Inso Corporation

31 St. James Ave.
Boston, Massachusetts 02116
U.S.A.
(617) 753-6500
Fax: (617) 753-6666
Web site: http://www.inso.com

Public Company
Incorporated: 1993 as InfoSoft International, Inc.
Employees: 469
Sales: $81.9 million (1997)
Stock Exchanges: NASDAQ
Ticker Symbol: INSO
SICs: 7372 Prepackaged Software; 7379 Computer Related Services, Not Elsewhere Classified

Inso Corporation is a high technology company based in Boston, Massachusetts, with three major product areas: Electronic Publishing Solutions, Dynamic Document Exchange, and Lexical and Linguistic Products. Historically, the company began as the software division of textbook publisher Houghton Mifflin Company, and it produced proofing tools, information products, and information management tools primarily for original equipment manufacturers (OEMs) to incorporate into their own software products. Soon after the company went public in 1994, it found that changing market conditions would result in severely limited growth prospects for its language-oriented products, and it began to implement a strategic change in direction. In 1998 it completed the divestiture of its Lexical and Linguistic Products.

Instead of selling products to OEMs, as it had been doing, Inso would provide electronic publishing solutions and file-viewing and conversion products to the top 2,000 corporations as well as to OEMs. An ongoing program of acquisitions begun in 1994 expanded Inso’s line of document exchange, web publishing, and electronic publishing products. By 1997, the company had decided to commit the bulk of its resources to developing products in two key areas, which it identified as Electronic Publishing Solutions and Dynamic Document Exchange. As corporate web sites became more complex and distributed computing put networked computers in nearly every corporate workstation, Inso developed solutions to meet the electronic information and publishing needs of its large corporate clients. In 1997 Inso released its Dynabase Dynamic Web Publishing System, a comprehensive, integrated solution for professional web publishing that was especially useful in the management and delivery of information for large, dynamic web sites.

Inso’s file-viewing and conversion products, as well as its “on-demand” web publishing products, allowed organizations to share documents across networks, intranet and Internet environments, and electronic mail systems with different applications and operating system platforms. Products in this area, which Inso called Dynamic Document Exchange, included the Quick View Plus enterprise viewing product, the Outside In viewing technology, the ImageStream graphics filters, the Word for Word text filters, and the Outside In HTML Export product. These products generally made it possible to view and manipulate files originating in different applications and operating system environments, including web environments. They eliminated the need for lengthy conversions or the installation of proprietary technology on customers’ desktops.

Houghton Mifflin Division Spun Off, 1994

Houghton Mifflin’s software division was established in 1982. On November 10, 1993, it was spun off and incorporated in Delaware as InfoSoft International, Inc. The company name was later changed to Inso Corporation in May 1995. On March 8, 1994, it became an independent public company when it completed an initial public offering of its common stock, with three million shares offered at $15 per share. Steven R. Vana-Paxhia was named president and CEO. He had been director of the software division of Houghton Mifflin since 1990, and before that was managing director of Macmillan’s Berlitz Translation Service since 1987.

When Inso went public, all of its revenues were derived from proofing tools, information products, and information management tools—“legacy products” from the Houghton Mifflin days. The company had a contract with Microsoft Corporation, which incorporated the products into its own software, that represented a substantial part of Inso’s revenues. Its marketing efforts were directed at OEMs.

At the same time, the consolidation of the desktop application market was perceived as severely limiting the growth prospects for Inso’s OEM-focused linguistic products. The company was also anticipating an explosion in distributed computing, which would result in making every networked desktop a potential user of document exchange and electronic publishing solutions.

As a result, over the next four years the company went through a product transition to become primarily a company that sold and licensed products that enabled large corporations to exchange and publish all types of information. The company’s primary market became the world’s 2,000 largest corporations, and by 1997 Inso had more than 700 of the world’s biggest firms as customers and nearly $30 million in revenues from the corporate market.

Acquired Systems Compatibility Corporation in 1995

Over the next four years Inso would expand its line of document exchange, web publishing, and electronic publishing products through a series of acquisitions and through internal development. Acquisition talks with Systems Compatibility Corporation began in 1994, and in April 1995 Inso acquired the privately held company for $12.5 million. Systems Compatibility Corporation was renamed Inso Chicago Corporation. The acquisition was the first step in Inso’s product transition strategy, and in May the company adopted its present name. In its first full year as an independent company, Inso reported net income of $6 million on net revenues of $43.4 million for 1995.

From 1995 to 1997 Inso significantly increased the amount of money it spent on research and development (R&D). It realized that its ability to compete in an industry that was subject to rapid technological change required a commitment to the development of new products and the evolution of new technologies. In 1995 Inso spent $10.2 million on R&D, or 23 percent of revenues. In 1996 R&D spending nearly doubled to $19.1 million, or 27 percent of revenues. By 1997 the company was spending 35 percent of its revenues on R&D, some $29 million. Much of the 1997 investment went toward research and development of new products for use on or in conjunction with the Internet and the World Wide Web. Inso also remained heavily involved in development efforts for XML and other electronic publishing standards.

Made Two Major Acquisitions in 1996

In January 1996 Inso acquired ImageMark Software Labs, Inc., a privately held firm based in Kansas City, Missouri, for $5.5 million. It would continue to operate as Inso Kansas City Corporation. In July Inso acquired privately held Electronic Book Technologies, Inc. for $27.8 million in cash plus an additional $10.6 million to be paid over time. It was renamed Inso Providence Corporation.

Net revenues for 1996 increased to $70.5 million, but the company reported a net loss of $21.3 million, due primarily to a $38.7 million acquisition charge for purchased technology under research and development by ImageMark Software Labs, Inc. and Electronic Book Technologies, Inc. During 1996 Microsoft accounted for 35 percent of the company’s revenues.

Several Acquisitions Occurred in 1997

In February 1997 Inso acquired Mastersoft from Adobe Systems Inc. for nearly $3 million in cash. It became part of Inso Chicago. Mastersoft was Adobe’s document access and conversion business. Acquired technologies included Word for Word document conversion, the Viewer 95 file access and display technologies, and various end-user products formerly marketed under the name Adobe File Utilities. At the same time, Adobe Systems and Inso entered into related technology cross-licensing agreements.

Level Five Research, Inc., a privately held company, was acquired in April for $5 million in cash. It was renamed Inso Florida Corporation. It was primarily a developer of software and systems that applied intelligent technologies to data access management.

Also in April, a new venture was established to further the development and marketing of the Information Please Almanac product line, which the company had acquired from Houghton Mifflin in 1995 for $3.6 million. During 1995 and 1996, Inso licensed the book rights for the Information Please Almanac series back to Houghton Mifflin in exchange for initial guaranteed royalties of $1 million in 1995 and $700,000 in 1996. In April 1997 the Information Please LLC partnership was formed, with Inso retaining a 19.8 percent ownership in the venture. Inso transferred its ownership of the Information Please brand and its intellectual properties for the almanac to the partnership, and some of Inso’s employees became employees of the partnership.

In November 1997 Inso acquired the privately held Henderson Software, Inc., for $750,000 in cash. Henderson was a provider of Computer Graphics Metafile viewing and filtering solutions.

Company Perspectives:

As electronic information exchange has become the life-blood of today’s global businesses, the Web has emerged as the key transmission channel. To succeed in this environment, businesses must quickly consolidate and publish information. Inso Corporation gives companies a way to automate the publishing and management of this critical data. With Inso’s End-to-End Publishing Solution, businesses have a system for generating, organizing, distributing, and continually updating their intellectual property.

Web Growth Affects Company’s Direction, 1997

During 1997, the company took note of the growth of the World Wide Web and decided to focus its development investment exclusively on the areas of Dynamic Document Exchange and Electronic Publishing Solutions. Sales and marketing efforts were focused on what the company called Global 2000 corporations. Inso served a $500 million market for its publishing products, a market which the company believed would grow at a 40 percent or higher annual growth rate for the next three years.

Net revenues rose to $81.9 million as the company reported a net loss of $440,000. During the year Inso recognized an acquisition charge of $6.1 million for purchased technology under research and development by Level Five Research, Inc., Mastersoft products and technologies, and Henderson Software, Inc. In 1997 the company also marked the end of its major proofing tools contract with Microsoft Corporation, which represented 28 percent of Inso’s revenues that year.

Performance during the first half of 1997 was considered disappointing by the company’s management. In terms of the company’s markets, some new markets failed to materialize as planned, and the impact of the web on CD-ROM publishers and online services had an effect on Inso’s performance. Also, several of Inso’s search-and-retrieval engine customers had difficult years, which resulted in lower sales for new products and lower royalties from existing products. Internally, management pointed to the company’s below-standard execution of planned new product introductions, which resulted in delays. In the marketing area, the company was unable to shift resources from established channels to new channels quickly enough and with enough precision.

Recognizing that it was trying to do too many things simultaneously, Inso’s management refocused on the three words that had resulted in past success: focus, simplify, and execute. The company quickly moved to decrease emphasis on its nonstrategic businesses so that it could focus on faster-growing product lines. Every element of the product life cycle process was examined and simplified. Nonessential platforms and features of existing products were trimmed. In sales and marketing, the company moved to rebuild its sales organization to concentrate on corporate customers while simplifying and focusing every aspect of its marketing program.

Reorganization Focuses on Web Content Management and Publishing

In the second quarter of 1997 a reorganization began. More investment was placed in Dynamic Document Exchange and Electronic Publishing Solutions. The sales organization was rebuilt to align it with growth opportunities and customer needs. These efforts resulted in a restructuring charge of $5.8 million in 1997.

Prior to 1997, the company had enjoyed six years of growth averaging 25 percent annually. Its performance in the first half of 1997 caused it to lose credibility with Wall Street and with its shareholders. To regain shareholder confidence and build value for its shareholders, Inso needed to demonstrate that its strategic shift from linguistic tools to Dynamic Document Exchange and Electronic Publishing Solutions was in place.

Although its proofing tools contract expired in 1997, Inso would continue to have a relationship with Microsoft. As Inso president and CEO Steven R. Vana-Paxhia noted in the company’s 1997 annual report, it was Microsoft’s “inclusion of our technology in their outstanding products [that] legitimized Inso as a serious software company.” However, with Inso’s new strategic direction, its new products were no longer candidates to be features of Microsoft products. Instead, Inso sought to complement Microsoft’s products, such as by selling its Quick View Plus in conjunction with Microsoft Exchange. There were still several contracts between the two companies, and Microsoft would continue to be one of Inso’s largest customers.

Electronic Publishing Solutions Division, 1997

Electronic Publishing Solutions (EPS) enjoyed its first full year of operations in 1997 following the acquisition of Electronic Book Technologies (EBT), which provided the core of Inso’s EPS business. EBT was a desirable acquisition for Inso because of its excellent engineering team and strong portfolio of products, and it provided a perfect complement to Inso’s Dynamic Document Exchange business.

EPS’s sales growth in 1997 was driven by several factors. At the start of the year a completely new sales team was assembled for domestic and international markets. Key markets included automotive and aerospace manufacturers, traditional publishing companies, computer hardware and software, and telecommunications.

Major EPS products included the DynaText publishing system, which appealed to Global 2000 corporations who needed to deliver critical information to key personnel at a specific time and in a specific format. DynaBase was a content management and dynamic publishing system for the web that was launched in 1997. This integrated web publishing tool was designed for teams of people who were building and maintaining large, dynamic web sites. It provided customers with an open, standards-based, and fully integrated web publishing system for developing, managing, automating, and dynamically publishing high-impact, professional web sites. Inso estimated that some 100,000 web sites could benefit from this product.

As the web publishing market continued to grow, DynaBase was expected to be Inso’s fastest-growing product ever. Strong opportunities existed for Inso to help its customers convert from authoring formats to industry-standard structured formats using HTML Export, XML Export, and DynaTag, the basis for Inso’s Dyna family of information management and distribution products.

Shortly after DynaBase was introduced, Inso successfully sold it to a variety of book publishers, magazine publishers, newspaper publishers, new media and television publishers, and financial services publishers. Network Computing magazine gave the product a favorable review, saying “Of the products we put to the test in our labs, Inso Corp.’s DynaBase offers the most complete solution for managing web documents, developing dynamic pages and publishing Web sites.” DynaBase would win Network Computing’ s “Best Web Content Management Software” award in 1997 and again in 1998. Version 3.0 of the DynaBase web content management and dynamic web publishing system was introduced in August 1998.

During 1997 Inso held Customer Council meetings with corporate clients and discovered that the company’s potential clients were interested in building strategic relationships with Inso. Inso was perceived by them as a leading provider of electronic publishing solutions. As a result, purchases of the company’s EPS products were increasingly being made as part of an overall solution.

Toward the end of 1997, the company introduced the industry’s first end-to-end XML (extensible Markup Language) publishing solution, which incorporated Inso’s Dynamic Document Exchange and Electronic Publishing Solutions products. It was driven by the need for customers to get more out of their web applications. Inso was already shipping products with full support for XML when its competitors were just beginning to demonstrate support for this new development in web language after HTML.

Inso’s Data Migration Initiative, based in Boston, was established to facilitate the migration of business information from proprietary formats, such as WordPerfect, Word, and other word processing formats, to standard structured formats. During 1997 the company made progress in developing this enabling technology with contributions from several of Inso’s development centers.

Several new versions of the company’s Dynamic Document Exchange products were released in 1997, including both Outside In and Quick View Plus. Outside In was the company’s family of file-viewing, filtering, and conversion technologies that supported conversion to HTML of more than 200 file formats. In addition to being used in the company’s electronic publishing solutions products, it was also incorporated in Microsoft Windows 95 and 98, Lotus Notes, Novell GroupWise, Oracle InterOffice, and other products.

Acquisition Program Continued Through 1998

In March 1998 Inso acquired the privately held ViewPort Development AB of Sweden for $2.5 million in cash. Through its wholly owned subsidiary Synex Information AB, ViewPort was a developer of browser engines and application development toolkits for viewing SGML information. Synex became part of the Inso Electronic Publishing Solutions development organization and continued to operate as a wholly owned subsidiary from its headquarters in Stockholm, Sweden. Inso estimated it would take an acquisition charge of about $2 million for acquired technologies still under research and development.

In April 1998 Inso sold its linguistic software assets to Lernout & Hauspie Speech Products N.V. It marked the divestiture of what Inso termed its “legacy products,” products that represented Inso’s core business when it was established as an independent company. Inso recognized a gain of $12 million on the sale.

In August 1998 Inso extended the range of electronic publishing solutions it could offer customers with the acquisition of the MediaBank media asset management system and related technologies from Bitstream, Inc. for $12 million in cash. The acquisition would enable Inso to extend its reach into the graphics communications market. The MediaBank system covered a wide range of media elements, including text, documents, images, movies, graphics, sounds, and fonts used in the publishing process. At the same time, Inso announced that BitStream would license Inso its forthcoming PageFlex client/server software application, which enabled the design and production of customized and personalized documents for one-to-one information publishing. Inso also acquired InterSEP OPI (Open Prepress Interface) server, an image replacement technology used to accelerate the handling of high-resolution images in publishing workgroups.

To further enhance the value of DynaBase, its web content management and publishing system, Inso began entering into technology and marketing partnerships with other vendors of web-based products. In September 1998 it announced agreements with four leading vendors whose products would be compatible with DynaBase’s web content management and dynamic publishing platforms. Engage Technologies, a subsidiary of CMG Information Services, Inc., was a vendor of online advertising management and visitor profiling technologies. Through its agreement with Inso, it would extend the personalization and advertising features of DynaBase 3.0. NewsEdge Corporation, a leading provider of global news and current awareness solutions for business, would offer its NewsEdge Review Topics to DynaBase customers for automated intranet and extranet distribution using DynaBase 3.0. Publishing Connections, Inc., a systems integration firm specializing in pagination and web publishing systems, would enable DynaBase customers to automate the web publishing of print-oriented content through conversion into XML. The fourth partner, Resonate Inc., specialized in enterprise traffic management solutions that enabled multiple Internet servers to act as a single Internet server system. Through its partnership with Inso, Resonate would allow Inso’s customers to increase the speed and throughput of DynaBase by using server and web site information to intelligently direct traffic using multiple servers.

In September 1998 Inso introduced the Outside In Server 1.0 for integration with Netscape and Microsoft web servers. The editors of the Seybold Report on Internet Publishing selected the new server for a “Seybold Editors’ Hot Pick Award.” The server automatically converted, on demand, more than 200 Windows, UNIX, Mac, and DOS file formats into HTML, GIF, and JPEG, so that documents could be written and maintained in their native formats and also be made instantly accessible as high-quality HTML pages to web browser users.

Company’s Outlook

As 1998 drew to a close, Inso did not see the need to move into substantially new technology areas in the near future. The company felt there were significant growth opportunities in its current markets and was planning to devote its resources to providing those markets with more products in its Dynamic Document Exchange and Electronic Publishing Solutions businesses. Inso was poised to take advantage of several trends. These included the increasing size and complexity of corporate web sites, the evolution and growing momentum of the XML standards, and the continuing rapid increase of the use of e-mail. Each of those trends would increase the market opportunities for Inso’s Dynamic Document Exchange and Electronic Publishing Solutions products. However, as the company noted in its annual report, it faced competition from both larger and smaller firms in both areas.

Principal Subsidiaries

Inso Chicago Corporation; Inso Dallas Corporation; Inso Florida Corporation; Inso Kansas City Corporation; Inso Providence Corporation; Information Please LLC (19.8%).

Inso Corporation

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Inso Corporation

31 St. James Ave.
Boston, Massachusetts 02116
U.S.A.
(617) 753-6500
Fax: (617) 753-6666
Web site: http://www.inso.com

Houghton Mifflin Division Spun Off, 1994

Acquired Systems Compatibility Corporation in 1995

Made Two Major Acquisitions in 1996

Several Acquisitions Occurred in 1997

In November 1997 Inso acquired the privately held Henderson Software, Inc., for $750,000 in cash. Henderson was a provider of Computer Graphics Metafile viewing and filtering solutions.

Company Perspectives:

Web Growth Affects Company’s Direction, 1997

Reorganization Focuses on Web Content Management and Publishing

Electronic Publishing Solutions Division, 1997

Acquisition Program Continued Through 1998

Company’s Outlook

Principal Subsidiaries

Inso Chicago Corporation; Inso Dallas Corporation; Inso Florida Corporation; Inso Kansas City Corporation; Inso Providence Corporation; Information Please LLC (19.8%).