Guest column: Scanning an Internet-Style Deal

What a deal! I was recently in Staples with my dear wife buying boxes (we're moving again) when I saw an unbelievable deal - a Canon Computer Systems Inc. scanner for $30! That's right, three zero. It works like this: You buy the scanner for $130, and you'll get a $40 rebate from Canon and a $60 rebate from Staples. Amazing.

The scanner is a CanoScan FB 620U personal model with a Universal Serial Bus (USB) interface. It does 600 by 600 dots per inch, 36-bit color scanning, comes with Adobe PhotoDeluxe Home Edition and TextBridge Plus, and takes perhaps 10 minutes to install. The results are excellent, and for $30, it's an amazing value.

A friend pointed out that for $30 you could buy them and resell them at garage sales for double the price, which got me thinking. . . . So, here's a strategy based on Internet marketing tactics: We'll give the damn things away.

How will this work? We'll buy, say, 250,000 scanners, which will cost us $32.5 million. We'll apply for the rebates, which they claim take six to eight weeks to process, and get back $25 million.

Assuming we don't have $32.5 million lying around, that means we'll be borrowing the funds. Let's say the loan is at 10 percent per month starting on March 1. If we arrange with the lender for the first payment to be due May 1, the interest due at this point amounts to $136,545.14. We can pay off part of the loan with the $25 million rebate and we will still have $7,907,378.47 to pay off.

But over those two months, will we be idle? Oh no, not us. We'll do some deals!

We'll sell the cover of the scanners for advertising. We can divide the space into four parts and sell each quadrant at, say, $5,000,000 each. Assuming we can get the $20 million revenue in by the end of the second month, we can pay off the loan in full, leaving us with $12,092,621.53.

Now we have to print the ads on the machines - say $10 per unit to unpack, print and repack - so we're left with $9,592,621 and some change. We'll need to advertise (say, $1,000,000) and we'll have some operational costs (warehousing, staff, etc., say, $500,000) so we're left with just over $8,000,000. We have to ship out the hardware, but let's assume that we'll charge a shipping and handling fee that covers the costs (probably around $10).

Cool. Now we'll build advertising and sponsorship directly into the software (we'll cache ads, so even if there's no Internet connectivity we can show ads anyway). We should be able to get a cost per thousand (CPM) of around $40 (CPM is an advertising term for the cost of presenting an ad to a thousand people - the M in CPM stands for "mille" which is "thousand" in French).

If each user scans on average, say, one image per week and we show just one ad per scan, then we'll be in line for payments of around $50,000 per month. We'll prove our advertising figures by having the software automatically tell us when it is run, if the user has an Internet connection (we'll have to do some fancy footwork in the case of dial-up users, but that's not heavy lifting) and then we'll extrapolate for the entire user population to estimate the use by non-Internet users.

By the end of the first year, we'll have made a further $600,000 on advertising and, if we sell software upgrades and new applications, we can probably turn that into something like $1,000,000. That will give us a profit of just over $9,000,000 in the first year even if the scanners are the only product we can find at a knockdown price, which seems unlikely.

Have we got a business or what? So, you write the business plan, I'll line up the venture capitalists (we need their money to borrow the money) and we'll plan for an IPO in six months. What a deal!

Do a deal with nwcolumn@ gibbs.com.

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