squawk box - spragues interview
Peter and Steven Sprague
Date: June 18, 1999
Interviewd by Tyler Mathisen, Gerry Kaminsky
TYLER MATHISEN, CNBC SQUAWK BOX ANCHOR: (JOINED IN PROGRESS) After all, the company is run by a father, who`s the CEO and his son, conveniently enough is president. Wave Systems [Company: Wave Systems Corp.; Ticker: WAVX; URL: http://www.wavesys.com/] develops and makes products used to meter the use of electronic information and software. The company also operates the "Great Stuff Network," an online mall featuring books, games, graphics and other digital products. The company`s family affair formula appears to be nicely working for investors. Shares of Wave closed at $18 even. Range over the past 52 weeks of 2 to 29. There is a nice little chart of it. Joining us now to tell us more about their business and their family affair Peter Sprague, chairman and CEO at Wave Systems and his son, Steven Sprague, president and COO, the Spragues of Wave Systems. Welcome to you both.
SPRAGUE (?): Good morning, thank you very much.
MATHISEN: Why don`t I begin with the CEO, with Dad. How is business?
PETER SPRAGUE, CHAIRMAN & CEO, WAVE SYSTEMS: I think business is doing very well, but it has taken us a while.
MATHISEN: Taken you awhile, how come?
PETER SPRAGUE: I got the idea in 1988 and it was a little early and I had to wait for both, as it turned out, for my son to mature and the market to grow up.
MATHISEN: Has he matured yet?
PETER SPRAGUE: Yes, sir, no question.
MATHISEN: You agree with that, son?
STEVEN SPRAGUE, PRESIDENT & COO, WAVE SYSTEMS: Absolutely.
MATHISEN: Gerry.
GERRY KAMINSKY (PH), GUEST HOST: Well guys obviously on this Father`s Day theme day show, what are the advantages and disadvantages of working together? There has obviously got to be answers to both.
PETER SPRAGUE: (OFF-MIKE) I don`t know from an advantage point of view, I have four sons and I was chairman of National Semiconductor [Company: National Semiconductor Corporation ; Ticker: NSM ; URL: http://www.nsm.com] for about 30-years and they kind of grew up around the dining table of watching that company go from receiver ship to $2 billion. So, it has been kind of a long-term training program. And we`re all pretty close. And we all live within about five miles of each other and I can`t think of a single negative in the process. It is one of the great joys in this world if you can pull it off.
MATHISEN: Steven, do you agree with Dad on that?
STEVEN SPRAGUE: Oh, I absolutely agree with it. I enjoy working with him all the time. And I would say the only negative is that you now and then you have to discuss compensation and it is like asking for your allowance.
MATHISEN: Can I have the keys to the car?
STEVEN SPRAGUE: Yes, exactly. (OFF-MIKE)
MATHISEN: All right. Where is the growth in your business coming from these days?
SPRAGUE (?): The growth in Wave Systems is really comes from the fact that we are building the next generation of e-commerce and e-commerce network. And we are doing that by putting digital cash register into the PC. And so, what we`re enabling is for the first time, the PC manufacturers to participate in e-commerce by having identity, security and transaction processing as part of their platform.
MATHISEN: Your biggest customers are?
SPRAGUE (?): We`ve announced with companies like HP [Company: Hewlett- Packard Company ; Ticker: HWP ; URL: http//www.hp.com/] and IBM [Company: International Business Machines Corporation; Ticker: IBM; URL: http://www.ibm.com/], although the first products that are shipping are in the peripheral space. Actually the first company that shipped our product is Hop Hog Digital (ph). Where they`ve included our embassy technology on their digital receiver card, and we bundled a whole collection of software titles with their product, so that we can now offer rent to own for the distribution of software. So, a good example is fathers have gone out for years and bought their kid`s software at $50 a package, they bring it home, the kid plays it for an hour and is back saying, hey can I go get another title? And now what we enable is the ability to only pay for what you use, never pay for more that you have in retail. And so, we help both the hardware manufacturer participate in that e-commerce transaction. We give the consumer a lot broader choice and we help the content provider develop a market of potentially millions of customers for their products.
MATHISEN: Gerry Kaminsky (ph) has a question. Gerry?
KAMINSKY: Peter, you had said that you were early in this concept for Wave Systems. Could you expand upon that as to why you were early and why now is the time where things are taking off?
PETER SPRAGUE: Yes, I actually started with a very simple problem. I had a Quotrek (ph) machine in my pocket that got me the stock exchange. And I figured after looking at the stock exchange for six or seven hours a day, I wanted something else. Now, I gather you guys are going to give it to us 24 hours a day and I`ll want it even more. I thought it would be fun to get Calvin & Hobbes in my pocket. So, I looked at that problem and said that is easy, I can digitally deliver Calvin & Hobbes lots of ways, but Calvin & Hobbes would like to have a nickel. So, how do I figure out a way to get a nickel back to Calvin & Hobbes and let them split it? And I started off and designed a system for doing that. And when we got done with that, we realized that it really made no difference whether it was data broadcasting or a CD ROM or the Internet, which came five years later. We were basically using a Internet like scheme for the feedback. What we really ended up doing and Steven finally pointed it out to me is that you are creating a network where all the transactions take place at the fringe. Every other network you can think of, from cell phones, to beepers, to cable television, to what have you basically operates at the center, that is where your telephone bill comes from. So we came out with the idea that we could basically do all of the transaction and security at the fringe. And Steven has been pointing out that Compaq [Company: Compaq Computer Corp.; Ticker: CPQ; URL: http://www.compaq.com/] has 15 million customers and the customers are a liability. They represent potential liability to Compaq on warrantees and what have you. AOL [Company: America Online Inc.; Ticker: AOL; URL: http://www.aol.com/] has another million and a half beyond that customers and they have got a huge valuation of something in the order of $6,000 a customer. The difference is that AOL participates in a revenue stream with that customer. So, what we are trying do is basically put the transactions down at the fringe and let the computer, the PC industry begin to participate as it goes back to the cash register inside the computer.
MATHISEN: Peter, thank you very much. We have to leave it there. Peter Sprague, happy Father`s Day.
PETER SPRAGUE: Thank you very much.
MATHISEN: Chairman and CEO at Wave Systems and father to Steven Sprague, who is the president and COO, I am almost gave you a promotion son.
Go for it! (OFF-MIKE) END
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