B.3.1 Company Description

Extempo makes smart, friendly, helpful interactive characters providing personalized customer care on the Internet.  Their self-defined market niche was originally edutainment, but has changed to e-commerce.  Serving business-to-consumer and business-to-business companies, Extempo offers two solution packages.  Web Staff Characters receive and serve customers who visit a business' Web site, kiosk, or other destination site.  Interactive Messenger Characters visit and serve a business' customers through electronic links carried in e-mail or other proactive channels.  For each of these solution packages, Extempo offers custom characters built to specification, a growing roster of market-targeted characters that can be customized to particular applications, and turnkey character solutions.

 B.3.2 Technology Description

Goals of the ATP Project

The major goal of the Extempo project was to develop an interactive character that customers could use to develop their Web pages.  Ideally, Extempo wanted to develop a fully interactive character that can be applied in numerous different situations.

Technical Accomplishments

Extempo was successful in developing a software architecture model and initial examples of plug-and-play characters.  These characters have been implemented by numerous different Web sites, ranging from sites produced by large industrial companies such as Proctor and Gamble to small Internet startups such as Petopia.  In addition to developing the characters, Extempo also evaluated user experiences to improve the characters' functionality and usability.

Customer Use of the Products

Extempo's interactive characters are developed for or licensed to e-commerce companies for use on their Web sites.  The characters non-intrusively solicit customers for required information or provide information on a specialized product or service.

Extempo's characters communicate easily through conversation and gesture.  They inform and assist customers, answer their questions, and make helpful suggestions.  Extempo-powered characters can provide better services than their human counterparts in some situations.  The characters offer immediate, unlimited time and attention to each individual customer.  They learn about their customers and remember them, improving their personalized services on every visit.  Extempo-powered characters do not vary in their presentation to customers and are always friendly, cheerful, and entertaining.  As a result, customers may visit a site more often, stay longer, and complete more transactions.  In theory, by building bonds of loyalty and trust based on a shared history of service and social exchange, Extempo-powered characters build relationships with their customers over time the same way that humans do.

Several potential improvements to a user's product may occur from using Extempo characters.  Users may become more comfortable using the Internet, which would increase the frequency of transactions they conduct over the Internet.  Additionally, visitors to Web sites will be able to use them more efficiently because they will not have to find their way around a Web site unaided and will have input on products that best serve their needs.  This increased automation may lower total transactions costs.

Future Products

Although Extempo is planning on increasing the functionality, variety, and uses of the characters they have created, they have no plans for new products.  Extempo has recently been able to attract new venture capital funding, which might create new product opportunities.

B.3.3 Project Performance

In this section, we estimate economic performance measures for the ATP-funded Extempo project.  RTI conducted a structured interview with Barbara Hayes-Roth, the principal investigator from the start-up firm.  We asked questions about product life spans, actual and projected sales, and total project costs.  From this information, we derived demand curves for all products sold during their expected lives, and used these to estimate consumer and producer surplus and R&D expenditures.  Based on these estimates, we calculated net present value, the benefit-cost ratio, and the internal rate of return for the component software project.

Although Extempo produced two products using the ATP-funded technology, Web Staff and Messenger, we focused on estimating the benefits from Web Staff only.  Web Staff is the main product that Extempo sells.  It costs substantially more than Messenger, and Messenger has numerous competing products that could provide very similar services.  Hence the unique benefit of the ATP investment in Extempo is the product Web Staff.  Throughout this analysis we provide additional information regarding sales and price information for Messenger.

Product Life Spans

Extempo has such a technical lead in this market that they do not expect any competition for their products until 2006.  Even though the current products could stay on the market for several years beyond 2006, we maintained a conservative bias for this analysis and assumed that the product will stay on the market for only 3 years.

Competing Technologies

Two companies have the potential to produce similar products.  Both Artificial Life, located in Boston, MA, and eGain Communications, located in Sunnyvale, CA, are conducting R&D to develop new artificial intelligence components that designers of Web pages can use in their products.  However, according to Extempo, both of these companies are currently lagging in their technology development.  Extempo believes they will maintain technical superiority until 2006 at a minimum.

R&D Expenditures for the Technology

Extempo spent a total of $550,000 of its internal funds during the project time frame, and received almost $2,000,000 from ATP.  Extempo has continued to pursue R&D and commercialization since 1999.  Their additional internal funding of $300,000 and external venture capital financing of $1.3 million are included in the cost calculations because they were used to support commercial launch of their products.  We assumed even annual spending of internally generated funds during the project, as the summary table below illustrates.

Estimation of Performance Measures

To estimate the consumer and producer surplus benefits from the ATP investment in Extempo, we again assumed that the marginal costs of reproducing the software are negligible, and the only costs that are important are the investments in R&D.  To estimate the benefits from Web Staff, we first generated a per-year benefit from the technology.  As is discussed above, we carried the benefits from sales out for three years past the launch date, a conservative assumption.  All R&D expenditures and benefits were first adjusted to 2000 dollars to remove effects of inflation.  We estimated the benefit-cost ratio, net present value, and internal rate of return and present them in the table below.

B.3.4 Qualitative Benefits Attributable to ATP

General Impacts of ATP Funding on the Company

Extempo did not exist as a company until the ATP award.  After receiving the ATP award, the company began their R&D process and created the Web Staff product.  The biggest additional benefit that Extempo has received from the ATP funding is the attraction of a significant inflow of venture capital dollars.  Although this funding may allow them to develop additional products in the future, the uncertain nature of the ATP R&D makes it impossible to value additional economic benefits for this study.

General Impacts of ATP Funding on the Market

According to Extempo, ATP's investment in their technology was critical in developing the component-based market for intelligent characters.  Without ATP, these products may have been developed eventually but not until 2007 at the earliest.

Return to Table of Contents or go to next section in Appendix B.

Date created: December 3, 2002
Last updated: August 2, 2005

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