ClearStory Systems Inc. (CSYS.OB)
Interview with:
Henry F. Nelson, President and CEO
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The market opportunity is wide open for ClearStory Systems as they bring their Enterprise Media Server product to the marketplace

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Business Software & Services

ClearStory Systems Inc.

One Research DriveSuite 200 B
Westborough, MA 01581
Phone: 508-870-4000

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Henry F. Nelson
President and CEO

Interview conducted by:
Lynn Fosse, Senior Editor
December 1, 2005

CEOCFO: Mr. Nelson, what was your vision when you came to ClearStory and how has that developed?
Mr. Nelson: “I first joined the company as INSCI. The company was in a mature market and had a number of operational challenges. My vision was to first turn the organization around to profitability, then focus on growth for the company within a broader, growing market. Since then we expanded our product offering through acquisition, broadened our market presence, and re-branded the company as ClearStory Systems. We continue to execute on this growth strategy.”

CEOCFO: Will you tell us what you are doing now that is different?
Mr. Nelson: “Our original focus was on the management of fixed content, or documents such as reports, statements, invoices, and other transactional content. Our customers for these solutions are in highly regulated industries, such as financial services and healthcare. These companies are faced with big pressure to archive this content for regulatory compliance reasons. We began to shift our product development with the goal of empowering our customers to re-purpose this compliance content for customer-facing, high-value solutions such as online statement presentment and customer-service document solutions. We also saw a tremendous opportunity for solutions that manage the most rapidly growing forms of content in companies today.  Rich media, or digital assets, which include video, JPEG image files, graphics, branded content, and multimedia presentations is a growing challenge for global corporations. We made an acquisition in this space, which has fueled our growth strategy moving forward.”

CEOCFO: Who is using your newest services?
Mr. Nelson: “The target market for our newer rich media solutions have a high need for the management of digital media. These include media, entertainment, publishing, and advertising. Our customers in these markets include Sony Pictures Entertainment, Scripps Networks and Martha Stewart Omnimedia, and BBDO Detroit. Another big market includes the marketing departments of Fortune-1000 or consumer brand companies that are looking to get more value out of their investments in rich media and brand-related content. We help them leverage digital media in demand generation, customer programs, product launches, etc. Customer examples here would include Bristol-Myers Squibb, Smuckers, and Nintendo.”

CEOCFO: You have two new products; Enterprise Media Server and ActiveMedia Server, what are they all about?
Mr. Nelson: “Enterprise Media Server or EMS is our pure J2EE platform for developing rich media solutions. We can sell this product to developers or through systems integrators for the creation of specific rich media applications. We ourselves leverage the EMS platform for ActiveMedia.  ActiveMedia is our digital asset management (DAM) application, which provides out-of-the box capabilities for the capture, management, and delivery of digital media content. Since it is built on EMS, ActiveMedia is a third generation DAM application, which offers scalability, flexibility, and a powerful security model to meet the rapidly evolving needs of our market."

CEOCFO: Are you working with IBM?
Mr. Nelson: “We signed an agreement with IBM (NYSE: IBM); and are working with their digital media services group and the content management group. We have completed integration with DB2 Content Manager, we support DB2 Universal Database, and we are in the process of completing our port to IBM WebSphere Application Server. Right now, we are in the process of rolling out our solution within the IBM organization.”

CEOCFO: That should make quite a difference for you!
Mr. Nelson: “We hope that it is going to increase the revenue stream. We certainly believe that this will expand our market opportunities and we need to take advantage of them.”

CEOCFO: Will you tell us about the financial condition of the company?
Mr. Nelson: “We are backed by a company called SCP. They are a private equity group located in Wayne, Pennsylvania. SCP and our management together own approximately 72% of the company on a fully converted basis, so they are very committed to ClearStory. They have continued to fund the company through restructuring and more importantly, through the growth phase by providing the capital for the acquisition of WebWare and the development of our new EMS platform, which helped us expand into the rich media market. They have been a very supportive group and we expect them to continue to be so.”

CEOCFO: Will you tell us about the competitive landscape?
Mr. Nelson: “Digital Asset Management is an emerging growth market, and still not 100% defined. We have a number of competitors, each of which comes at the market from a slightly different domain perspective. Our challenge is to determine the right business solutions for the right markets, and bring those to market. In this rapidly evolving market, there have been a number of digital asset management vendors that have been acquired by large organizations, but they have not necessarily seen great traction. The opportunity for us is wide open.”

CEOCFO: What do you do in the next year or two to take advantage of that opportunity?
Mr. Nelson: “From a strategy standpoint, it is one of tactical execution. We need to build out our sales team and rapidly expand our digital asset management product suite. To expand our market presence, we need to execute on our new agreements with companies like IBM.”

CEOCFO: Do you need to add to your management team to get this accomplished?
Mr. Nelson: “I have a completely new management team from the group that was in place when I first walked in the door four years ago. It includes a full complement of individuals in every area. I am very comfortable that we have the folks that can execute on our business plans.”

CEOCFO: What is the revenue model?
Mr. Nelson: “Right now, our revenue model is very typical of a small software company. We see about 60% of our revenue coming from software licenses. Our ActiveMedia application is available as an optional hosted service. This allows us to sell the solution on a subscription basis, which gives us a recurring and consistent revenue stream. Approximately 30% of our ActiveMedia clients have selected the hosted model and we see that as a significant competitive advantage going forward.

If we look at our competitors in the marketplace, no one is offering a hosted model on an enterprise scale. We can support multiple companies on one instance of our software, which gives us a competitive advantage and cost-effective business model.

In addition to licensing our application, we also license our platform for the development of custom solutions. We have executed three of these licenses in the last twelve months. These are very significant license opportunities from a monetary standpoint. Our client can leverage our modern architecture and use our extensive set of APIs to build their own application or vertical market solution. We also believe that provides us with a significant competitive advantage by opening multiple doors for distribution.”

CEOCFO: In closing, tell us why should investors look at ClearStory Systems now?
Mr. Nelson: “We have a growth opportunity with a proven product for a growing market. We have invested millions of dollars in the development of a next-generation pure J2EE services oriented platform, and we have built out marketing, sales, and services to bring the product to market. With these significant investments behind us, we can focus on execution and growth. Now it’s just a matter of time as we execute our strategy.”


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“If we look at our competitors in the marketplace, no one is offering a hosted model on an enterprise scale. We can support multiple companies on one instance of our software, which gives us a competitive advantage and cost-effective business model.” - Henry F. Nelson


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