STRATEGY

Upstarts: Voting Systems

In the nonpartisan spirit of entrepreneurship, some companies offer ingenious responses to last year's unpleasantness at the polls.
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In Search of a Silver Ballot

The 2000 election debacle plunged most of the nation into a period of extended uncertainty. But not Martha Riley. While ordinary citizens anxiously watched the fate of their country hang by a chad, Riley saw the prospects for her then year-and-a-half-old company finally start to jell. "Oh, my gosh!" she remembers thinking. "This will really be a shot in the arm for us."

There's nothing like a shameful national spectacle to galvanize entrepreneurial impulses. November's unpleasantness brought out the worst in politicians, but it also produced some commendable examples of small-company innovation. In the past six months old-line and emerging businesses alike have devised an array of solutions to suddenly glaring electoral problems. And while many companies are focusing on much-touted touch-screen technologies, others are promoting unusual voting products and services.

Riley's company, for example, aims to improve not voting systems but rather the performance of people working at the polls. The SMR Group Inc., which Riley founded with partner Carol Staley, provides computer-based and on-site training for poll workers. It instructs them about what information voters need before they punch their ballots, for example, and how to organize ballots for a quick, accurate count. Until November, the Woodacre, Calif., company hadn't made much money. Now the partners are projecting $75,000 in revenues for 2001, based on several pending contracts and the expressed interest of a number of jurisdictions.

Coming at the problem very differently, Identicator Inc. sees in the clamor for voting reform new domestic potential for a product it has so far sold only in other countries. The company, based in Marina Del Rey, Calif., makes Voter Control Ink, a dye that stains fingernails and cuticles for up to 48 hours and helps to prevent voter fraud.

To date, the 30-year-old company has concentrated on countries like Belize and Panama. But now that same-day registration is on the menu of reforms being mulled, Identicator is getting calls from election officials anxious to prevent people from registering early and often. The company even appeared, at the invitation of California's secretary of state, Bill Jones, at the state's first-ever Election Technology Expo, which was organized with lightning speed in January. Megan Zupanic, marketing and business-development associate with Identicator, acknowledges that the use of ink risks alienating voters because of the negative associations connected with fingerprinting (crime, welfare fraud), but she assured Expo attendees that the mark left by her product cannot be used for identification, and voters do not need to be fingerprinted. Identicator also makes an invisible version of the ink, which shows up pale blue beneath black or ultraviolet light.

Other companies have changed pace rather than market ambitions. Hart InterCivic, in Austin, is the two-year-old spin-off of Hart Graphics, which has printed ballots and manufactured election supplies for 88 years. Hart InterCivic has compressed the marketing schedule for its new voting machine from 18 months to about 6. The device, which is roughly the size of a legal pad, looks like an overgrown Palm handheld and is operated by turning a wheel at its base. (Machines in each precinct will be networked to a separate machine that monitors voting and tabulates the results.) Vice-president of marketing Bill Stotesbery calls the device " tough screen" because "it can be literally punched and abused" -- a feature that could become highly desirable if the events in Florida ever repeat themselves.

While the call for new voting systems has been clarion clear, the actual opportunity for vendors remains cloudy. State governments and Congress are exploring measures to allocate more than $1 billion in matching funds to local governments for the purchase of improved equipment. There are more than 190,000 precincts across the country, and many of them use four or five machines. With some newer electronic machines costing up to $5,000, the potential market has been estimated at $3 billion to $5 billion. Companies are responding in droves: this summer's meeting of the International Association of Clerks, Recorders, Election Officials and Treasurers will feature more election-related companies than any other kind.

But those numbers may be misleading, warns Kimball Brace, who's been following the industry for nearly 25 years as president of Election Data Services Inc., a research and consulting company in Washington, D.C. Purchasing decisions are made by small clusters of officials at the state, county, and municipal levels -- a customer base of 7,000 to 8,000, with little room for growth. The sales cycle can be years long, the capital investment huge. Furthermore, vendors must certify their machines with the federal government and with each state in which they want to do business -- a complex process. (See "Jumping Through Hoops," below.)

"The voting business is mediocre," says Richard E. Caruso, CEO of Shoup Voting Solutions, a company whose founding family's involvement with the industry dates back to 1895. "A lot of people have jumped in. Many will leave."

Caruso, however, has no intention of leaving. Like many younger companies, the venerable Shoup, based in Quakertown, Pa., plans to seize the moment by accelerating the introduction of new technologies; targeting a larger market; and diversifying its offerings, specifically in the service arena. In response to November's furor, the company moved up production of its new touch-screen machine from September to July. The machine, priced at about $5,000, confirms a vote by producing a mark next to a candidate's name and lets voters check and change selections before logging off. It also has a large-print ballot for the elderly, headphone and software capability for the blind, a stylus for the mobility-impaired, and an extensive choice of languages. Before the 2000 election, Caruso expected that his prime market would be districts using old-style lever machines, the kind Shoup manufactured for decades. "Now the market has expanded to include the punch-card people," he says.

Perhaps more interesting is Shoup's service strategy. The company plans not only to store and maintain machines but also to train poll workers and even, in nonpolitical elections like those held for unions, to staff and manage the election process. Such services will require considerable beefing up of Shoup's 20-person staff.

If the presidential election prompted Caruso to push things forward, it caused James Adler to take a step back. Adler is CEO of Votehere, a 50-employee company with headquarters in Bellevue, Wash., that develops encryption and digital-signature technology. Shortly after its launch, in 1996, Votehere began focusing exclusively on secure online voting. The national conversation that sprang up post-Florida served as a kind of impromptu focus group for those plans. "After the election we realized people are not going to jump from punch cards to the Internet," Adler says. "One-third of counties use punch cards, and many of them would move [to new systems], and we had to have something viable for them."

So Adler redesigned his software to make Internet usage optional. Votehere Election System, Version 3.0, which was scheduled for release in April, now also runs on a Compaq iPAQ computer. The voter gets an encrypted key the size of a dime, which, when inserted into a reader attached to the machine, brings up a screen with the correct ballot. If the government gives its approval, the product will allow votes to be cast at polling places and, in the future, from a variety of locations by way of the Internet -- even if those locations are actually outside the precinct where the voters are registered.

"I don't want to be in the hardware business," says Adler, who points out that the real moneymakers in the industry are "the people who print the ballots each election." In essence Votehere is trying to develop a comparable niche -- "printing" or configuring new ballots on its software and leasing hardware to the precincts. Counties will pay on a per-election, per-precinct basis. Adler estimates the fee at $2,000 per precinct, including hardware, software, and staffing.

Compaq, Cisco Systems, and Entrust Technologies (a data-security business) are among the companies that have invested a total of $11 million in Votehere's third round of financing, which closed November 10. (The timing, Adler says, was a coincidence.) The company's relationship with Compaq, in particular, should prove useful, allowing Votehere to draw on 27,000 service people to set up and staff polling sites. "We realized we're going to need big partners to ramp up to support all the precincts," the CEO says.

A start-up named Election.com has taken a similar approach, teaming up with Accenture (formerly Andersen Consulting) to develop and market election software to governments around the world, including in the United States. Election.com, like Votehere, is supplementing its Internet model with one that relies on software run on-site on touch-screen devices.

But partnerships of large and small players will face intense competition from more equal marriages: for example, Microsoft, Unisys, and Dell have announced that they will work together on developing technologically sophisticated voting systems.

However ingenious their solutions, all these companies are basically shoveling supply into the yowling maw of demand. Indeed, it's difficult to recall such a rapid commercial response to a crisis since tamperproof seals became ubiquitous in the wake of the Tylenol murders. But the public's attention span is notoriously short. And Shoup's Caruso, for one, fears that opportunities may fade along with the urgency of the issue. "The problem is, people will study the new options," he says. "And by the time they finish, everyone will have forgotten."

Rifka Rosenwein is a senior writer at Inc.


Jumping through Hoops

Gaining certification for voting machines -- like running for office -- is a long, grueling process. All machines must be certified at both the state and the national level, and the federal manual alone is three inches thick, says Kimball Brace, president of Election Data Services.

Thirty-two states require that voting equipment meet the Federal Voting Systems Standards and/or be subjected to testing approved by the National Association of State Election Directors, based in Washington, D.C. Federal standards require that voting machines be accessible to the handicapped. Some new electronic machines have headphones to guide the blind, and most can be used by voters in wheelchairs.

Some states also re-quire their own tests to ensure, for example, that voting machines can withstand high and low temperatures or survive being dropped from a specified height. Software must conform to standards of security, accuracy, and anonymity.

Certification can take six weeks to six months and even longer if a vendor isn't familiar with the requirements. Once certified, companies are placed on the shortlist used by government purchasing agents. Marketing involves cultivating relationships with buyers that will last over several election cycles. Not surprisingly, the system has suffered its share of bribery and kickback charges, such as those brought in August 1999 against former Louisiana elections commissioner Jerry Fowler, who pleaded guilty in December to two felonies in a scheme that reportedly cost the state $8.6 million in inflated prices for voting machines and parts.


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Last updated: Jun 1, 2001




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