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CGI Holding Corporation (CGIH) |
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CEOCFO
Interview Index |
This is a printer friendly page! CGI
Holding Corporation is a holding company for WebSourced, Inc., the worldwide leader in search
engine optimization BIO: Mr. Jacobs: “When we first got involved with CGI in December 2001, CGI Holding Corp. was still making an attempt to divest itself of the last of a collection of businesses that the previous CEO had acquired. The company had an interest in some environmental remediation businesses, construction demolition businesses, a personal care products company, an ink company and one internet related business. Our first goal was to sell off the remaining businesses, other than the internet company, and to make sure that the company, from a financial standpoint, had a balance sheet that we felt would have no surprises on a go forward basis. We sold off the last of the businesses at the end of August 2002, and the company wrote off all assets on the books that we did not feel were gold plated. We wrote off all remaining good will on the books of the company, which was more than a two million dollar write-off. Our challenge at that point was to evaluate the one remaining internet subsidiary to see whether it was a business that needed to be sold off or whether it was a business that we felt something larger could be built around. We spent the greater part of 2002 getting to know the folks at that subsidiary, which is called WebSourced and is based in the Research Triangle Park in North Carolina. We concluded that the people were great, the technological expertise was great, but changes to the business plan were needed. In 2003, we made the decision to keep WebSourced, but to change its business model by requiring all customers to sign a twelve month or longer contract at significantly higher prices than they had previously been charged. We had to separate the professional, long-term internet players from the dilettantes in our client base. We did that starting in April and May of 2003, and the business model changed; it has been a huge success for us and our sales have taken off since then.” CEOCFOinterviews: What type of business is WebSourced and what services does it provide? Mr. Jacobs: “WebSourced, Inc. is a leader in its space called Search Engine Optimization. It assists client’s websites in achieving a top ten ranking when searches are performed on search engines such as Google, Yahoo, and so forth. Research shows that the majority of people are not willing to look past the first page of results and 98 - 99% of people are not willing to look past the third page of results. So WebSourced helps clients redesign, link and do all the things that need to be done in terms of a website that make it appeal to the search engines and therefore show up in the top ten of search engine results. The degree of expertise needed to achieve the consistent top ten rankings that made such gigantic differences to our clients in terms of the number of hits that they are getting on their websites is the reason behind us changing WebSourced’s business model.” CEOCFOinterviews: You have acquired several large clients. How have you achieved such recognition? Mr. Jacobs: “We have emerged as the largest player in the industry according to the Sherpa Marketing Guide, which came out with a publication about six months ago ranking about 120 companies in this business. We have over 1,200 clients including clients like Lowe’s, RealNetworks, NBC, and Alaska Airlines and we have seen significant growth. Within the last year, the entire space we are in has caught the attention of the media because websites moved from being under the art directors that were concerned about them looking a particular way or being beautiful, and it moved more into the control of the marketing people. The marketing people brought a focus on return on investment of their websites and how to maximize the value of their websites. When marketing got involved is when people realized that you could have the most beautiful website in the world but if you do not show up in the search engines’ top ten search results, you will miss out on thousands or millions of potential customers. From a ten thousand foot level: Originally companies were concerned about how people connected to the internet, and therefore focused on companies like AOL. Later companies realized that they do not care how people connect to the internet, they care about but where you go when you’re on the internet. Finally, companies realized that what is most important is, how do people behave on the internet when they have decided to purchase a particular product or service, and that is where search engine optimization is extremely important. People realized that you can show up on the first page of search results using search engine optimization or Pay-Per-Click advertising. Between the two techniques, search engine optimization, for a fraction of the cost of Pay-Per-Click, can get you on the first page of search engine results.” CEOCFOinterviews: What is it that you are actually doing for your clients? Mr. Jacobs: “We have a checklist of 300 points that we examine in regard to a website that we believe make a difference in terms of how your website is perceived by the search engines. Google, for example, has a black box algorithm that somehow instantaneously ranks millions of websites in terms of relevancy and response to a particular key word. If you type in “umbrellas” into Google and did a search, somehow in their black box they will sort through and rank the hundreds of thousands of websites that mention “umbrellas.” Google does not publicize that algorithm; there is no transparency in terms of how that algorithm works. Companies like ours have come into being by studying websites and how they operate, and studied which websites have ended up being in the top ten under the different search categories. We have developed intellectual capital in terms of what works and what does not; if you do this to a website it will help but if you do that it will hurt. It is a huge compilation of techniques and it ranges from things that you think would be obvious, to less obvious ranking strategies. First you need to target the appropriate categories of keywords and keyword combinations. Then, obviously your web site should be easy to navigate. The search engines tend to prefer websites that are easier for a person to navigate and easy for a person to make a purchasing decision on. If you require a consumer to go through seven pages worth of scrolling to finally get to a point where he or she can make a decision to buy something, then it is not an easily navigated site and usually your website will not rank as highly as other people’s websites. Your website’s ranking also depends on the format of your site. Many websites have flash technology and graphics at the beginning of their website, which may be beautiful, but it does not mean anything to a search engine “spider” as it crawls through the web trying to inventory what your website has on it. Search engines prefer websites that have interesting information and rich content; we help our clients provide this on their websites. It is also important to search engines whether you are linked to other important websites that view your site as being helpful or important. As I mentioned, we have a 300 point checklist that we focus on. We have teams of people that work on it and it does not happen overnight. If you change a company’s website, it will not pop to the top of Google’s list five minutes later but over a period of time. We have found a tremendous ability to achieve very good results and we do it without using techniques that the search engines view as unethical or improper.” CEOCFOinterviews: Are you paid a flat fee or by results? Mr. Jacobs: “We have different levels of service; some of our clients are multi national corporations that need to appeal to search engines not just in the U.S. but in Europe, Asia and Africa. They have multiple languages and key words that they have to address and have many products that they want clients to be able to find. With those large accounts with many web pages and all sorts of complexities, we have service levels and pricing that addresses that and monthly payments over twelve months. We have intermediate and sophisticated to very sophisticated service offerings.” CEOCFOinterviews: Are you including the Pay-Per-Click with your services? Mr. Jacobs: “When you look at a Google search result, you will see two types of listings. You will see what is called the natural or organic search results, which is the product of their algorithm rifling through all the billions of pages that they have indexed and deciding on the top ten most relevant listings. That is what our base business is, which is called Search Engine Optimization, trying to put your website in a position to be considered one of the top ten most relevant sites to a search request. You will also see a bunch of colored boxes on the page, about eight of them, and those are paid advertising. Every time a consumer clicks on that ad, you will be charged a pay for click. The price you pay per click for certain categories of words will be a lot more than less popular words, but the more you pay, the higher up on the list you go. You can see from the success of Overture that there are many websites where managers look at the sites and say “we cannot take the risk that our website will not show up on the top ten of the natural search listings; we are going to guarantee ourselves that we are going to be on the first page by paying to get that position via PPC.” But what we have been finding is that a phenomenon has kicked in, which I think is interesting, that some people are referring to as the “second opinion” phenomenon. If you look at websites, they are just another form of direct marketing, where two to three percent consumer response would be considered perfectly acceptable. Research has shown that if you show up in the top three on both the search engine natural listings as well as in the top three of the Pay-Per-Click listings, that your consumer click through rate is drastically higher. Because of that phenomenon, many companies are now saying that they want to be in the top ten on both sides of the page, both in the Pay-Per-Click and in the natural listings. This is like going to the doctor who tells you that you need surgery on your knee and you tell him you are going to get a second opinion. Then the second doctor says the same thing to you, so you decide you need surgery, because you were told the same thing by two experts. It is like that with the search engines. If you look in the natural listings and show up in the top three, many consumers will look at it and say “The search engine’s black box has determined that these are the three most important sites for me to look at”. Then the consumers look in the Pay-Per-Click listings and the same websites are there too, so people think: “These must be successful, well-to-do companies, to be able to afford these expensive PPC ads.” So the consumers click on the links to those “double endorsed” websites. Our clients have been pressuring us to get involved in the Pay-Per-Click. About two months ago, we launched an initiative where we have a second division within our company that is also managing Pay-Per-Click campaigns and our clients’ response so far has been excellent.” CEOCFOinterviews: How do you get new clients, and how do you encourage people to understand that they need this service? Mr. Jacobs: “At this point it is not a missionary process, because hundreds of thousands of companies have already raised their hands and said that they understand the value of being on the first page of search engine results because they are already purchasing PPC ads. Any company that is already purchasing ads on Overture, for example, to guarantee that their web site show up on the first page of search engine results -- that is a company that is fully conversant in the value of showing up on the first page. They are also aware of how expensive Pay-Per-Click ads are, and the cost of them has been rising significantly. So we have a natural pool out there of hundreds of thousands of potential customers that are up to speed on what our company does. There are large companies that have done a tremendous amount of due diligence on us and have chosen to go with us. We are the largest player in the business, so it is not a question of whether we have the resources.” CEOCFOinterviews: How do you decide where to focus? Mr. Jacobs: “In our North Carolina facility, we have about 25 people that are involved in marketing at all times. From our standpoint, search engine optimization is a sufficiently complicated and sophisticated task at this point that it requires sophisticated and intelligent people to sell it. We do not have minimum wage people on the phone from a call center; we do not have people reading from a script where if they deviated from it, they would not know what to say next. Our people are very well paid, and frequently they are former executives. In many cases they used to be involved in start up businesses, and they experienced the frustrations of how to deal with working on a website and not being able to get traffic through it. Those people often have come out of particular industries where they have expertise. If an executive comes to us that has spent ten or fifteen years in the insurance industry, that person probably would focus their initial efforts on hundreds of companies that are involved in insurance-related products and services.” CEOCFOinterviews: Will you tell us about your recent acquisition? Mr. Jacobs: “We recently acquired the assets of a company called Engine Studio Incorporated, which is based in Merritt Island, Florida. Intellectual capital is our stock in trade. Our feeling in terms of this industry is that we want to not only have great marketing people and great technology and web design people, but we want to have some of the cutting edge leaders within the industry in terms of opinion leaders and where the industry is going, and people that are experts in terms of figuring out what the search engines are doing. The search engines are constantly updating their methodology and how they rate sites. We have decided that as part of our business plan, we are going to make and attempt to not only acquire profitable companies that have been a part of our industry, but preferably, companies that also have leadership within those companies that we feel will add depth to our knowledge pool within our company. Engine Studio was founded by a brilliant guy named Jason Dowdell, who is actually a NASA engineer by training. In his spare time, he studied search engines and came out with a package of automated software tools dealing with search engine optimization, which he called Global Promoter, and subsequently another package called Turbo Promoter, in addition to launching a typical search engine optimization business. The automated tools that he developed now have over 11,000 users all around America. We have used this acquisition to do two things for us; firstly, we acquired Jason Dowdell who is an important guy for us. We have a very visible presence for our company in terms of leadership, speaking at conferences, writing, and staying at the cutting edge of search engine optimization. Secondly, we have his entire search engine optimization business, which are clients that easily justify the purchase price, in our mind. Thirdly, we have his automated technology that has 11,000 users, currently as a free service. Over time, we expect that many of those customers are going to become customers of our WebSourced subsidiary, and will be very interested in seeing a more sophisticated, higher level of service than the automated level of tools can provide them. In addition, this automated tool program will still be appropriate for many small businesses and eventually I expect will become a paid service and will easily pay for the acquisition just from that.” CEOCFOinterviews: Where is CGI at this point? Are there any subsidiaries other than WebSourced? Mr. Jacobs: “CGI currently is a holding company with just one subsidiary. However, we do plan to acquire other companies. My partner and I have prior experience in terms of taking a small public company called GENERAL PARAMETRICS, which in 1995 owned an obsolete technology business. We sold off that business and between 1995 and 1999 we did about 37 acquisitions and consolidated the scrap metal recycling industry under the name Metal Management. We built almost a billion dollar company, which is traded under the symbol MTLM. We decided to do it again but to do it with a theme relating to companies that are involved in internet marketing. We have stated publicly that we are in a number of acquisition discussions with companies primarily involving in internet marketing services, although we have also stated that if the right deal came along outside of that field, a non-internet business that we felt was sufficiently compelling and a deal that is sufficiently accretive, we will look at that also. The primary focus is on internet or interactive web enabled marketing and sales.” CEOCFOinterviews: Will you tell us about the financing for this? Mr. Jacobs: “When we took control of CGI, there was a weak balance sheet and a collection of businesses that we did not really like. WebSourced had people we liked and expertise we liked but they were not making any money because their business model needed to be upgraded. We had the opportunity to take in money that would have been very dilutive. Instead, we divested ourselves of what we did not like, fixed WebSourced’s business model, and decided to create cash flow that would allow us to raise capital at significantly higher prices for our stock. Fortunately that is the way it all played out. Our earnings, top line and bottom line, have gone up dramatically over the last year. Finally, in March of this year, we decided to do a private placement and sold about $2.7 million dollars worth of our stock at $1.60 per share, which when we took control of the company was trading at fifteen cents per share. We thought that we did the right thing holding off and the stock that we sold was much less dilutive than it could have been. On a go forward basis, we have paid off all of our debts and we have about a million dollars in the bank. We are nicely cash flow positive. We expect to make acquisitions with a combination of stock and cash, so we will be raising additional capital in connection with acquisitions over time.” CEOCFOinterviews: Where does Cherish.com fit it? Mr. Jacobs: “Cherish.com is a subsidiary of WebSourced. Cherish is an online dating site. Where Cherish.com comes from is that our WebSourced subsidiary’s core competence is the ability to take any website, even if the sponsor of the website is a company with no resource, and dress it up properly by building it and presenting it properly to the search engines. It is about bringing it up through the ranks into the top ten of search engine results, no matter what condition the sponsoring company is in. That marketing capability is a powerful tool for us. Other companies have to spend many millions of dollars to get the same level of visibility with consumers. We decided as a business plan to launch a series of websites, or to acquire or joint venture on a series of small websites, and then use our own intellectual capital to turn those websites into nice businesses by marching them up the search engines. The first niche we decided to take on was online dating. This niche is a classic example of what we are trying to do. There are many companies out there who are very interested in online dating. There are large companies like eHarmony and Match.com that are out spending millions of dollars on radio, print ads, magazines, and so forth. We, on the other hand, launched our online dating site called Cherish.com and now we have a Spanish language version called Apreciar.com. We are advancing Cherish.com through the search engines at virtually no cost. We already have about 23,000 users and we just changed it about three weeks ago so that it is free for women and men pay. We don’t know how much money Cherish.com will make for us, but it is a great business model because whatever money we make from it is virtually pure profit.” CEOCFOinterviews: What should investors know that they may not realize when they first look at the company? Mr. Jacobs: “We have tried to be very forthright in terms of our press releases and in terms of the business dynamic, which is very positive. Every month we seem to sell 60-120 new clients and we tend to lose fifteen to twenty clients, so every month we have a significant increase in new clients. Because they are coming in under long term contracts, each month our residual income is increasing. We have a built in dynamic in terms of our base business that is positive in terms of our top line and bottom line each quarter, and I do not see any signs of that letting up. We stated the other day that we see the Pay-Per-Click part of our business eventually getting as large or larger than our base business. We are on the OTC bulletin board and in many cases people tend to stay away from bulletin board stocks or take things that bulletin board companies say with a grain of salt. All I can say to investors is that we are legitimate guys. I am a Phi Beta Kappa graduate of Harvard and I received a full scholarship to The University of Chicago Law School. My partner is an Honors graduate of Rice. We have experience building a large public company and I think we are in the process of doing it again. We have a legitimate company with a clean balance sheet.” CEOCFOinterviews: In closing, what would you like readers to remember about CGI Holding Corporation? Mr. Jacobs: “Some of the excitement about our stock has to do with the size and quality of acquisitions that we are in the process of negotiating, but under the securities laws, I can not comment on those at this time. If some of your readers are looking at our stock, they can put us on their radar screen and over a period of time, you are going to see not only some interesting organic and internal growth, but I think you will see some interesting acquisitions and hopefully some of your readers will be able to look beyond the background the fact that we are currently on the bulletin board; we will not be there forever.” disclaimers |
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