MXL: Microsoft to help the roll out Bell Potter Securities Richard Campbell
Summary: MXL’s student admin software, eMinerva, is gaining attention So far 60 colleges signed up, 1000 possibles in Europe, Asia and Australia. Each deal brings 500 to 20,000 enrolments at $5-10 per student. System maintains student records from grade one to post-graduates integrating names, courses, accounts and customer relations. Expands from kindergarten scale to multi-campus University or corporation. Allows quick searches for results, class timetables, email submission of work, fees, and assessments sets up on-line tutorials, chat sessions etc. Headings, details and languages freely changeable to suit the campus. Bond University has signed. Macquarie and several others pending. Corporate customers include McDonalds. Red Rooster soon. Microsoft partnership deal mid September - a selling force of 4000 agents globally. Upgraded internet version of eMinerva greatly improves cost structure for MXL and flexibility for the client. Testing November. Existing clients switch over December. Fee per enrolment means schools only pay for what they use while depth of functionality gives multi-campus Universities the opportunity to lower costs and develop more fee generating courses. On-line training allows rapid roll-out. Two fire-walls and virus protection. Five new products and deal with major training organisation still to be announced. Partnership arrangements being discussed with another major software group. Discussions with 2-3 State Education Departments for State-wide implementations. Deal with Softline could add 500 colleges in Russia, Ukraine etc - $12m pa recurring Deal with Atlantic Computing adds 50 Colleges in UK and $2m recurring revenue pa . Atlantic will take eMinerva to the USA. Discussion with USA Colleges has begun.
Background: The first eMinerva product was built with the conventional relational data base format to satisfy the particular needs of TESL (English as a second language) schools. Rapid turnover of foreign students required the data base to include accommodation, agents, accounts etc. The product became popular with similar TESL organisations in the UK, but MXL quickly realised it should be web-based.. This eliminated the need for multi-campus school to maintain LANs (private networks), back-up data and buy expensive hardware. A web system is simple, low cost and a small school has no large up-front licence fee. Modifications requested can be done by MXL at no cost. Errors and inconsistencies created by multiple handling are removed. The system allows information to flow throughout the modules rather than sit in separate fields. Education will become internet enabled like banking, travel and broking.
The business model with Microsoft’s dot. net: To obtain the maximum benefits of the internet eMinerva was re-written in Visual Studio.NET the Microsoft version of XML, the net language. Dot. NET is Microsoft’s flagship product and combines Visual Basic with C++, an object oriented language. Object oriented languages relate items to other items and jump across the various formats and frames. That is, if Wei Hong is enrolled in Accountancy 1, the system automatically produces a debit in the general ledger and puts her name in a class last. Dot.Net has been used for some very specialised and sophisticated programming such as the Commonwealth Bank’s nightly simulation of credit risk, but while there are dozens of high profile single applications, eMinerva may represent the first application that services millions of users.
With a small amount of training service staff can customise the structure of the program much the way a user of a Mac or Windows can add or subtract tool buttons on the screen. If it was relevant that a group of left handed dental mechanics should always be identified, a module for that group is quickly added. Teachers can set up internal portals or focus points for tutorials and chat sessions. Graphics, tables and spread-sheets can pass freely to and from student to staff unrestricted by formats. It is perhaps for this reason that Microsoft has endorsed eMinerva so strongly by appointing a development manager.
Going full circle: MXL’s business model takes data communication full circle. Banks originally used main-frames to drive dumb-terminals in the branch networks. Data could be fed in or retrieved but within limited channels. This model was scrapped and replaced with client servers in the branches - computing was distributed. Branches were equipped with PCs to run spread-sheets, email etc. This model now applies in schools: servers running software at each location. The problem is that with large data needs, the networks are often unreliable. (It’s not uncommon for University system to go down several times a week.).
MXL takes data management back to main-frames except the link is a digital application of the telephone infrastructure plus “dumb terminals”. Data retrieval becomes a matter of a telephone call. Storage is off-site. Schools/colleges no longer need to run big systems, create networks and maintain them. A cheap second hand PC is sufficient.
The web and web software: In the mid-nineties it became apparent that the web would become the focus of software development. As with previous media, no one event or new technology was dominant, but faster chips, vast improvements in memory, greatly increased capacity to shift data down copper wire all contributed to the attractions of the web. The stand-alone main-frame became less attractive as faster, cheaper servers were used in parallel. Business to business portals became common-place as corporations ordered, invoiced and paid over the internet. Airline travel bookings have been done on the internet in the same way for a decade and in health ICS Global is introducing a low cost portal that exchanges data between hospitals and health funds and GP’s and specialists.
IT visionaries had maintained for years that the shrunken form of the main-frame, the desk-top was antiquated. Most PCs came loaded with Microsoft software adding to the memory required for the internal operations, but often providing far more capacity and features than were ever used. Gates and Steve Allen became massively wealthy. Like New York railway barons they owned the rails that the rail car companies needed to move their passengers. However, IBM and others began to assert the necessity for any and every device to communicate easily regardless of the internal format. A net language was created. XML (Extensible Mark-up Language) in effect doesn’t care what rail lines it uses. For this reason Sun Microsystems said “the network was the computer” and developed Java, a language that allowed any this reason Sun Microsystems said “the network was the computer” and developed Java, a language that allowed any system to talk to any other via the web. Linux was developed by thousands of volunteers to displace Mircosoft’s dominance on the lap-top.
By 2000 the US Justice Department had heard enough complaints from small and large software companies and State governments to launch an action against Microsoft for restraint of trade. It was alleged that Microsoft was forcing computer makers to supply their devices exclusively with Microsoft products and force people to use the net via Microsoft’s products. In the witness box Microsoft was revealed as a predatory and anti-competitive company. It decided to change strategy.
Business generally moving to the net: The obvious parallels for a net based distribution system are ICS Global, Amadeus in travel and the ASX Chess system. ICS Global has signed Medibank private to a web-based system that will connect hospitals and health funds on a fee per use basis with a dramatic build up of revenues as all hospitals and most funds join the system. The Chess system is a more modest example of networking and data retrieval. Various fees are charged at different levels to allow back-office access between the broker and the share registries to confirm holdings and distribute. The travel industry is now switching from dedicated lines to the net. Costs fall dramatically. One local travel agent will save $330 a month by simply switching to the net. MXL’s own running IT costs fall by approximately two thirds by moving from the server environment to a main-frame/net environment.
Microsoft and MXL: The appointment of a development manager by Microsoft to MXL is an unusual step for any company, but the significance goes beyond giving MXL a helping hand. The days of software upgrades are over. Five years ago, Linux was only a theoretical threat. Today US corporations are buying it to run critical data. Sun is writing accounting and customer relations systems in Linux and is now giving away its Star Office software to 26 million schools. Where they get the lap tops to run them isn’t mentioned. In this situation Microsoft is looking for alliances to extend its own products. EMinerva is written to integrate easily with Microsoft’vs various office and accounting systems, staff management, customer relations, etc can be re-written for the web with payment made per use. This explains the Microsoft interest in an obscure company like MXL. As well as being an outstanding example of how .NET can be used, it links to other Microsoft products. Sales of eMinerva to colleges could lead to sales of eEnterprise, Microsoft’s accounting and management system.
Education market growing: Education and training is one of the world’s largest and fastest growing markets and is supported by government and corporate funding. Companies People Soft and SAP dominate management systems, but their focus has been on big packages of relational software. These systems are very expensive and sometimes fallible. Last year RMIT’s new $3m People Soft student record system crashed with hundreds of results lost.
While there is no lack of student record software, the Colleges and schools will almost inevitably move to web based systems either of their own design or buy from companies like MXL and its competitors due to the cost and ease of use. eMinerva is designed on a K-12 and beyond basis. It caters for post-graduates students and alumni (for fund raising and further eduction).
There are several barriers to entry. The expense of development, testing and hosting is likely to inhibit all but the largest organisations (ie $400,000 minimum) from preparing software and while clusters could develop a system, they will still need to appoint and pay a central administration point and agree on a common format. As Colleges are now all competing for full and part-time students, this is a less attractive option than it looks.
Large software houses could also produce a product - and undoubtedly will - but that means taking on Microsoft’s distribution network and a second international software group now in discussions with MXL.
As the school/College market can be measured in millions globally, there will be room for several competitor branded systems, but companies like People Soft will have difficulty reducing their own pricing structure to meet eMinerva and Microsoft. An annex of an Australian University was recently quoted $500,000 for implementation of competing product, but as this was to support only 200 students it was out of question.
Costs and revenue: MXL’s cost saving will vary from situation to situation, but the saving are of a very high order. RMIT’s People Soft system cost approx $5m. The staff to run this could cost $80,000 each with on costs. Such a system may cost half a million to run a year. All up it may be $3.5 For 15,000 student enrolments MXL would charge $75,000 - a 45:1 ratio. Typically an enterprise management system will be expensive. A mid-size corporation may spend $10-15m simply for a package.
Others could retaliate with similar software. Linux is free on the web and is now free of bugs, but without a central support organisation to make changes and provide the nightly backing up of files only school clusters could afford a self-made system. Schools and colleges are very concerned about data security and require both physical and logical security, bullet proof control rooms and general disaster recovery. Someone therefore has to provide total security. In the case of MXL it contracts out to Macquarie Communications to back up each night.
Limited running costs: Costs for MXL remain the same regardless of whether 100 or 10,000 schools are on-line. Like ICS Global, the core cost of MXL is around $3 million a year or 250 schools to break-even. Reading past announcement carefully it appears that MXL and Microsoft are negotiating with various school systems. If the NSW Education Department adopts, this involves 1600 High Schools and Primary schools averaging 1000 students each. This would deliver $8m pa. Queensland and Victoria are also in discussions. The Catholic school system and associations of private schools may also consider eMinerva. The benefits are numerous:
sharply reduced IT costs for school and students ie low cost terminals. upgrading of software unnecessary schools take full advantage of the internet as a resource - expert demonstrations and lectures available to all.
The same applies to Colleges and Universities. TAFE Colleges could compete with Universities that are currently poaching their traditional diploma level students. Virtual Universites will be unrestricted be geography. The Multiversity Australasia group is one that may adopt eMinerva to deliver course content t The same applies to Colleges and Universities. TAFE Colleges could compete with Universities that are currently poaching their traditional diploma level students. Virtual Universites will be unrestricted be geography. The Multiversity Australasia group is one that may adopt eMinerva to deliver course content to students internationally.
Take-up: In the UK one group of 350 training schools is signed and interest has developed on a broad front. Installations in India, Singapore and China represent the early stages with discussions spreading to Taiwan and Thailand. Bond University’s English language Institute signed in September initially with 9000 enrolments, but with plans for 100 annexes in Asia. The main University may adopt as it student record system doesn’t talk to the general ledger. Six Australian Universities are close to commercial arrangements and several in New Zealand. Corporate interest has begun. McDonalds will be moved over to the Net version later this year and Red Rooster will sign shortly. The subsidiary of a large US automotive group is showing interest. A Swiss based organisation operating in 25 countries is due to sign shortly.
Microsoft: The attraction of eMinerva for Microsoft is two-fold. EMinerva is an advanced use of .NET and will become a reference product for Microsoft in the education space, but it also offers leverage in several directions. For school systems that are not using the web effectively, Microsoft can can sell as an agent, but it can offer a full school system solution with its new Tablet PC. This light, portable product is deal for schools as students can use it either to write or type. The device can switch rapidly from being a blank writing sheet to a visual display for video or graphics. A quick scribbled note or answers ticked and sent as email. The tablet becomes dairy, time-table, reminder service (next week’s science test, or today’s excursion) Most private schools and some government schools claim to have web-based learning, but they use expensive, heavy lap-tops ($3,000 each) that require maintenance. Each is a mini-frame and parents have paid for hardware capacity and software that isn’t being fully utilised. In some respects, these PC programs are poor value for money relative a full web based system.
Risk and limitations: Obviously many school need not adopt eMinerva or a similar web based service. Many schools are networked as it is (at a cost). Victorian TAFE Colleges use the net to give staff access to data such as course enrolments. Net access is not new. The marketing edge will come from those situations where the organisation wants a cheap way of linking all its data and is satisfied by the security offered and the price. The elimination of maintenance and upgrade costs will drive some to adopt. Others will prefer to keep what they have and upgrade later. Some organisations are also very protective of their data and as a matter of policy will not allow it to be web-hosted even though MXL offers a hacker-free environment and backs up data each night. For these users eMinerva has an intranet version. This will also be offered to Chinese colleges and other locations where the net is not considered robust enough to give reliable service.
Competition will inevitably follow as there are numerous software tool sets that can be used quite apart from .NET. Current suppliers of custom-made or packaged software could easily re-write programs for the net. However, the Microsoft partnership does give MXL a sudden and overwhelming advantage. It has the program ready and it has on-line training modules available for quick adoption. How the new products fit into the cost structure and revenues is undisclosed. They are apparently related to eMinerva but extend in different directions.
Share issue and prospects: MXL has large share issue with options and shares to be issued. All up there will be 650m shares - a very large number that values the company around $75m. This is appears to be excessive for company with only a trickle of cash-flows despite the numerous agreements and pending deals. However, the investor needs to focus on the number of near-term deals, the recurring revenues, the scale of the market, the partners and the break-even operating cost of around $3m. If three State Government’s sign, MXL would earn $10-12m pa or 2c per share.
This could be duplicated, not just in Australia, but with dozens of systems and multiple corporations and colleges. In the UK there are 250 Universities and Colleges and some 30,000 training organisations. In Denmark alone there are 70 tech colleges. Penetration is already occurring in Asia. Agents are being appointed to drive acceptance in Europe and Asia. The corporate market is also large as most corporations conduct training and need to track achievement. Corporates will be charged a commercial rate per enrolment - perhaps $10-12. Australia-wide there is a policy to make qualifications standardised which may provide opportunities. Contact has been made by Microsoft’s Russian operations where there are 500 agents. Obviously the North American market would provide opportunities as Microsoft has a strong interest in championing an example of its new and leading soft-ware product. It is early days and talk of “well over a dollar” is premature until a solid cash-flow is established, but MXL is clearly well positioned to take advantage of the changes soon to sweep across education and the IT world generally.
Disclaimer: The writer holds shares in MXL. This could be capable of influencing expressions of fact or opinion. Note: MXL is a speculative company and not suitable for all investors seeking current cash-flows and profits. The above is designed as background only and intended for clients of Bell Potter. An extended discussion was regarded as necessary as there is little general grasp of the technology and its implications.
