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Engagement Labs (V.EL) looks to become Canadian tech's big value catalyst

Chris Parry Chris Parry, Stockhouse.com
3 Comments| July 30, 2014


Canadian tech is dead. At least that’s the conventional wisdom. While ‘south of the border’ tech companies rocket to billion dollar valuations as soon as the office intern signs up for a Vine account, here in Canada you practically have to send a space shuttle to Venus to get noticed on the tech side.
 
Which is weird, because there are bazillions of formerly-assigned-to-mining dollars out there looking for a home right now.
 
Engagement Labs (TSX:V.EL, Stock Forum) thinks the search for Canadian tech’s great trigger for explosive growth is over. Perhaps you’ve never heard of them, but chances are your Twitter account or Facebook feed has felt their impact. 

Engagement Labs President and CEO Paul Allard knows he’s on a good thing. You can hear it in his voice when you talk to him. He’s sitting on a technology that, he says, will be to social media what the Nielsen Ratings are to TV.
 
“Every day there is more data generated by digital users and customers than was created by all of humanity from the beginning of time until 2005,” he says, blowing my mind. “Most of it is crap, unstructured, unorganized, erratic, and finding value in it is like trying to find a needle in a haystack. Every Chief Marketing Officer looking at the digital world knows this and is faced with the task of extracting business intelligence from the humungous amount of data generated. But how can anyone do it well? How can you do it in real time?”
 
Engagement Labs wants to be that ‘how’.
 
“We provide a set of real time intelligent data, we extract it, crunch it using intelligence algorithms, semantic analysis, interpretation algorithms, so the client company will receive specific data with insight into how to improve their social media engagement and conversion rates,” says Allard. “And that’s the tip of the iceberg.”
 
Got that? Unless you’re a CMO, probably not, so let’s start out with why you should give a damn about social media – as an investor:
 
“We’re seeing numbers confirming a huge switch in the marketing spend from companies today, and it’s going from advertising-centric to conversational-centric,” Allard says. “Marketing departments have already shifted their thinking away from telling people what to do, to showing them what they could be doing and engaging them in a conversation. The old world concentrated money on ads which were very top down, mainly TV with no interaction. The new world is shifting dramatically. Social media and analytics allow the message to be sent directly to a certain demographic, with the ability to see how that message is being accepted and shared in real time.”
 
The old thinking of social media, that it’s a bunch of people sharing what they had for breakfast, is a prehistoric viewpoint, says Allard. The key, for companies, is to find out how to insert themselves into the conversation, and make friends, supporters, even zealots as they do so.
 
Engagement Labs is built around giving companies the tools to monitor, analyse, and take part in those social conversations in multiple places at once.
 
“We believe,” says Allard, “nowadays, the rapid shift to massive conversational marketing is not going to slow down. Yes, TV and traditional media spending won’t die completely, but a smart marketer will never put a message on TV if there’s no call to action for a digital response. In the digital world, you can trace the response of your message, measure how it evolves, engage in conversations with users and convert sales. In a newspaper ad, you just send it out and hope it works.”
 
As an example, if you’re older than 12, you’ll remember the New Coke bungle, when Coca-Cola released a new recipe that angered and horrified fans of the brand who had been drinking ‘old Coke’ for years. The company test marketed it and saw good results and so made a decision to go public, figuring customers would be happy with the new product. When they weren’t, the feedback came through national news media stories. The resulting calamity cost the company a ton of money over several months to undo the damage.
 
Coca-Cola (NYSE:KO, Stock Forum), now, is all about the real time conversation.
 

 
“Big brands like Starbucks, Coke, Nestle, Red Bull, they’re all shifting from traditional ads to publishing relevant content that will trigger engagement from influencers, to help it go viral if possible,” says Allard.
 
That strategy could be seen writ large in one of the biggest stories of 2013, when Felix Baumgartner went into the stratosphere in a balloon-lofted space capsule and jumped out at a height of 128,000 feet – courtesy of the viral marketing geniuses at Red Bull.
 

 
Says Allard, “I believe to be successful in conversational marketing, there are two major elements. You have to invent creative content, and content that triggers engagement with the audience – things that make them stop what they’re doing and look. It has to be content, not an ad. It could be a contest, a poll, a game, a funny video, a question. Great content combined with the science of data gives you the competitive benchmark of what’s been done, what’s happening, what are the audience influencers talking about, what profile do they have, what’s their reach, and so on.”
 
But that ‘science of data’ element requires some serious analytics, tools and smarts. And Engagement Labs has the technology that has them looking to be at the core of every one of those conversations.
 
“A company’s success will, from here on, truly depend on how well a company’s systems and staff will be rooted into the community and how their systems will be able to extract real time business intelligence,” says Allard. “Campaigns will no longer be based on internal data, like in the old days, where we relied on gathered data from market research on 200 people that took weeks or months. We can generate 60-70k points of data that big companies need to take action – right now.”
 
“The vision is tomorrow’s Chief Marketing Officer will be in front of a screen, and the screen will show his dashboard and have access in real time to all campaigns, with the flexibility to drag intelligent data from an internal or external source, to be able to correlate that data and do predictive analysis for any conversation, campaign or company they’re dealing with,” says Allard.


 
Time out.
 
Let’s take a quick left turn for a moment before we go deeper into the tech and talk about Engagement Labs as a business opportunity.
 
The company has a $9.9m market cap and a tasty 20m share float. No, they’re not revenue positive yet – the company is most assuredly in a growth phase, and that means pushing hard into market penetration and sales leads and expansion of the technology as quickly as possible.
 
There are competitors in the space, and they boast market caps SIGNIFICANTLY larger than Engagement’s market cap, which shows the potential not just for share price elevation going forward, but the potential for a bigger fish to come in and do a ‘value deal’ to acquire Engagement’s technology and client base.
 
“We expect to have $3m-$3.5m in revenues by end of the year,” says Allard. “Compare our market cap to any single tech company that’s as mature as ours, and you quickly see they have 10-15 times next year’s revs. We’re at 5-7 times this year.”
 
Trading volume on Engagement is low, though in line with most publicly listed Canadian tech stories. That, in itself, presents an opportunity, inasmuch as it won’t take a lot of trading activity to start eating through the ask. In fact, the company share price has already climbed 66% since January 1 of this year.
 
Where Engagement sets itself apart from those other Canadian tech companies is in that it hasn’t already leveraged itself to the hilt. While the company has a cash burn of around $225k per month, it just came through a $4.3m financing round, to add to the $1.2m in working capital that was already in hand.
 
What that means to the investor is there is no need to dilute for more finance for at least the next 18 months, unless the company goes on an acquisition spree.
 
It’s not averse to just that, mind you: Engagement just last week grabbed Toronto-based social media communications pioneers Entrinisic, an agency that earned $2.4m in revenues in 2013. The deal cost around $1.4m and expanded Engagement’s customer base.
 
“We’re absolutely still in growth mode, says Allard. “We have advanced technology that’s state of the art, if we can establish eValue Analytics as the standard in this world to measure social media efficiency we will have the multiples we want, no question.”
 
“There are a lot of competitors, especially in Canada, that are in this space; Sysomos, Raven, Hootsuite, us.  Where we differentiate, we offer our clients different bundles of data, we can listen to and monitor multiple conversations, but we also invented a score to track the level of efficiency of a brand in social media based on levels of active engagement. We want to be the Alexa of social media.”
 
That plan appears to be gaining speed. The company boasts clients such as global marketing and tech agency Digitas and media conglomerate Omicon. “We have Google as a client,” says Allard. “These are big first mover partners and they show we have real technology, and that we’re playing for keeps here.”
 
Allard has a track record when it comes to building company value. He started a company called Zaq Interactive Solutions in 1997 which went to half-billion market cap in 2000 before he sold it to Infosys (NASDAQ:INFY, Stock Forum).
 
He formed Engagement Labs, which was then known as Parta Dialogue, in 2006. In the eight years since, he’s built a client roster that includes names such as Canada Post, Renault, Dassault Systems, Danone, Hydro-Quebec, and Nestle Waters.
 
“In 1995, I was selling websites,” says Allard. “That was like selling electricity in 1850. Massive education component involved in every sale; ‘Here’s what the internet is, now can I build you a website?’”
 
“When we launched the first version of Engagement’s tools three years ago it was amazing how much education we had to do. Most marketers now understand what we’re doing, but they don’t know how to measure it. So, now, it takes twenty minutes to explain the three metrics and explain how to compare those with other brands, and they’ve got it.”
 
To see for yourself how simple the evalue analytics dashboard is, take a look at http://www.evalueanalytics.com/ and throw a corporate brand into the dialogue box.

evalue.jpg
 
The resulting page will show you how effective that brand is on a variety of social media in engagement (how the brand engages with the audience), impact (how big an audience is seeing the content) and responsiveness (how well the brand responds to user interaction) of their social media accounts.
 
The tool also allows users to compare their scores to competitors, to get a sense of where improvements need to be made.
 
Premium (read: paid) users get a load more to play with, but the free version is increasingly serving as a good lure.
 
Engagement, clearly, is no rookie in the tech space. An eight year lifespan makes it almost old school. The company has offices in Paris, Toronto and Montreal, with Mexico and New York on the way.
 
But according to Allard, now’s the moment when all that planning, building, refining and pitching comes together to make a serious run at an exploding marketplace.
 
“We’re starting to actively market in September, so we’re gearing up for some serious momentum.”
 
The aim is to be the standard for social media effectiveness measurement. Like the Nielsen ratings are to TV, only churning out 24/7.
 
That’s a lofty goal, and lofty goals are often recipes for New Coke-level corporate failure. I ask Allard what he’ll do if he can’t become the standard measurement of global social media, and his answer was pretty simple: there are so many potential customers, and so much work has been done building the technology, that even having to settle for ‘a strong niche’ will build exponential revenue opportunities.
 
“If we’re not the standard, we will be one of the unique contenders in the industry of analytics and metrics, because today the new kids on the block find it impossible to deal with the complexity of Facebook, Twitter, Linkedin, Pinterest – there are so many problems out there in integrating those systems and news ones pop up every single day, so there’s barriers to entry for new players. Where we can differentiate without being a standard, we also approach third party vendors who provide our dashboard and want to license our technology in their existing products. Our reseller program will multiply our reach to thousands of existing clients with different dashboards badged for different companies, all feeding from the same tools.”
 
“I think we’ll be one of the Canadian tech success stories,” he says. “I believe Hootsuite will be the leader and we will have great success too, but for different reasons. It’s not just about the tech, which we have, and not just about a booming market, which we have, it’s about your board and your business experience and responsible growth and established clients and constant upgrades and who’s supporting and talking about you. Which we have.”
 
--Chris Parry
http://www.twitter.com/chrisparry
 
FULL DISCLOSURE: Engagement Labs is a Stockhouse Publishing client
 
 

Tags: TECHNOLOGY SOFTWARE - APPLICATION

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Comments

ValentinKushnir
now that the Senate gave power to the States to regulate marijuana sales and distribution I think your going to see these stocks really go for a ride
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August 27, 2014
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tayjon80
Maybe you could provide some sources for some of your assertions. My efforts provide nothing to verify with. $500mln market cap, buyout by Infosys....
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August 15, 2014
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leblereau
Great article. However, when comparing Engagement Labs with the competition " ... We want to be the Alexa of social media.” I believe he meant Elixir and not Alexa. I can see how the mistake could've been made.
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December 2, 2014
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