Centra Software: Lesson Learned?

By Baselinemag  |  Posted 2005-01-13 Print this article Print

Centra Software's Web conferencing application serves thousands of collaborators at a time. So, why is the company struggling?

Those who use Centra Software's Web conferencing system think it's the greatest presentation tool since the felt-tip marker. "Hands down, Centra has the best e-learning tool out there," says Scott Sutker, vice president of learning systems at Wachovia.

The company, whose software can host meetings over the Internet for thousands of people at a time, claims to have 1,200 customers, including Service Corp. International, BMW of North America, Century 21 Real Estate, Cingular Wireless and the Internal Revenue Service.

So why is Centra struggling? In its nine-year history, it has never posted a profit. This summer, the Lexington, Mass.-based company laid off 18% of its workforce—leaving about 220 employees—and shut down its product development center in Morrisville, N.C. In September, Centra founder Leon Navickas left the company "to pursue new opportunities," according to a company press release, though he retains the title of chairman.

Says Paul Gudonis, who was hired as Centra's president and chief executive officer in July 2003: "It's been kind of a rebuilding year."

The problem, according to Gudonis, was that the company wasn't playing to its strengths. Instead of selling the software as the cornerstone of an employee-training program, he says, Centra's sales force was wasting energy fighting for business with more general-purpose online meeting services from WebEx Communications and Microsoft, which bought Web conferencing provider PlaceWare in early 2003.

"When I came on board, we had 10 people on the phones trying to sell contracts against WebEx," says Gudonis, who was previously CEO of Web hosting provider Genuity. "That wasn't sustainable revenue."

Centra's conferencing system streams live audio over the Net, letting a group leader flip through PowerPoint slides, mark up an electronic whiteboard or demonstrate how to use a Windows application. Audience members, who need only a Web browser and dial-up modem connection to participate, can raise a virtual hand to ask questions and the audio is broadcast back to everyone in the session.

The software is, obviously, capable of handling generic online meetings. But about a year ago, Gudonis decided to cede that territory and focus exclusively on corporate training engagements—a move to try to land long-term, big-ticket deals as well as steer Centra clear of Microsoft and WebEx. "Our positioning is that if you're a project manager of a big Siebel rollout, we'll go in and help train your people on that application," he says. "That's very different from saying, 'Hey, we have an online meeting service that's 40 cents per minute.'"

Moreover, say customers, Centra's software has a wealth of features built around online learning events that meeting tools from Microsoft and WebEx lack. "A lot of software can connect people together, but I was looking for something to do training," says Armen Papshev, manager of e-learning at Schering-Plough, which used Centra's system to educate employees on new regulations. For example, he says, Centra's software can let participants enter breakout sessions and allows audience members to "applaud" moderators using a live feedback feature. "It sounds silly, but it helps when you're presenting in such a sterile environment," Papshev says.

Still, some think Centra missed the boat in the late 1990s when it had the chance to go toe-to-toe with WebEx, which is now more than four times the size of Centra and quite profitable. In 2003, WebEx reported $189 million in revenue and a $60 million net profit, while Centra had sales of $43 million and lost $8 million.

"It was always a mystery to me when WebEx came along and suddenly gained lots of visibility," says Ray Ravaglia, deputy director of Stanford University's Education Program for Gifted Youth, which has used Centra's software since 1996. "That business was there for Centra to take, but they never managed to get their act together. It was frustrating to see them fail to take advantage of those opportunities."

But others say Centra was wise to retreat. Rob Lauber, executive director of learning services at Cingular, is happy to see Centra return to a strategy focused on delivering enterprise software. "Their product is more mature than others on the market," he says. "They're geared more toward being an enterprise application, rather than following a teleconferencing model."

Cingular, which is in the process of assimilating AT&T Wireless, uses Centra's system to provide sales training and e-meetings for between 15,000 and 17,000 employees per month. Since going live in July 2001, Lauber says, Cingular has had "very few application issues" with Centra's software. His team also hasn't had to make many customizations, which eases upgrades because changes to an older version of an application usually must be recoded for the new one.

Can Centra regroup? Customers have their fingers crossed. "They're a medium fish, and you hope they don't get eaten up," says Mark Eggers, manager of online learning for hotel chain Wyndham International. "But if somebody does buy them, I hope the product doesn't go away."

The Company

Headquarters: 430 Bedford St., Lexington, MA 02420

Phone: (781) 861-7000


URL: www.centra.com

Employees: 220

Founded: 1995

Business: Provides software and services for communication and collaboration over the Web.

Executives: Paul Gudonis, president and CEO; Jim Freeze, senior VP and chief marketing officer; Rick Cramer, senior VP of sales; Marty Deise, senior VP, professional services.

Market share: 5.4% of the $778 million Web conferencing market, 2004 (Radicati Group).

Competitors: IBM's Lotus Software, Interwise, Microsoft's PlaceWare, WebEx Communications

Centra Operating Results*

Gross margin80.2%81.9%77.5%
Operating loss-$9.94M-$8.17M-$22.91M
Net loss-$9.78M-$7.91M-$22.47M
Net margin-35.5%-18.4%-67.3%
R&D expenditure$7.89M$11.46M$11.99M

*Fiscal year ends Dec. 31; YTD reflects first nine months

Other Financials**
Total assets - $35.87M
Stockholders' equity - $15.21M
Cash and equivalents‡ - $26.65M
Long-term debt - $1.02M
Shares outstanding - 27.41M
Market value, 1/10 - $60.43M
**As of Sept. 30, 2004, except as noted
‡Includes short-term investments

The Technology

Centra Software was born in the "narrowband" age of the mid-'90s, when most people sucked Internet content through the thin little straws provided by analog modems. The company's conferencing application was designed to accommodate a range of bandwidth capabilities, including the least-common denominator, dial-up modems.

These days, however, more people are plugged in to the Net with connections 20 times or more faster than old analog modems. And at higher speeds, says Cingular Wireless' Rob Lauber, "Centra's audio quality isn't what I might expect." In addition, when someone speaks during a Centra session, there's still some time lag (up to 3 seconds) before other participants hear the audio, which can cause some awkward moments in a meeting.

Centra CEO Paul Gudonis says he's heard the message, and promises that the next version of Centra's software—7.5, to be released in May—will have better audio and video compression to take advantage of high-speed Internet connections. —T.s.

Reference Checks

Century 21 Real Estate
Ernie Brescia
Chief Learning Officer
Project: Cendant subsidiary uses Centra's conferencing system to train people in 4,400 offices, primarily instructor-led sales tutorials for new agents.

Underwriters Laboratories
Peter Serrate
Dir., Customer Service
Project: Product testing and certification firm developed a four-week training program for 210 customer service representatives with Centra software.

Stanford University
Ray Ravaglia
Deputy Dir., Education Program for Gifted Youth
Project: Distance-learning group provides paid courses for 500 to 1,000 high-school students over the Web with Centra.

Armen Papshev
Mgr., E-Learning
Project: Pharmaceutical company used Centra software to train 5,000 employees worldwide on 88 new U.S. Food and Drug Administration regulations in a year and a half.

Wyndham International
Mark Eggers
Mgr., Online Learning
Project: Dallas-based hotel chain has used Centra since January 2000 to provide online meetings and training to 5,000 employees at 150 locations.

Cingular Wireless
Rob Lauber
Executive Dir., Learning Services
Project: Uses Centra's system to provide virtual classroom sessions for employees and external brokers, as well as self-service e-meetings.


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