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Expert Application Systems, Inc.
The Market

2.1 The Opportunity

Compliance software systems represent an untapped market of approximately 330,000 manufacturers worldwide (see Appendix A). EASI's products target specific niches within this worldwide market, such as the Underwriters Laboratories (UL) compliance market. EASI projects that these niche markets include at least 50% of the worldwide market, or 165,000 manufacturers. The average manufacturer complies with five safety standards and accompanying updates, resulting in a total worldwide market potential of $1.5 billion in program sales and $248 million in annual update sales (see Appendix A). Because of increased federal emphasis on product safety standards, there is enormous growth potential for EASI. According to the American Tort Reform Association, the number of product liability cases filed has increased by 700% during the past decade. High dollar damages because of unsafe products has promoted a worldwide focus on product safety. Many countries have passed legislation mandating product safety certification prior to product introduction. The U.S. is considering such legislation, which is already mandated in certain areas of the country. With product liability costs rising, companies such as IBM consider the issue important enough to restructure their organization and give the product safety departments direct communication with the CEO. Additionally, universities are now offering specialized Product Safety classes. For example, EASI is currently talking with Dr. Way Johnston of Texas A&M regarding joint projects between the company and the university. This interaction could include the use of EASI's software in the Product Safety curriculum, which would result in the acceptance of EASI's software systems by future product safety engineers before they enter the workplace. These trends illustrate the immense opportunity for EASI's compliance software systems in the marketplace.

2.2 Industry Description

Manufacturers must comply with a host of regulations and standards. In the United States, certain electronic products must be listed by one of several Nationally Recognized Testing Laboratories (NRTLs), such as UL, as complying with appropriate product safety standards. This certification helps companies avoid criminal, civil, and private legal actions. UL is the world's largest independent testing laboratory, holding the vast majority of U.S. safety certifications for electronic products. UL engineers test products to meet one or more of the 592 UL Standards.

In the United States, there are over 45,000 equipment manufacturers whose products are covered by one or more UL Standards. Of these, over 5,700 comply with UL 1950: Safety of Information Technology Equipment Including Electrical Business Equipment. This results in domestic market potentials of $405 million in program sales and $68 million in annual update sales for all UL Standards, and over $10 million in program sales and $1.7 million in annual update sales for UL 1950. This market is growing at a rate exceeding 10% per year. Internationally, over 8,500 manufacturers comply with UL 1950 when selling their products in U.S. markets (see Appendix A).

2.3 Customer Need

According to the American Electronics Association's 1991 Productivity Survey, quality, product reliability, and time-to-market are the most important factors for success in high-tech markets. Obtaining product recognition is a time-consuming and costly process that can affect product quality, design time, and cost. For example, the cost of a typical UL product submittal averages between $3,000 and $10,000. According to the August 1991 issue of PC Magazine, the total cost of achieving UL listing/recognition for a complete computer system starts at approximately $10,000 and can spiral upward if the original design is particularly poor with respect to product safety. UL reports that 95% of initial submittals for UL 1950 require changes, resulting in a long listing/recognition cycle (see Appendix B). Avoiding this costly process is not an option since listing/recognition is a competitive necessity. The UL mark significantly broadens a product's potential market by creating competitive advantages over non-listed products. However, UL Standards, as well as other government regulations and standards, are often extremely difficult to interpret and incorporate into the design process. In fact, due to the complexity of UL 1950, Underwriters Laboratories offers a two-day seminar to clarify the Standard. The cost is $695 per participant and, when offered, these seminars are typically filled to capacity. The seminar is a "one-time-only" situation and customers usually need extended instruction. Therefore, a two-day seminar on UL 1950 does not meet the needs of most manufacturers. Companies are in need of faster, more efficient compliance processes that will save them time and money and EASI's compliance software systems fill this need.

To define our customers' needs, EASI recently surveyed 200 manufacturers nationwide (see complete details in Appendix Q. The intent of the survey was to make a low-cost, preliminary estimate of market need rather than provide detailed statistical data. The response rate to this "blind" survey was a remarkably high 28%. The survey confirmed that manufacturers devote substantial manpower and funds to the UL compliance process. Responding companies reported frustration with the UL Standards documentation, the frequent changes to standards, and lengthy paperwork requirements. As illustrated in the following graph, 80% of the responding companies that submit products to UL expressed strong interest in an easy-to-use and accurate software package to guide and assist them with the compliance process. In fact, one-third of responding companies have at some point hired a UL consultant to assist them with the process.

To meet our customers' needs, EASI's product test sites are actively involved in the development process and continue to provide valuable feedback regarding key features that should be integrated into our product. This interaction is ongoing and customer input will continue to drive our product development. We will also conduct follow-up surveys to further define customer needs, and will continue to research target markets as our product line expands.

2.4 Target Marketing

EASI will use target marketing as a means to leverage marketing and sales resources, build early volume, and develop customer relationships. EASIs software products will be targeted at all manufacturers requiring product recognition by testing laboratories. Our first product, UL Solutions -1950, is a software system designed to assist in the UL 1950 compliance process. This product is targeted to approximately 5,700 domestic manufacturers and represents potential sales in excess of $10 million in program sales and $1.7 million in annual update sales (see Appendix A). We will initially target companies through alpha and beta testing in order to establish market presence and gain additional credibility. EASI will then market to small- and medium-sized businesses, those most often confused by compliance requirements.

Although large manufacturers typically have a distinct department that handles all regulatory and standards compliance, they still face delays in bringing a product to market. Large manufacturers will use EASI's products during the design process to reduce the need for costly change after completion of the design. For small- and medium-sized companies an in-house staff is cost prohibitive, so a design or manufacturing engineer usually handles standards compliance in addition to other duties. This individual is often unfamiliar with compliance specifications, which may result in lengthy product compliance processes and product changes. Letters from CompuAdd, National Instruments, and Rochelle Communications, Inc. all confirm that companies are in need of faster, more efficient compliance processes that will save them time and money (see Appendix D). EASI's compliance software systems fill this need.

2.4.1 Alpha Testing

Alpha sites provide customer feedback during the early-to-mid stages of product development. EASI is customer driven and, therefore, alpha sites serve an important role in the company's development. We have obtained verbal alpha site commitments from several companies in Austin for their review of, and feedback on, UL Solutions - 1950. To date, Rochelle Communications, Inc., Applied Heater Technologies, and OptoMed, Inc. have reviewed the product and provided valuable feedback for the development process.

2.4.2 Beta Testing

Beta sites provide customer feedback during the mid-to-later stages of product development. We have obtained verbal beta site commitments for the testing of UL Solutions-1950, from Underwriters Laboratories, Inc., IBM Corporation, CompuAdd, Dell Computer Corporation, National Instruments, and 3M. CompuAdd, Dell Computer Corporation, and National Instruments have already returned written beta site agreements (see Appendix E) and the remaining companies are anticipated to do so in the near future. We will also test applicable products with ECB S.A., a computer manufacturer in Madrid, Spain. The product safety managers at these companies have expressed great interest in our product and have agreed to test the beta version and provide feedback to EASI. Each member of EASI's management team is involved with the company's alpha and beta sites. We view the customer feedback from these sites as crucial to the design and development of our product and the involvement of each team member in this process guarantees a continued focus on customer wants and needs.

2.5 Competition

At present, there is no commercially available software guidance system for product safety standards. Indirect competition (or "alternatives") may exist in five forms: 1) NRTLs, 2) compliance consultants, 3) Information Handling Services, Inc. (IHS), 4) large manufacturers' in-house staff, and 5) compliance seminars. NRTLs offer manufacturers product safety certification services. At present, NRTLs do not offer guidance through the compliance process or provide timely updates. Expansion into these service areas by NRTLs could reduce EASI's market.

If a manufacturer does not wish to commit internal resources to manage the compliance process, he or she may hire a compliance consultant. These consultants provide a manufacturer with guidance and technical expertise. Typically, the fee for a consultant will add between $3,000 and $4,000 per product to the over-all cost of obtaining product certification. Large companies under a time deadline may view this as necessary to keep a product introduction on schedule, however, smaller companies typically cannot afford the additional cost of a consultant.

IHS is licensed by UL to market the full set of UL Standards on CD-ROM. This product retails for $4,000. IHS customers complain that the visual quality of the electronic information presented is poor and that the "zoom" feature designed to address this concern is insufficient. This has led some IHS customers to cancel their contracts with the company. IHS does not sell individual standards and their products do not offer guidance to assist users through the compliance process.

Large manufacturers frequently have sizable internal departments that handle all regulatory and compliance requirements for the company. Our marketing survey indicates that these companies would be interested in EASI's software as a time-saving tool for their staff and to promote concurrent/simultaneous engineering in the design process.

Compliance seminars are a "one-time-only" situation and do not provide the extended instruction customers require.

Competitive Analysis

Improve Manual AccessGuidance Through ProcessIncrease Success RateReduce TimeProvide Timely UpdatesCost
easiXXXXX$3000 Total
NRTLsX    $3,000 - $10,000 per Product
Compliance consultants XXX $3,000 - $4,000 per Product
IHSX    $4,000 Total
In-house Staff XX  Total Employee salaries
Compliance Seminars  X  $1,700 per Person per Class

The fact that at present there are no direct competitors offering a software based guidance system for product safety standards is a distinct competitive advantage for EASI. This will make it difficult for competitors to enter the market since companies looking to purchase compliance software systems for product safety standards will tend to follow the example set previously by industry leaders. These industry leaders will have been exposed to EASI's products through our alpha and beta site arrangements and will be familiar with their features and benefits. EASI's initial customers will serve as a "word-of-mouth" sales force to future customers.


Expert Application Systems, Inc.
Table of ContentsAppendices
0. Executive Summary
1. The Company
2. The Market
3. Products
4. Marketing Plan
5. Product Development
6. Organization
7. Financial Plan
Market Survey
Letters of Support
Product Screen Samples
Product Price List
Endorsement from UL
Cost-Benefit Analysis
Resumes
Board of Advisors
Financial Projections
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