Wave Issue 9703 2/17/97 Article 6-01

***Company Profile – ParaGraph International – A Russian company
with a VRML twist
by John Latta

ParaGraph International, well known for its VRML products, brings an
unusual approach to creating and delivering technology in the form of
products for PCs and the Internet. WAVE visited ParaGraph and spoke
with its President, Gregory Slayton and Leonid Kitainik, VP General
Manager of the Consumer Division. The company has a thin management
layer, many of which are American - the President, CFO and 3 VPs. There
are only 10 individuals on the business side and the rest in
technology. The core of the company is its 100 technologists, the vast
majority being Russian. This provides what Gregory described as a very
academic approach using highly educated individuals. Although they
pride themselves in the depth of analytical abilities ParaGraph is
focused on being 1st in products and not being academically blind to the
market. Today the technical team is focused on VRML, however, the
company began its work in handwriting recognition in a contract with
Apple in 1991 for the Newton. Much of the technical talent is in Moscow
which allows the company to have a significantly lower cost structure
than its competitors. ParaGraph is unusual in that it has a direct
satellite link to Moscow with an open T1 link between its offices.

ParaGraph’s business is divided into two parts: OEM business and
products. Its OEM customers include Disney Online, which recently
licensed both Internet 3D VR and digital ink technologies, and People
World Company in Japan, which used similar technologies to launch the
People Space service in Japan. On the product side ParaGraph sold
150,000 units of its Virtual Home Space Builder. In 1996 the company
had sales of $6.2m and expects to exceed $10m in 1997.

When asked if money in VRML can be made Gregory responded with an
emphatic yes. Likewise one wonders if the OEM business is the subsidy
for the product business and he responded that making money in VRML is
all about timing. ParaGraph has had bundling deals and “we got paid for
all the units shipped.” Being a bootstrapped company Gregory counters
that the real subsidies for technology comes from the venture
capitalists – this is whose money is being spent to bring technology to
market – and much of it is in the form of losses. According to
ParaGraph, their approach is more difficult but it has worked for them.

ParaGraph also runs counter to the notion that successful companies,
especially in the San Francisco Bay Area, are not technology driven but
market driven. Gregory again dismisses the conventional logic by
quoting Steve Wheelright of the Harvard Business school – “A check for
$10m from a customer is the best market research one can do.” Again the
OEM customers, who are licensing ParaGraph’s technology, are seen as
the best validation of its mixture of technology and market pragmatism.

ParaGraph intends to continue its leadership position in VRML. Gregory
is confident that by 2000 VRML will the foundation of a $1b market. He
is not concerned about competition in such a large potential market.
One way is that his company will maintain its products at the cutting
edge of technology. In such an expansive market there is lots of room
for Intervista, Dimension X and others.

Leonid Kitainik outlined his views of the role of the VRML Consortium.
For the Consortium to be successful three things must be accomplished.
First, the standard must be made acceptable to the industry and the
masses. By masses he means the entertainment industry. To accomplish
this there must be more evangelism for VRML and this can only be done
by the Consortium and not single companies. Second, VRML must become a
part of the family of Internet standards. This not only means being an
ISO standard but a part of many standards. An example cited was RTP so
that VRML fits into a push pull environment. Third, the VRML standard
must reach the consumer level. This will only be accomplished through
compelling applications. In addition, Leonid feels that educational
uses of VRML will be very important. When asked if the Consortium will
deliver on these expectations he is confident it can.

With this push to standards based solutions, how can ParaGraph
differentiate sits products? First, Gregory feels that there is BIG
room within the standard to be more efficient. He cited the ability of
ParaGraph to accomplish a 30:1 VRML file size reduction. An example of
how it is using its technology to drive VRML ParaGraph is working on
the reference implementation of the binary VRML format.

When asked about the role of 3D acceleration in creating the $1b market
Gregory is emphatic that ParaGraph intends to have it both ways. That
is, using their own high level rendering engine they want to be the
best low end software only renderer and at the same time conform to the
existing platform APIs for acceleration – both OpenGL and Direct3D. For
example, the new version of Internet3D Space Builder (ISB) supports
Intel’s MMX technology.

Gregory Slayton sees the strength of the company being in three areas.
First, the OEM accounts provide ParaGraph with market validation of
their core technology. Second, these accounts provide cash flow and
thirdly the company has its technical foundation in its people. Gregory
sees his role in both building a team and providing a vision. He must
also execute in the business relationships. To do this ParaGraph must
have a customer perspective. He cites one of the major failures of
individuals struck by the 3D and VRML technology is that they want to
build the fantasy of Snow Crash. In his mind this is not reality – a
company must have customers who are using your products and technology.
ParaGraph will play its role by shaping industry standards and
delivering products which leverage its technology strengths in those
standards. ParaGraph intends to continue to lead the emerging VRML
industry.

www.paragraph.com