Slow and Steady for Campus Cards

  The big dog just got bigger. On July 1, The Cbord Group Inc., the nation's leading provider of cashless systems for colleges and universities, announced it had paid $38 million for one of its largest competitors, the Card Systems Division of Diebold Inc. It was just the latest in a series of shakeups and buyouts in the college-campus card market.
  After years of jostling, only two major competitors remain: Cbord and Washington D.C.-based Blackboard Inc.
  "We acquired (Diebold's division) because it was a further opportunity to consolidate the market," says Bruce Lane, Cbord's executive vice president. The combination should allow Ithaca, N.Y.-based Cbord to drive down costs by further standardizing campus system hardware, Lane adds.
  Industry observers say Diebold had built a solid business and the two companies matched up well. "Cbord is rock-solid in food service but doesn't have any type of security offering, and that is Diebold's specialty," says Bret Tobey, a security consultant who spent four years as a Diebold senior product manager.
  Indeed, on college campuses, door access is the second-largest application, says Robert C. Huber, a campus card consultant based in Scottsdale, Ariz. "Cbord has not specialized in that area," he says. "They were missing a big piece and losing some contracts."
  Before the acquisition, Huber estimates that Cbord had systems in roughly 600 schools, while Diebold had 200 school clients and Blackboard Inc. had about 500. Others in the field include General Meters Corp., of Colorado Springs, Colo., with roughly 125 schools, and the NuVision Networks Corp. of Cherry Hill, N.J., with about 50 schools.
  These companies have spent the last dozen years streamlining operations, moving away from manufacturing hardware such as point-of-sale terminals while establishing themselves as middlemen who develop the software, purchase the hardware and integrate the systems.
  More nimble than ever, the survivors also have learned to cope with a client base whose decision-making process can be agonizingly slow. And with a large portion of the college market relatively untouched, investors are showing interest in an industry that appears ready to take off.
  "When you're dealing with higher education, you have to be patient," says Tobey. "If you want quick growth, the only way to do that is through acquisitions."
  Blackboard downplays Cbord's big move, instead playing up its own successful initial public offering last year. Blackboard plans to use the $50 million it garnered from the IPO to make acquisitions, according to a spokesperson.
  Cbord is privately held but made its own splash among investors last year. Several weeks after Blackboard went public in June, Cbord announced that the private-equity firms Sterling Investment Partners, L.P., and Oak Investment Partners, both based in Westport, Conn., had made an undisclosed but substantial investment in the company.
  Lane confirms the two now hold a majority stake in Cbord, adding that the investment helped fund the purchase of the Diebold division. "That's not something Cbord could have done on its own," he says.
  Integration should go well, Lane says, as the Odyssey PCS Cashless System, Cbord's main software platform, is compatible with Diebold's CS Gold Campus Card System. Clients should not experience any disruption, as "we're not dropping one product line in favor of another," says Lane.
  Full-system infrastructure normally includes a coordinating database, hundreds of transaction points that include door-access devices, POS terminals at the campus bookstore and the campus coffee shop, electronic cards with photos, software and other network hardware.
  A university with 5,000 to 10,000 students can expect to spend approximately $250,000 to start up a system, and another $500,000 in the first five years, says Huber. Given their size and complexity, he says, only about 25 schools institute "virgin systems" in a given year.
  That is how Diebold's card division was partly built. In 1995, Diebold, a leading provider of security systems for financial institutions, bought two campus-card providers, including Griffin Technology Inc., of Rochester, N.Y.
  Cbord is a comparative old timer. John Alexander started the company in 1975 in Ithaca near his alma mater, Cornell University, one of Cbord's first clients. Since then, Cbord has developed systems for corporate offices, nursing homes, restaurants and supermarkets.
  Blackboard was founded by a group of twentysomethings in 1997 as a provider of Web-based software tools serving the higher education market. It expanded into cashless transactions on campus in November 2000 when it bought AT&T Corp.'s CampusWide Solutions group.
  Mergers and acquisitions look to slow in the campus card market, as there just are not that many small independents left, according to the Blackboard spokesperson.
  But changing client needs has meant potential new competitors. Many universities now want their students' magnetic-stripe cards to work off campus at terminals in nearby restaurants and businesses, and a host of newer companies have sprung up to fulfill this demand.
  "Just being in the university itself is not good enough," says O.B. Rawls, president of Hypercom North America, a Phoenix-based manufacturer of POS terminals. Rawls adds that the provider that can get its cards accepted off-campus has a leg up on the competition.
  Both Blackboard and Cbord have made moves into this market. In 2003, Blackboard paid $4.5 million for Student Advantage Inc.'s SA Cash unit, an off-campus merchant system, and renamed it Blackboard One. At client George Washington University in Washington, D.C., students can use their card to buy products at 50 area merchants, according to the Blackboard spokesperson.
  "We sign up the merchants, the merchants pay us on a monthly lease basis and we get paid 7% of the cash transactions," the spokesperson says.
  In 2003, Cbord acquired Webfood Inc., another Cornell connection that launched an online food-ordering service at that university in 2002. Webfood creates sites specific to its client schools where students can order food from neighborhood restaurants. After ordering, students must go to the restaurant and pay for their meals using their Cbord card. The restaurants must use a POS terminal that can read the magnetic stripe on the card.
  But acquisitions are not the only way these companies might grow. The campus market is still young, says Huber, because most of the country's approximately 2,000 four-year colleges and universities do not have a true campus-wide card system. Many schools provide students with cards limited to meal purchases at the student cafeteria or for checking out a library book.
  That seemingly huge market is not easy to exploit. "Higher education is probably one of the most political institutions in the United States, other than Congress," Huber says. Since an ID and payment system affects the entire life of a university, an all-campus system usually will need approval from the offices of academic, business and student affairs.
  "In higher education, they are looking for not only consent, but full unanimous consent on every step," Huber says. "That's why higher education moves at a snail's pace."
  Cbord's Lane concurs. "We have [clients] who take four, five or seven years" to decide on a system, he says.
  Grinnell College, a liberal arts school in Iowa with about 1,500 students, was one of the quicker ones. According to John Kalkenbrenner, the school's vice president for college services, Grinnell decided in 2000 to replace its 15-year-old meal-service card with an all-campus system. "As you do in higher education, we formed a committee," he says.
  The college looked at proposals from Cbord and the campus-card divisions at AT&T and Diebold. "There was not a lot of debate about the value," Kalkenbrenner adds. "It really came down to convenience for the students."
  After considering the options for about a year, Grinnell went with Cbord. Now, with one card, students can buy meals and textbooks, use laundry machines, check out material from the library and make photocopies.
  At the time of Grinnell's decision Cbord did not specialize in security functions such as door access. However, that function could be provided by the recently acquired Diebold unit, making Cbord more competitive in future bids, Kalkenbrenner says.
  But it will be a while before Grinnell buys a system upgrade. "We took a pretty good look at the state-of-the-art five years ago," Kalkenbrenner says. Grinnell spent $200,000 putting in the system and spends roughly $30,000 a year to maintain it. "I'd like to get 10 years out of it before we consider changes," he says.
  The measured pace of the college environment suits Cbord just fine, says Lane. He points out that industrial giant AT&T sold its card division to Blackboard, a smaller company that specialized in education. "(The card business) was not what AT&T thought it would be in terms of decision-making speed," Lane says.
  Likewise, Diebold is a giant compared with Cbord and Blackboard. That made it easier to sell the unit, a Diebold spokesperson says.
  With compatible software, complementary specialties and a similar approach to the business, the Cbord and Diebold match might seem like a marriage made in heaven. But even this seemingly perfect marriage will not magically lead to an expansion of business activity.
  "Just because Cbord and Diebold decided to get together doesn't mean [schools] will want to change systems," says Tobey, the former Diebold manager. "That migration is going to take a number of years."
  Still, slow and steady seems to be the Cbord way.
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