OEM strategy breathes new life into DataPlay
Company renamed DPHI; platform now available for USB
By Caron Schwartz Ellis
News Story originally published in Boulder County Business Report, Jan. 09, 2004
BOULDER -- Like the mythical Phoenix, former data storage wunderkind DataPlay Inc., which went down in bankruptcy flames about a year ago, is emerging from the ashes lean, mean and ready to rumble as DPHI Inc.
"Things are going pretty well," said President and Chief Executive Bill Almon Jr. The new version of the company has about 40 employees, 16 U.S. patents awarded and more than 100 pending, about a half-dozen new applications and two customers with more in the pipeline.
DPHI provides micro-optical storage technology -- known as the DataPlay platform -- for digital recording, playback and distribution. The DataPlay platform features a tiny optical engine and removable media about the size of a quarter that securely stores about 500 megabytes of digital content for portable electronic devices.
Almon, along with his father Bill Almon Sr. and Hexagon Investments of Milwaukee, purchased the physical and intellectual property assets of DataPlay for an undisclosed amount in February 2003. They had made a $1.5 million bid to buy the company outright, but bankruptcy judge Donald Cordova turned down the offer and instead ordered the company's senior creditor, Silicon Valley Bank, to liquidate DataPlay's assets to try to recover its $1.06 million investment, Boulder County's $215,000 in back taxes and $14.1 million owed to junior creditors.
According to Duncan Barber, of the Denver-based law firm Bieging Shapiro & Burrus LLP who represented Silicon Valley Bank, the bank and back taxes were "paid in full" as a result of the liquidation. He did not know whether junior creditors, including displaced employees, received payment, and a Silicon Valley Bank spokeswoman said the bank would not comment on clients.
Under DataPlay founder and former chief executive Steve Volk, the company had focused on the consumer electronics industry. The company's core market was to have been pre-recorded albums and movies, but content proved to be hard to come by because of difficult negotiations with the music industry.
Almon's business model is based on an original equipment manufacturer strategy. "The old DataPlay was too focused on trying to create a new brand and actually produce their own players," Almon said. "Our strategy is to act like an OEM. Our technology has a broad set of applications and versatility, and we'd rather sell drives and media rather than try to be the next music player."
DPHI's primary contract is with z-kat Inc., a Hollywood, Fla.-based company that produces image guided surgery technologies for orthopedic and neurological surgery, interventional radiology/cardiology and general surgery. DPHI is supplying z-kat with the DataPlay micro-optical system for use in its z-box digital surgery platform.
"We chose DataPlay for a number of reasons including its storage capacity and digital rights capability," said Doug Alcorn, a z-kat software engineer. The digital rights capability has to do with the security of the stored data, especially a concern given HIPAA privacy regulations, he said.
According to Alcorn, z-kat was a DataPlay client prior to the bankruptcy and DPHI's first client after Almon restarted the company. "Even after they came out of bankruptcy we've had a lot of discussions about whether to stay with DataPlay," Alcorn said. "We think they have longevity to last as long as our product. We feel good about the company. It's never been a question of cool technology, just who's their customers. I think Bill's focus on OEMs rather than end users is a good strategy."
Executives at z-kat could not be reached for comment.
As part of the company's OEM strategy, DPHI's DataPlay platform is now available for the USB 2.0 interface. USB (Universal Serial Bus) is a plug-and-play industry standard interface between a computer and add-on devices and supports a data speed of 12 megabits per second; USB 2.0 can provide throughput of 480 megabits per second.
Market applications for USB-ready DataPlay solutions include secure portable storage and multi-media content distribution.
New products in 2004
In 2004 DPHI will have a few new OEM products, Almon said. One is an MP3 player manufactured by Future Media Electronic Co. LTD of China that is being demonstrated at the Consumer Electronics Show, Jan. 8-11 in Las Vegas. "It works just like an iPod for downloaded music or taking your own CDs and putting them on a small disc," Almon said.
According to Almon, DPHI is spending 10 times less per month than the former DataPlay, which went through about $120 million in funding with a workforce of some 160 in its four-year history.
The 140 patent applications alone probably cost upward of $5 million, he said. The reborn company can get by with much less expense because "the technology was already done," Almon said. "We're leveraging that with a finished product. Now we're talking about recognition of the technology and making it valuable. It doesn't require nearly as much in terms of cash burn."
Licensing the technology should continue over the next few years, and DPHI is working with Superior-based IP Partner LLC in order to maximize licensing revenue opportunities the patents represent. Eve Zhou, IP Partner principal, said her main goal is helping DPHI "to get organized and in position to sell the value of its patents. I believe there's some really great technology, but DPHI alone won't be able to take it to market. They need partners willing to take a risk."
Contact Caron Schwartz Ellis at (303) 440-4950 or e-mail csellis@bcbr.com.
