WisBusiness: Sonic Foundry banking on new university business

By Brian E. Clark
WisBusiness.com

At roughly $25,000 a pop, it’s not cheap to wire a class with Sonic Foundry’s Mediasite technology. But many students – according to a new University of California, Irvine study – appear more than willing to pay extra to be able to review lectures, documents and charts on demand.

The report, done at the university’s Paul Merage School of Business, said 82 percent of MBA students would pay higher tuition for a program that streams and archives instruction. And half would pay an additional $2,000 to $5,000 more for their two-year degrees, the study said.

Those results are music to the ears of Sonic CEO Rimas Buinevicius, whose 16-year-old, Madison-based company is struggling for profitability in an increasingly competitive world.

But he said the university market for his firm’s sophisticated “webcasting on steroids” products is relatively untapped. In addition is the increasing recognition and acceptance of webcasting as a way to communicate.

Half the company’s business is now with higher education institutions, while the remainder is with corporations and government, he said. But Buinevicius said universities figure to play an even bigger part of the company’s future.

Sonic currently has about 900 customers. Competitors include Cisco Systems, Hewlett Packard and what he called “inefficient home-made” operations.

Buinevicius said the rising demand at universities is related to the “whole online video phenomenon” and the push for more distance education and recording of course content. He said potential for growth is huge.

“If you look at the overall university infrastructure, a typical campus with 20,000 to 30,000 students may have 300 lecture halls on campus,” he said.

“We figure that there are probably 5,000 institutions around North America that have similar metrics,” he said. “So you are looking at maybe 200,000 classrooms with probably less than 5 percent penetration where people are actually capturing lectures. You can double that internationally.”

He said there may be 500,000 “rooms of learning out there” that are candidates for Sonic’s recording and web streaming technology.

“There is a broad opportunity in terms of changing the educational experience providing ‘blended’ learning, distance learning and other components for all of these many students.”

Buinevicius said today’s students are driving the demand for his company’s technology and challenging older, more traditional methods of education. He said classes that are also available online often “sell out” the fastest.

“The change is happening as we speak, and it could be radical,” he said. “The students coming into the learning experience these days have video iPods and all sorts of other gadgets. They have an expectation. They are the Tivo generation and they want to be able to see this stuff on demand and actually have it help their education process.”

The Sonic CEO said older students also want blended learning, in which they can view and review lectures according to their individual schedules.

“If you look at the middle-aged student who might be going back for an MBA or another engineering degree, they are looking for flexibility,” he said.

“They might not want to spend time driving to the course everyday. That’s why you’ve seen the growth of the University of Phoenix, where people can do things online when they have free time.

“Technology has to be a component of that, and that’s where we fit in, enabling some of these learning experiences,” he said.

To meet growing demand, Buinevicius said Sonic has increased its staff by 40 percent since this summer. That affected the bottom line, but the investment should at least make the company break even next year, he said.

In the most recent quarter, the company’s sales rose 15 percent over the same period last year. But its net loss grew to $1.4 million (compared to a net loss of $341,000 for the same quarter in 2006) because of greater spending on new product development and growth on sales, marketing and technical staff.

For the year ending Sept. 30, net losses totaled $6.4 million, compared with a net loss of $3.5 million the year before. Total revenue was up 33 percent at $16.7 million from $12.6 million.

Its stock price closed Monday at $1.24, down from a 52-week high of $4.87. The company went public in 1997 and at one time had stock selling at more than $100 a share. In 2003, it sold off its desktop suite of music and video creation software to Sony to focus on rich media. That was the only year the company has made a profit on an annual basis.

“During past four years, after we sold off our previous technology and restructured, getting the first customer (and then the first $20 million in sales) was hard, because people were buying on faith,” he said.

“But in the past six months, we’ve had adoption acceptance,” he said.

“I can use the term ‘webcasting’ in an elevator and people will know what I mean. Two years ago, that was not the case. We are saying we are the infrastructure behind that, the Mercedes of the business, and people understand.”

Listen to the interview here