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Under the Radar
Netkey Transforms Kiosks Into `E-Salespeople'
By Stephanie Miles WSJ.com

The Wall Street Journal

(Copyright (c) 2001, Dow Jones & Company, Inc.)

NETKEY Inc. wants to make it easier for shoppers to find product information online rather than waiting in line to talk to a salesperson. The closely held Branford, Conn., firm has developed a software application that allows companies to display a modified version of their Web site on stand-alone Internet kiosks in stores and retail outlets.

The kiosks display not only Web-based information, but also product and inventory databases traditionally available only to sales and customer-service employees. Netkey's technology allows companies to install kiosks with services that range from basic Internet connections to touch-screen displays and credit-card scanners. The interface is designed to appeal to Web novices, and the software prevents customers from restarting the system, surfing to inappropriate sites or erasing the hard drive.

Borders Group Inc., Ann Arbor, Mich., uses Netkey kiosks to allow customers to look up titles and order out-of-stock books, while Fidelity Investments clients can set up new accounts and make automatic deposits through Netkey kiosks in the Boston company's retail outlets.

Alex Richardson, Netkey's chief executive officer and founder, says the main benefit for store owners is cost reduction: An Internet kiosk "runs 365 days a year without a coffee break," he notes. The kiosks also provide the opportunity to showcase current inventory and sell additional products, he adds.

Analysts say the kiosk market is poised for huge growth. Frost & Sullivan, a San Jose, Calif., market-research firm, predicts there will be 446,000 Internet kiosks world-wide by 2006, up from 151,000 units this year. Jupiter Media Metrix, New York, projects that sales associated with kiosks will soar to $6.5 billion by 2006, compared with $200 million this year.

NCR Corp. and International Business Machines Corp. also have developed kiosk products, according to Rufus Connell, a Frost & Sullivan industry business manager, but have tended to "specialize" while Netkey has pursued a broader strategy. In fact, NCR in January said it would begin selling Netkey software as part of its Web-kiosk product line. Netkey "has been one of the acknowledged leaders in terms of market share and technology," Mr. Connell says, while cautioning that it is too early to know for sure who the winners will be: "The market's still pretty small -- one or two major projects could make a big difference."

Indeed, Netkey's biggest obstacle at this point is "ignorance," says Mr. Richardson, 44 years old. Most retailers have been too busy building out their e-commerce operations, dealing with year-2000 compliance and "putting out other fires" to consider installing Internet kiosks, he says.

Still, Netkey has signed a string of high-profile clients. All 340 Borders Books & Music retail stores have Internet-connected kiosks and computers that run TitleSleuth -- a search application developed by Borders that was previously available only to salespeople -- and Netkey, which keeps customers out of other applications and Web sites.

Borders is testing new features with Netkey, including online buying and self-service checkout, says Kate Harding, senior manager of consumer systems at Borders. Although Borders hasn't decided if or when it will roll out all of these features, she says, "We consider Netkey part of overall TitleSleuth architecture."

Microsoft Corp. has used Netkey's technology in its trade-show booths, while Yahoo! Inc. has a few Netkey-based kiosks that offer e-mail and Web access through the Yahoo portal. Jiffy Lube, a unit of Pennzoil-Quaker State Co., has introduced Netkey at a few of its franchises, offering customers Web surfing and e-mail access while they wait for their oil change.

Netkey originated as a product of Lexitech, a professional-services company that developed simplified mainframe-computer-system interfaces for telecommunications companies and the government.

About five years ago, some of Lexitech's clients were abandoning mainframes and migrating to Web-based computing. So in 1997, Lexitech developed and patented a software application that allowed companies to display a controlled version of their Web site on a personal computer.

Although the software wasn't part of Lexitech's core-product offerings, its sales quickly eclipsed the company's professional-services revenue. So "we imploded the old company," says Mr. Richardson, who started Lexitech in the early 1980s with $50,000 in private-investor seed cash while attending the Yale School of Management.

In 1999, Lexitech was relaunched to focus solely on the kiosk software. On July 24, 2000, the company announced it had officially changed its name to Netkey. Since the relaunch, Netkey has grown to about 80 employees in Connecticut, San Francisco and New York. (Lexitech had about 20 employees in its New Haven, Conn., headquarters.)

Netkey raised $5 million in February 2000 from investors including Zero Stage Capital, Cambridge, Mass., and Cyberstarts DC, Atlanta. Netkey used the money to attract new managers, including Rajeev Singh, a former Oracle Corp. executive who joined Netkey as chief product officer.

Last winter, Netkey decided its software needed an overhaul to offer more advanced multimedia features -- streaming video and audio, for example -- as well as a refined interface. To fund the upgrade, Netkey raised an additional $10 million in February from Hudson Ventures Partners, New York; Fleet Development Ventures, Boston, a unit of Fleet Boston Financial Corp.; Connecticut Innovations, Rocky Hill, Conn.; and Christian & Timbers, Cleveland.

Mr. Richardson projects that Netkey's sales, which come from software licensing as well as design consulting and project management, will triple in 2001 to $10 million.


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