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Interview with Jack Blount, Alpha Bay

Alpha Bay Corp. (www.alphabay.com) is a retail systems software publisher based in Salt Lake City, Utah. The company's all-in-one solution includes inventory tracking, asset management, theft prevention and customer loyalty. Former Novell executive Jack Blount founded Alpha Bay in 2005 with an eye on helping large retailers keep pace with even larger corporations. Techrockies.com recently sat down with Blount (pronounced "blunt") for a brief chat about his company, its product and its funding. Following are his comments.

To begin, your Web site says your provide retail systems software and services. What exactly does that mean?

Jack Blount: Alpha Bay is focusing on enterprise retailers to provide them a state-of-the-art technology so they can compete with the Wal-Marts and the Costcos of the world.

For years, Wal-Mart has spent billions of dollars on information technology. For example, Wal-Mart has 73,000 people in IT and, as a software company, they're bigger than Oracle.

Technology is really what's going to make the difference for retailers to be able to put the product on their shelf, make a margin off of it, and meet customer satisfaction in the “I want it my way” customer world of today. So we've developed a new, state-of-the-art technology system that combines point of sale, inventory management, customer loyalty management and business intelligence as an integrated, real-time system for large retailers.

What size retailers are we talking about?

Jack Blount: Our average sale would probably be a $10-$15 million system to a Fortune 500 retailer like a Kroger's or a Safeway or another very large chain with thousands of outlets.

So your ideal customers would be the ultra-mega-sized retailers?

Jack Blount: Well, maybe not the ultra-mega. I mean, we're not going after Costco or Wal-Mart, just kind of one step below them—Fortune 500, not Fortune 100. We're talking 8-, 10-, 20-billion-dollar companies that are probably spending somewhere today between $100 million and $200 million in IT a year.

We could probably give them an ROI on our system of about 18 months. They will get their money back while they also get all kinds of new functionality that increases their sales at the store level, stops their out-of-stock issues, will almost completely eradicate their losses [through shoplifting and employee theft], which totaled $42 billion last year, and it's all based on five patents that we have around real-time technology that fundamentally changes how you do retailing.

Is your product a Web-based, software-as-a-service application?

Jack Blount: Yes, it is a Web-based interface; it's a SaaS application. At the same time, a lot of these large retailers are going to put in their own data center, but it still runs as a SaaS application.

It's very flexible. It's thin client, hardware independent, operating system independent, database independent.

If you had to summarize your product in a few words, say three or four words, what would those be?

Jack Blount: That's hard to do because [the Alpha Bay solution] does so many things. I call it a real-time enterprise software system because the real transforming thing about our technology is all the retailing is done today with batch files.

Batch files typically are run end of day, end of week, end of month. They're working off historical data to make decisions real time. We give them real-time data to make real-time decisions, which can totally reduce their inventory, it can totally stop their out of stocks, it can totally stop their loss prevention, and it can dramatically increase their customer satisfaction.

Is your application deployed at the store-level? For example, is it something each store manager runs? Or is this something that works at the corporate level?

Jack Blount: It is both. It runs at the point-of-sale system at the checkout, it runs at the store manager's desk, it runs at corporate headquarters, it runs in the marketing department.

For example, [the marketing department] can create a promotion, and, depending on what that organization wants to do, that promotion can run at one or all of its retail locations.

So if a shopper grabs a—oh, how about a George Foreman grill?—off a shelf, proceeds to the checkout, has it scanned and then pays for it, is the store's inventory updated instantaneously?

Jack Blount: Yes, in real time, in milliseconds. Anywhere in the world, I can see what my inventory is doing, where it is. If I run a promotion on George Foreman that morning and the store opens at 8, then at 8:15, I can see if I've had an increase in sales on George Foreman grills. It's real time.

How does your product help prevent shoplifting and employee theft?

Jack Blount: Well, because we're processing all this data real time, we have built in some special algorithms—we use a neural-networking model—so that we're comparing transactions going through all the different point-of-sale systems real time. You see all the kinds of frauds that come up, where they scan things and then they credit things, or they scan this but they don't scan that, or they're scanning half as many items as the checkout person.

There's about 150 different theft algorithms that are used at the point of sale that, because we're real time instead of batch filed, we can spot it and call a manager over to that scene and say, “Something weird is going on here,” and either tell them exactly what it is or at least alert them that the behavior indicates that they need to be looking at what's being checked out right now.

Will this system work with the self-checkout lanes that are becoming commonplace?

Jack Blount: Absolutely. We support self checkout and the same technology works there. Depending on how much you want to spend, we can also tie that self checkout in with a video camera, so if they scan three items but put four in the basket, the video camera will see that and our software will actually recognize that there were four items, three were scanned, and cause an alert and stop the sale.

Being based in Salt Lake, is that a positive?

Jack Blount: I think Salt Lake is a good technology hub. It's also a good business hub because they've got an international airport with a Delta hub—you can get to anywhere in the world pretty much with a direct flight.

There's lots of technology to draw from, and we've had no problem recruiting good job engineers. All we're doing is Java development, all state-of-the-art stuff.

[Salt Lake City] is a very strong, very thriving, healthy community and a great place to live.

Where is your company at right now in terms of funding?

Jack Blount: I started the company and funded it, then we took in some angel funding, then we did a Series A with vSpring Capital about a year ago. And we're just going out for a Series B right now.

Our Series A was $3.5 million, so, in total, we have $6 million in the company right now.

What's your target for the Series B?

Jack Blount: It's $10 million. We already have a commitment for about half of the Series B right now, so I think we'll close it pretty quickly.

How would you use those funds?

Jack Blount: It's really about building sales and marketing because we've been in R&D. We are in beta right now with our first customer, and we will be in production with the product January of next year.

So, we are really at the end of our development cycle, [and we're] really now focusing on gearing up our sales, support and marketing.

Could you tell us a little more about this beta?

We are in beta with VIP Auto Parts, a 65-store retailer. The beta program is scheduled to run 120 days, but, if the customer desires, [it] can go longer. Beta for something this complex generally last six months.

In May, you acquired Avorcor, a software developer out of Virginia. Would any of your Series B money go toward additional acquisitions or mergers?

Alpha Bay has a very aggressive plan for acquiring retail software vendors [in order] to gain quick access to a customer base [to which] we can quickly up sell our new solutions and rapidly grow the company.

We think this market is an ideal time for orchestrating cost-effective acquisitions, and we have one large private equity firm supporting our strategy and are interested in discussions both with potential acquisitions targets as well as additional funding sources.

Where do you hope to have Alpha Bay in a couple of years?

Jack Blount: In a couple of years?

Or maybe in just a few months?

Jack Blount: (laughing) It's very aggressive. We're elephant hunting. Our product is completely globalized, so we're talking to customers in South Africa, we're talking to customers in Germany and France, we're talking to customers in China, so the product, shipping from Day 1, is already translated into 17 languages and it handles all those associated currencies.

So, in a couple of years, we could easily be over $50 million in revenues and growing very rapidly. It's a $9 billion market and we really have no competition.