking. In fact there are other BCE subsidiaries that are looking at that kind of thing…a subsidiary called BCE Media. That ground is well covered by BCE, but more importantly, that’s really not our market at all. It’s not something we would look at at this point.

Journal: Do you see your relationship with BCE changing in any way?

Edwards: I think we kind of have the best of all worlds at the moment. We have BCE, who’ve got a majority share of the business and therefore they can feel comfortable that they’re creating something of value for their shareholders. They also get a publicly traded company with another series of shareholders and some currency that gets created to do transactions and deals outside of Canada and even within Canada. So I think we kind of have the best of both worlds in terms of the arrangements we have now. That doesn’t mean they couldn’t drop 10 or 15 points or grow 10 or 15 points in terms of their equity position, but frankly I think…the mix is quite good right now.

I think that on the other side of it, Emergis is becoming even more strategic for BCE than they realized 15 months ago when we created this business. As they see the world evolve, as they see us take an important position in this world, I think they realize that they have a very valuable asset. I think that they view us as even more strategic than they did. I also think that selling off Nortel has increased our importance in the BCE family.

Journal: How do they see you as more valuable?

Edwards: Let’s just look at the value from a stock market point of view, and then let’s relate that to what I mean. First of all, when we did our transaction, September 1, 1998, the value of the company was about $750 million. Today, the value of the company is over $1.5 billion. That in itself forces shareholders of BCE with the kind of asset they now have, to say, “Wait a second. What is happening here? How important is this to us? Is this going to continue? Does it make sense? Does it fit well with what we’re doing?” And I think they realized that more and more it fits very well as a value-added service.

Journal: Beyond the appreciation in equity, why is it in BCE’s interest to keep you in their suite of companies?

Edwards: I think competitive advantage is one reason and also the fact that…the world is evolving, and the telecommunications business is a much more competitive business today. It’s tougher and tougher to get the margins out of those businesses that you were able to get 10 years ago…and so they’re looking for other high-value, high-margin businesses that actually fit well with the core telecommunications asset. When you see that these are transactions that ride telecommunication pipes with the value-added services, it becomes significantly more strategic.

Journal: Is Canadian business e-ready or does it need to do certain things to catch up to companies in the United States?

Edwards: Personally I don’t think we are actually lagging from a technology point of view, from an e-commerce capability or an understanding point of view. If you look at the number of Canadians connected to the Internet, for example, we’re doing extremely well. I don’t think there’s any real issue.

But the capital markets in the U.S. have encouraged a lot more companies to develop. They’ve put a lot more risk capital into this new medium. And I think that from that point of view there are a lot more U.S. companies engaged in e-commerce. Where we see the difference is when you start looking at the actual content. There’s not as much content created in Canada yet as there is in the United States. I think that’s going to change pretty dramatically. We have a different way of doing things in Canada, and I think there are some very significant infrastructure projects that are being created in Canada right now.

Bill presentment is a good example of that because every business, every consumer in the country is going to be able to deal electronically. We’re way ahead of the States in terms of having the ability to do that. Here in Quebec we’ve built a network with the Workers’ Compensation Board. We’ve tied in all of the businesses dealing with the Board, all of the health-care institutions, all of the financial institutions. We’re creating a very powerful network where businesses are beginning to realize that they can work electronically. I also think of something like this Yellow Pages project, where the whole business community that’s in the Yellow Pages offers their products and services electronically.

From a content point of view, we don’t have as much up. From a risk point of view, we’re a little less risk averse. It’s clear that when we go and see the investment community in the States, they think we’re cheap; and when we go and see the investment community in Canada, they think we’re expensive. There’s more money in the States; there’s a little more willingness to take the kinds of risks in these new technologies. But I think we are going to be a very significant player in this new world. I’m very confident.

Journal: I assume the banks, the large institutions want to get on this bandwagon?

Edwards: Our business is e-commerce ready. Around the world the answer is probably “not really,” “not yet.” I think from that point of view these are the very, very early days. That’s why it’s so exciting. Because everything is yet to be done. And yet it looks like everything will get done. So it’s really a race, very much of a race, and that’s why it’s such a great opportunity.

Journal: Paint a picture of what e-business will be like 20 years from now?

Edwards: I think in this arena, it’s absolutely impossible to look out 20 years. And I certainly don’t consider myself someone who is able to give you a good answer to that. But it’s clear that we’re going to have a much more interactive world. And it’s clear that many of the devices that we take as sort of everyday devices, like our cellphones, are starting to become Internet able. I think our watches, our glasses, all of these things are going to become interactive devices, that are going to help us better and more quickly deal with huge amounts of information. And so things are going to become much more personalized in business. It’s a whole mass customization concept that everybody is throwing around. You’re going to have to be able to deal with every individual and give them exactly what they want in your business instantaneously. And the technology is going to move to permit that. Networks are going to be a huge proportion of that…and of course the servers that have this information and this application data and this transaction processing data are going to also be important components. So those two things are going to become incredibly important.

Journal: When you go to the States and people say BCE Emergis, do people there recognize BCE Emergis as a leader?

Edwards: Not today. I think today…over 90 percent of our revenue comes from Canada. We don’t have any investment banking community following us. A lot of people still aren’t quite sure what BCE Emergis does, so one of the things we’re going to do is get that following in the United States.

Journal: Will it be harder or easier selling your story to Wall Street than it was to Bay Street?

Edwards: My sense is that Bay Street has not bought into the story, and Wall Street doesn’t know the story. So it will take a while to explain the story and make sure they understand. And it’s not something you do once and then everybody says “I understand it all” and they go away. So that’s why when you have the analysts following you, they write the detailed reports, they try and explain it, and they help you to get the message out. Because it is a relatively complex story.

Journal: You were one of the founders of MPACT Immedia. This must all be especially gratifying for you.

Edwards: I like to tell people that it only took me 10 years to become an overnight success [laughter]. It’s a lot of hard work to get there. And for much of it…people really ask: Why do I need this kind of stuff? Why do I need this kind of technology? As the market has evolved, people have realized that there are some major advantages to doing business this way. And I think BCE Emergis is particularly privileged to be able to be leading the way in many of the arenas that I think are going to be significant on a worldwide basis.

Journal: Thank you very much.