Article

Picking up the pieces

Less than a year after his company nearly collapsed when promised funding fell through, Robert Pratt has refocused Shopping Mall Online.

April 4, 2002 by James Bickers — Editor, Networld Alliance

Imagine fulfilling a dream in business. An entrepreneur completes a business plan, secures funding, and begins work in earnest. Sometimes the dream includes a nightmare or two, as it did when kiosk developer Shopping Mall Online(SMO) lost its funding.

Robert Pratt, founder of SMO, woke up to his nightmare when he learned just months after signing a $10 million funding deal that the money had fallen through.

Pratt's business plan is to install large-scale, Internet-integrated kiosks in shopping centers, generating revenue from advertising and promotional opportunities sold to merchants. The company was launched in December 1999, and began operations four months later.

Enter Tech, a kiosk development company that claimed to have $10 million of investment capital waiting in the wings, acquired SMO late last spring. But by October, SMO had severed its ties with Enter Tech and was searching for financing.

Pratt said Enter Tech raised just 10 percent of the $10 million it had promised -- and SMO received only $350,000 in working capital. It was quite a setback for a company that had planned to spend millions on a product rollout. Instead, SMO was operated much of 2000 with a skeleton staff and no revenue, and its prospects for rolling out kiosks without additional funding were nil.

Pratt said he made the best of a bad situation. He sought new funding, and used the time between partners to strengthen and fine-tune his business plan.

"One of the great things that came out of this was the fact that technology changed so drastically during those four or five months while we were finding new partners -- technology came more my way and got a heck of a lot cheaper," said Pratt. "We're saving a lot of money and have better technology, and are probably a little bit smarter than we were before."

Pratt added that the downtime caused SMO to complete other projects more quickly, and it finished production of ad delivery software.

"It slowed us down, and it forced me to look very objectively at what we were doing," said Pratt. "And it gave us the time to build a fairly dynamic shopping portal, and some dynamic ad servers. That's something we probably would have spent time on later rather than sooner. And I think that's what makes us more competitive."

A New Beginning

Shopping Mall Online got its big financing break through a relationship with one of its former executives. Robert Gallner, who had served as president of SMO and sits on the company's board of directors, introduced the Shopping Mall Online concept to his employer, kiosk manufacturer Cybertotems. Gallner is now vice president of sales for Cybertotems, headquartered in Portugal with U.S. operations based in Florida.

Gallner had previously done consulting with Pratt on what he calls the "jumbo shopping mall kiosk idea."

"[Pratt] was more of a marketing person, and we had the capacity here to actually create the unit, which is what we're doing now," said Gallner.

SMO and Cybertotems formed a joint venture, SMO Multimedia, with both partners owning equal shares of the new company. SMO brings to the table a business plan, already-developed software, and inroads with 26 major shopping malls around the country. One member of the new venture's board is William Carpenter Jr., the founder of the Prime Retail chain of shopping malls. 

Cybertotems will produce the hardware and take care of nuts-and-bolts deployment issues. Pratt said Cybertotems is contributing $1 million in funding for the venture.

John Vance, SMO's director of operations, said each of the targeted malls will feature at least one cluster of four to six touch screens. Plasma screens will be mounted atop each unit to display television-style advertising. A customer service representative will staff each center.

"We have several businesses that want us to rep them in the mall," said Vance. "We believe we have revenue streams from having that person there that will pay that salary, but they'll still be there to answer questions about using the kiosks."

The kiosks will be used for a variety of programs, most of them aimed at the smaller mall merchants: gift certificates, loyalty programs, registries and wish lists, etc. Vance foresees using limited Internet connectivity to sell non-competitive merchandise outside of the mall. If no mall merchant carries a certain brand, the kiosks could sell that brand through the kiosks.

SMO Multimedia plans its first kiosks at eight shopping malls, though he wouldn't identify them. In each case, SMO will set up its kiosks in or near the food courts.

"We'll fire one at a time, but pretty aggressively on those first eight," said Pratt.

The company estimates it will begin rolling out the machines this summer.

"In some cases, there will be revenue sharing with the malls," Pratt said. "In some cases, there will be almost no rent, and pure revenue sharing."

Following the Money

Both Pratt and Gallner believe that initially, the venture's chief profit center will be plasma screen advertising. In time, as the kiosks become entrenched in each mall, SMO will profit from offering services to smaller mall merchants, merchants which cannot afford to run their own loyalty or registry programs.

"At first, the largest part will be the plasma advertising, followed by gift certificate programs," said Pratt. "One of the things that we've done to insulate ourselves from the typical e-commerce woes is that only 12 percent of our revenue model is built on actual e-commerce sales. I think that the market is telling us that's it's not completely ready for e-commerce, but it certainly needs to be there."

Kiosks in malls are certainly not a new idea, but SMO's approach -- combining a visually striking unit with live customer service personnel - is innovative. Gallner believes that kiosks in this setting will have to be visually interesting in order to succeed.

"We firmly believe that if anyone is going to be successful in deploying multimedia kiosks, there's definitely a need for dynamic displays," said Gallner. "The only other thing that's going to make a kiosk venture work from an ad perspective is to have plenty of eyeballs, and people coming up to use the units. Other ventures in the past have failed because there weren't enough of them out there, or it wasn't an organized enough plan."

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