ReedSmith
`Driving progress
`ie,
`Lisa A. Chiarini
`Direct Phone: 4 609 514 5981
`Email: Ichiarini@reedsmith.com
`
`February 28, 2020
`
`Case Collard, Esq.
`Dorsey & Whitney LLP
`1400 Wewatta Street
`Suite 400
`Denver, CO 80202-5549
`
`Reed Smith Lp
`506 Carnegie Center
`Suite 300
`Princeton, NJ 08540-7839
`+1 609 987 0050
`Fax +1 609 951 0824
`reedsmith.com
`
`Re: U.S. Patent 10,467,585 — Response to Your Letter of January 30, 2020
`
`Dear Mr. Collard:
`
`As explained below,our investigation, already establishes that:
`
`(1) Provi received no information from Mr. Roland Jacobs whenit devised Provi’s beverage
`ordering platform, and
`
`(2) Any similarities between Provi’s platform and U .S. Patent 10,467,585 are equally shared by
`prior art platforms(e.g., eSkye and Seven Fifty) and, therefore, Provi cannot infringe any
`valid claim in that patent.
`
`Consequently, the issues raised by your January 30, 2020 letter and its attachments (“Letter”), insofar as
`they implicate Provi and its founders, are without merit. We thus deem the matters addressed in your
`Letter to be closed, without the need for additional study or commentbyus.
`
`Your Letter referenced a “prior intellectual property issue” involving Jason Smith, Dust Bowl,
`Roland Jacobs and Hyde Park Angels. Ourclient, Provi and its founders, know nothing about this
`alleged relationship. They do not know Mr.Roland Jacobs and they did not receive any information
`from him at any time, including whencreating Provi’s beverage ordering platform. Provi’s platform
`wasindependently developed and Provi has no information regarding the issues between Dust Bowl and
`Mr. Jacobs outlined in your Letter.
`
`Your Letter also asserted that the Provi platform is “incredibly similar” to BarNuvo’s design and
`the “585 patent. However, the “similarities” you identified are equally found in at least two earlier
`alcohol beverage ordering systems, one created by eSkye (Smoke Wallin) and the other by Seven Fifty
`Technologies (Aaron Sherman). Both of these prior art systems were in wide-spread commercial use in
`the United States and described in multiple publications well prior to the critical statutory bar date for
`the ‘585 patent (March 13, 2014) as well as the pending application that claimspriority to it (US Serial
`No. 16/564,087).
`
`Therefore, if the “585 patent’s claims were interpreted to cover Provi’s platform (and they cannot
`be), then the patent must be invalid over at least the eSkye and Seven Fifty platforms. Surprisingly, the
`ABU DHABI ¢ ATHENS @ AUSTIN @ BEIJING ¢ BRUSSELS ¢ CENTURY CITY ¢ CHICAGO ¢ DALLAS ¢ DUBAI ¢ FRANKFURT ¢ HONG KONG
`HOUSTON ¢ KAZAKHSTAN @ LONDON ¢ LOS ANGELES ¢ MIAMI ¢ MUNICH ¢ NEW YORK ¢ PARIS
`PHILADELPHIA ¢ PITTSBURGH ¢ PRINCETON
`RICHMOND ¢ SAN FRANCISCO ¢ SHANGHAI ¢ SILICON VALLEY # SINGAPORE ¢ TYSONS ¢ WASHINGTON, D.C. ¢ WILMINGTON
`
`Diane A. Bettino ¢Office Administrative Partner # A Limited Liability Partnership formed in the State of DelPIEC)V[- ] 004 _ Page ]
`US_ACTIVE-151733483.1-REHUTZ 02/27/2020 9:38 AM
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`Case Collard, Esq.
`February 28, 2020
`Page 2
`
`ReedSmith
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`“585 inventor nevercited either platform to the United States Patent and Trademark Office during the
`“585 patent’s prosecution. Had they been before the Office, it never would have issued the “585 patent,
`especially if its claims were somehowinterpreted to embrace Provi’s platform.
`
`The eSkye story is summarized in a 2002 copyrighted case summary published by the Trustees
`of Dartmouth College (Exhibit 1 attached). That publication traces work by Smoke Wallin, Andrew
`Lobo and Eddie Kao. They founded and financed the eSkye start-up by 1999 androlled out its ordering
`and inventory tracking system to the public by at least February 2000. The eSkye platform seamlessly
`linked alcohol beverageretailers, wholesalers, and suppliers through web-based on-line ordering and
`information sharing acrossall groups in the supply chain. The system thereby replaced the costly
`manual processes previously used byretailers to place orders with multiple wholesalers, an obvious
`computer implementation using the internet of the earlier manual ordering procedures.
`
`eSkye’s e-procurementservice for enhanced control and managementof alcohol beverage
`purchasing was based on a system known as eBOTS™(“patent pending”). The ordering system
`allowedretailers to place orders with multiple distributors on-line, automatically taking orders from
`retailers and transmitting them electronically to an individual distributor’s order entry system. It
`featured information on productavailability, promotion and marketing programsand new product
`introductions and announcements.!
`
`eSkye’s history and platform are further reflected in press releases, promotional and marketing
`materials, and articles published in business magazinesandtrade journals,all before the “585 critical
`date.
`
`Seven Fifty Technologies (Aaron Sherman, Steve Pike, Gianfranco Verga and Neal Parikh)
`devised and offered in the United States an on-line platform to connect wine and spirits buyers and
`sellers before March 13, 2014. Launched by January 2012, buyers could view the portfolios of
`distributors and wholesalers, search by region, vintage, type of wine (orspirit) and price; arrange
`tastings and place orders. As with eSkye, Seven Fifty used computers and the internet to overcome the
`inefficiencies of traditional hand methodsofnavigating the three-tier supply chain that liked buyers with
`distributors and importers. See, for example, Exhibit 2 dated March 4, 2014 from Edible Manhattan.
`
`As co-founder Aaron Sherman stated “whenthe idea [of Seven Fifty] first sprouted up [in 2007
`or 2008]. .
`. [i]t seemed so obvious. It seemed so clear that somebody else would do this”.
`
`The aboveillustrative prior art systems share the same features your Letter identified as present
`in Provi’s beverage ordering platform. Any attempt to assert that Provi’s present methods or computer-
`readable medium infringe a claim of the ‘585 patent, or any supported claim that might be represented in
`a follow-on application, necessarily meansthat claim is invalid at least over the prior art cited above.
`
`' Early competition for eSkye included BevAccess founded in 1997. That system employed e-
`commerce technology providing wholesale buyers and sellers with fast, easy centralized ordering,
`thereby making on-line ordering transactions easy to execute and user-friendly. (Exhibit 3 attached).
`
`PROVI-1004 - Page 2
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`

`Case Collard, Esq.
`February 28, 2020
`Page 3
`
`ReedSmith
`
`To be clear, the ‘585 claims are invalid for several additional reasons and overotherprior art
`systems that we are confident we can develop, if necessary. Moreover, Provi’s methods and medium do
`not in fact infringe the ‘585 patent because they lack many elements required by a proper construction of
`its claims. However, given the above-describedprior art, we need not discuss those additional invalidity
`and non-infringement bases here.
`
`Very truly yours,
`
`fuk A Cpu
`
`Lisa A. Chiarini
`
`LAC:jb
`
`Enclosures
`
`PROVI-1004 - Page 3
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`EXHIBIT 1
`EXHIBIT 1
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`PROVI-1004- Page 4
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`no. 1-0014
`
`eSkye.com
`
`Smoke Wallin—founder and CEO of eSkye.com—lifted a large wine snifter and slowly
`finished the last sip of Pinot Noir. The tables around Smoke in the trendy Indianapolis café
`were emptying as the business crowd hurried back to work. On his left sat Andrew Lobo,
`president of the fledgling start-up company and former business school colleague. “This is
`the biggest and best deal in America right now,” concluded Smoke to his third lunch
`companion. “It’s Providence as much as anything,” added Lobo. “The intersection of three
`crucial components—opportunity, strategy, and the ability to execute.”
`
`eSkye.com was a groundbreaking business-to-business on-line product ordering solution for
`the $110 billion US alcohol-based beverage market. It was born out of the idea of improving
`the inefficient and costly alcohol beverage supply chain. The goal of the company was to
`seamlessly link the nation’s alcohol beverage retailers, wholesalers, and suppliers through
`web-based on-line ordering and information sharing across all groups in the chain. If
`successful, the consolidated ordering approach would solve one of the most significant
`problems facing the industry – the costly manual process used by retailers to place orders
`with multiple wholesalers. eSkye was in the final stages of a string of successful pilot
`programs in Indiana, Illinois, and Michigan and was preparing for a February 2000 roll out
`of its ordering and inventory tracking system to a larger set of customers.
`
`As they continued to expound about the virtues of eSkye, the third lunch partner, a student at
`a well-known business school, began to grasp the implications and opportunity in the
`venture. But there were also challenges and questions on the horizon. Nevertheless, Lobo
`and Wallin were supremely confident, a hallmark of their attitudes toward past ventures.
`Lobo said, “I knew the opportunity was here before I came on board. Without it, I wouldn’t
`be here. Smoke and I were also very thorough in the crafting of our strategy. We were very
`careful to remain fairly quiet until we were sure that we had our structure relatively secure.
`Beyond that, it’s execution that will make or break this thing. And I know that our team has
`the ability to create something huge.”
`
`Smoke agreed as he paid the check and hurried out of the restaurant, into his car, and off to
`the Indianapolis airport for another flight to another city to meet with another potential
`customer. This time it was a prominent supplier of a large and popular line of rums and
`other hard liquor products. As the flight taxied down the runway, Smoke found himself
`gazing out the window at a slate gray winter sky over the cold, windswept Indiana prairie
`and considering the formidable challenges that he faced. Where should he focus his efforts –
`
`This case was written by Christopher R. Hunter (T00) and Professor M. Eric Johnson of the Tuck School of
`Business at Dartmouth College. It was written for class discussion and not to illustrate effective or ineffective
`management practices.
`
`© 2002 Trustees of Dartmouth College. All rights reserved. For permission to reprint, contact the Tuck School of
`Business at 603-646-3176.
`
`PROVI-1004 - Page 5
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`eSkye.com
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`no. 1-0014
`
`with suppliers, wholesalers, or retailers? Which group was going to be the main driver?
`How was he going to convince potential customers, whoever they were, that this new
`solution was going to result in efficiency gains and cost savings? Who was going to realize
`the greatest benefits from this product? For that matter, what were the benefits? While
`Smoke had thought through the answers to most of these questions, he thought it was
`important to think them through yet again and expand on them in preparation for his
`upcoming meeting.
`
`Industry Overview
`The $110 billion US alcohol-based beverage industry was almost evenly split with sales of
`wine and spirits accounting $51.4 billion of retail sales and beer filling the remainder. While
`the industry had experienced a general decline in volume sold, total revenues on a per case
`basis had increased since 1994, more than offsetting the decline attributable to lower
`volume. For example, the dollar amount reported from the sale of distilled spirits alone had
`increased from $29.9 billion in 1994 to $33.6 billion in 1997 while unit sales had declined.
`On the other hand, wine consumption had increased since 1993, both in unit and dollar
`value, as consumers purchased more wine of higher quality.
`
`The government imposed distribution structure of alcohol-based beverages largely
`influenced the relationships between players within the industry. This structure and these
`relationships also strongly dictated operating and financing strategies. Since the repeal of
`Prohibition in 1933, the federal and state governments had regulated the sale of spirits, wine,
`and beer. Most states mandated a three-tier system: Tier 1 as suppliers and importers, Tier 2
`as distributors and wholesalers, and Tier 3 as retailers. All products were required to pass
`through all three tiers before their eventual sale to the consumer. In many states, suppliers
`were forced to use a single wholesaler to distribute their products, effectively insulating
`wholesalers from competition.
`
`States fell into two broad regulatory frameworks: control states and open states. In control
`states, the government controlled the distribution of product, the retail sale of product, or
`both. Wholesalers often played a very limited role in control states and retail competition
`was typically limited to service differentiation since prices were set by regulatory agencies.
`New Hampshire and Michigan were examples of control states. In New Hampshire, wine
`and beer were sold through a traditional three-tier system while higher alcohol content
`beverages were sold to consumers through state run outlets (“state stores”). In Michigan,
`independent retailers sold all alcohol-based beverages, yet for liquors the state retained title
`to goods from supplier until they reached the retailer and set retail prices. Certain concerns,
`such as NWS Michigan, were paid a (flat) handling fee for performing distribution
`operations. In open states, the wholesalers and retailers were privately owned businesses.
`Wholesaler’s purchased goods from suppliers and sold them to retailers at prices determined
`by a (somewhat) competitive market. The amount of real competition varied by the product
`(beer, wine, and spirits) and the individual state regulations.
`
`Tuck School of Business at Dartmouth
`
`2
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`eSkye.com
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`no. 1-0014
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`Finally, retailers fell into one of two categories: On-premise retailers were those retailers that
`sold beverages to be consumed at that location. These included restaurants, hotels, bars, etc.
`Off-premise retailers were those that sold beverage for consumption in locations other than
`those in which they are sold. These included package stores, grocery stores, and
`convenience stores. Traditionally, on-premise accounts had been viewed as the building
`areas for strong brands. Brand owners had devoted the majority of their marketing and
`promotion efforts to this channel, hoping to convert on-premise sales into demand for their
`products in off-premise outlets.
`
`Challenges
`The alcohol-based beverage industry was rife with inefficiencies and challenges, both
`through supply chain redundancies and lack of information across the supply chain. Much
`of this inefficiency could be traced back to the repeal of Prohibition with the 21st
`Amendment. For that point forward, each state created it own rules concerning the
`distribution and sale of alcohol beverages. The resulting regulations varied widely between
`states and even within states for different products (beer vs. wine vs. liquor). When
`Prohibition was repealed, the industry faced huge pent-up demand, necessitating a strong
`production focus. This production focus, a very “push-oriented” model, worked very well
`through 1979. Over this period, alcohol beverage consumption increased steadily and
`predictably. The industry’s high volume point was reached in 1979 when the increase
`reversed and a steady decline in volume became evident.
`
`Once volume began to decline, producers were forced to move to more of a marketing focus
`in an attempt to transform the market into a “pull model.” However, industry structure
`prevented effective implementation of this focus. While not actively erecting barriers, the
`wholesaler tier acted as a passive barrier to the flow of information from retailer to producer
`and vice versa. Therefore, production strategy and market definition at the supplier tier
`occurred without detailed information. In fact, the information available to suppliers was
`often incorrect, incomplete, or out-of-date.
`
`Not only did suppliers face the challenge of obtaining reliable market information to craft
`marketing plans, they also had little power to ensure that those marketing programs were
`fully implemented. To ensure proper implementation, effective two-way communication
`between suppliers and retailers was essential. However, because of the three-tier structure
`and fragmentation within the industry, it was difficult to achieve broad communication
`across the entire retail tier and even then much of the information was filtered through the
`wholesaler tier. Finally, suppliers had difficulty measuring the effectiveness of marketing
`programs they had implemented and were handicapped in making timely adjustments and
`modifications.
`
`In addition to the three-tier structure created by law, the alcohol beverage industry was
`subject to several other limitations. First, credit to retailers was tightly controlled. In most
`states, payment was mandated within thirty days. In others, the transaction between
`distributor and retailer was “cash only.” Distributors were also limited to marketing their
`products only in the states in which they were licensed and they were precluded from
`
`Tuck School of Business at Dartmouth
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`eSkye.com
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`no. 1-0014
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`shipping products across state lines. These restrictions limited competition at the distributor
`level and created significant barriers to entry, resulting in a limited number of distributors in
`each market, usually two or three, and exclusive supplier-distributor relationships within
`each state.
`
`Trends
`Several trends were evident in the industry, many of which could impact the success or
`failure of eSkye. First, for some time there had been a trend toward consolidation at all
`levels of the industry. This trend had accelerated in recent years. For example, Grand
`Metropolitan and Guinness had recently merged to form a huge supplier (Diageo) of many
`different alcohol beverages. This creation signaled the beginning of a potentially dominant
`supplier in the market. Second, there was increasing investment in premium global brands
`among top brand owners. The creation of the Absolut brand was at the leading edge of this
`trend and served as a model for premium branding in the alcohol beverage industry. Third,
`the industry had seen shifting responsibilities from brand owners to distributors. This trend
`was also accelerating over time as brand owners expected greater information sharing and
`marketing expenditures from distributors. Finally, the industry was seeing the formation of
`regional and national partners between distributors and brand owners.
`
`National Wine & Spirits Inc.
`The genesis of the eSkye idea grew out of National Wine & Spirits Inc. (NWS), a large
`Indiana-based wholesaler. Wallin, the Executive Vice President and CFO of NWS, saw the
`opportunity clearly through his extensive involvement in the industry. NWS was the ninth
`largest distributor of wine and spirits in the United States, measured on a revenue basis.
`Most of the company’s operations were in Indiana (54% market share), Illinois (32% market
`share), and Michigan (59% market share). Spirits suppliers contracted exclusively to NWS
`were Diageo-UDV (Johnny Walker, Jose Cuervo, Smirnoff) which comprised 7.7% of
`NWS’ total revenues, Fortune Brands (Jim Beam, DeKuyper) which comprised 17.7% of the
`company’s revenues, and Seagram (Absolut, Chivas Regal, Crown Royal) which comprised
`32.6% of the company’s revenues. NWS also distributed many of the world’s leading wines
`in Illinois and Indiana. These included Banfi Vintners (Riunite), Canandaigua (Alamaden,
`Inglenook), and Sebastiani. Spirits sales accounted for a much larger share of revenue than
`wines, 68.8% to 24.1%.
`
`From 1994 through 1998, NWS’ total revenue increased from $396.4 million to $521.4
`million. This represented a compound annual growth rate of 7.1%. NWS’ EBITDA
`increased from $6.6 million to $17.7 million, representing a CAGR of 28.0%. To achieve
`this performance, NWS successfully integrated several strategic acquisitions, actively
`developed new geographic markets, pursued new supplier and brand relationships, and
`implemented advanced product handling technology and proprietary information systems.
`NWS had its eye on expanding further and remaining one of the preeminent distributors of
`
`Tuck School of Business at Dartmouth
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`PROVI-1004 - Page 8
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`eSkye.com
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`no. 1-0014
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`alcohol beverages in the United States. NWS was known throughout the industry as an
`active acquirer of other distributors, a technological innovator, and a logistics leader.
`
`In 1997, NWS recognized the opportunity of the Internet for simplifying information flows
`and began to build an on-line sales system in-house. Eddie Kao, who later joined eSkye as
`Executive Vice President of Technology, spearheaded the effort. The system was designed
`to allow suppliers access to the NWS sales system. Basically, a supplier could access sales
`data for their own particular products but no others. The system was offered free of charge
`to suppliers and was created as a competitive advantage for NWS. In fact, the system was
`one of the most progressive in the nation at the time of its creation. However, data collection
`was limited to only those products distributed by NWS in those markets served by NWS
`(Illinois, Indiana, Michigan). While the idea had been discussed, the system had never been
`extended to include on-line ordering for retailers. Moreover, NWS struggled to build and
`maintain the system because the company had a difficult time keeping and retaining talented
`developers.
`
`Wallin realized the potential of an expanded version of the original system. However, he
`realized that it could never reach its full potential as a part of NWS. The company would be
`unable to expand the system beyond a limited number of products in a limited number of
`areas without encountering resistance from suppliers and wholesalers outside of the NWS
`umbrella. Competing wholesalers and the suppliers represented by them would be unwilling
`to utilize a system which would essentially hand over their data to a competitor. A wholly
`independent entity was required. Hence, the creation of eSkye.
`
`eSkye.com
`Wallin and Lobo began crystallizing the eSkye.com strategy in March of 1999. At the time,
`Wallin was devoting the majority of his time to his role as Executive Vice President, CFO,
`and Director of NWS. Lobo was still working as Director of Human Capital and Planning
`for Coca-Cola Company in Atlanta, GA. With the help of a small group of angel investors
`who provided $1.7M in seed capital, eSkye separated its identity from NWS in July 1999
`and Lobo joined as President of the new company. At the inception of the company, Dr.
`Kao also joined as Executive Vice President for Technology. eSkye was officially born.
`
`Throughout the remainder of the summer, eSkye was faced with the dual challenge of
`creating the technology necessary to reach their goal of an on-line ordering solution for the
`alcohol beverage industry and finding customers willing to test the product in their own
`businesses. To feed their development, eSkye initiated a successful private placement round
`of $3.7M in September including investments from the Ingram family (Ingram Book and
`Ingram Micro) and other alcohol beverage distributors (e.g., R.S. Lipman Co. of Tennessee).
`Through previous relationships with on-premise retailers, eSkye was able to recruit a list of
`twenty-five retail customers to participate in a pilot program for the new systems. (See
`Exhibit 1 for a list of test clients.) These clients were located in NWS markets (Illinois,
`Indiana, Michigan) and were limited to products carried by NWS. eSkye completed its pilot
`program and announced its capabilities in a December 15 press release.
`
`Tuck School of Business at Dartmouth
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`eSkye.com
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`no. 1-0014
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`The pilot project served many purposes. First, it allowed eSkye to test the efficiency of their
`system, a patent pending system known as eBOTSTM. This system was described as “an
`innovative e-procurement service for enhanced control and management of alcohol beverage
`purchasing.” This system was the core of the eSkye offering. It was designed to seamlessly
`link the retailers, both on- and off-premise, along with distributors, and suppliers within the
`existing regulatory environment. It also allowed eSkye to plan for the scaling of the product,
`testing it first on a small group while planning for the implementation with a larger group.
`Second, the pilot provided time and forum for the training of customer account managers,
`known as CAMs.
`
`The CAMs were supervised by Clay Wallin, Vice President of Operations for eSkye. Clay,
`the younger brother of Smoke, joined eSkye in July 1999 from his position as Logistics
`Services Engineer for Hewlett-Packard Company where he had been employed since 1997.
`Clay’s goal was the assembly of a high quality list of independent test clients with which to
`train the first CAM hires. The CAMs were intended to serve many roles. First, they would
`be responsible for servicing clients on a day-to-day basis, fielding requests for technical
`support and basic help. Second, the initial CAM hires were charged with creating and
`documenting many of the processes and procedures established through the test program.
`Third, the initial seven CAMs were intended to be the trainers of future CAMs that would be
`hired as eSkye underwent rapid scaling.
`
`Capabilities
`eSkye’s web-based services provided a consolidated ordering site and product information
`link for licensed beverage sellers. eSkye’s stated Mission was “to be the e-commerce
`solution for the global alcohol beverage industry providing:
`• A superior buyer-focused and neutral model
`• Procurement solutions for all beverage alcohol as well as other supplies
`• Supply chain efficiencies benefiting all three tiers
`• Significant top-line growth driver
`• Additional value-added web enabled services.”
`
`eSkye was created to benefit all tiers of the alcohol beverage industry. For retailers, eSkye
`provided a single, convenient and efficient ordering system that allowed them to:
`• Place orders with multiple distributors on-line, promoting convenience, efficiency and
`broader product offerings.
`• Create a customized order guide for each individual account, based upon previous
`ordering history, which reduced mistakes and simplified the ordering process.
`• Track orders by distributor and quickly analyze their business.
`
`Tuck School of Business at Dartmouth
`
`6
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`eSkye.com
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`no. 1-0014
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`For distributors, eSkye significantly improved the order management process, automatically
`taking orders from retailers and then transmitting those orders electronically to a
`distributor’s order entry system, so distributors could focus on activities that increased the
`volume of their business. The system:
`• Simplified new product and customer development, especially through promotions and
`market-based events.
`• Accumulated valuable information on market offerings.
`• Helped to identify key business opportunities and ensured customer satisfaction.
`
`Finally, with no direct customer contact, suppliers had little access to trade information.
`Through eSkye, suppliers had a direct link to retail data, enabling them to:
`• Develop and implement highly targeted advertising and marketing campaigns that
`reinforced the branding of products in a very brand-critical industry, while easily and
`quickly tracking the success of these initiatives. Theoretically, this targeting could reach
`down to the level of the individual account.
`• Focus promotional services to meet customer needs by employing the power of real-time
`access to industry information, trends, and a vital communications link with retailers to
`better assess market conditions.
`• Create a customized web site directly channeled to retailers, featuring information on
`product availability, promotion and marketing programs, new product introductions and
`announcements.
`
`Revenue
`Through weeks of brainstorming, Smoke’s team had identified four revenue strategies for
`eSkye. First, eSkye offered a entirely new marketing vehicle for suppliers. Typically, less
`than 50% of point-of-sale promotions actually reached the retail level. Most was absorbed
`or diluted at the wholesale level. Marketing communications were also very inefficient.
`Most of communications were in the form of volumeous printed material that reached the
`wholesale salesperson, but were not effectively transmitted to the retail tier. eSkye believed
`they were creating an entirely new channel for advertising. Much of this could occur in the
`form of specific account sponsorships. For example, a supplier could target a specific
`account (such as a Mexican restaurant chain), for a specific product (tequilas) based on very
`specific marketing information from that account (caterers to an upscale demographic that
`favors high margin products). The supplier could easily identify accounts that met certain
`criteria and target those accounts only.
`
`Second, eSkye hoped to sell product demand data to the suppliers. With its role as an
`“Infomediary,” eSkye could compile and distill market data that had not been previously
`available. Smoke was convinced that suppliers would pay for this syndicated data. The
`
`Tuck School of Business at Dartmouth
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`eSkye.com
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`no. 1-0014
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`operational challenge for eSkye was to successfully collect, warehouse, and package this
`data in a usable manner.
`
`Third, distributors were charged for each retailer order. Initially, eSkye set that fee at $.40
`per invoice, regardless of the size of order. This cost was far below the cost incurred by a
`distributor to capture an order via phone, fax, or through an on-site sales representative.
`
`Lastly, eSkye believed that they could create a suite of value-added services to bundle with
`their on-line ordering service. Potential service candidates for future offerings included:
`• Auction services: eSkye planed to provide a market mechanism for the industry to
`allocate certain products of limited supply and to liquidate excess inventories efficiently.
`• Additional category supply source: eSkye planned to leverage its experience in the
`alcohol beverage industry and extend the system to include a broader array of products
`and services, possibly including food and supplies.
`
`•
`
`Information link: There are numerous trade magazines in the alcohol and food service
`industries, such as Cheers, Bartender Magazine, Kennedy’s Newsletter, Wine Spectator,
`etc. eSkye believed it could become the single source for information related to the
`industry through both partnerships with these sources and through creation of its own
`content.
`• Brokerage and sales representation: Many smaller brand owners and larger brand
`owners with new brands had trouble getting adequate representation across the U.S.
`eSkye believed it could provide selling opportunities at a fraction of the cost of paying a
`broker or other sales agent.
`
`Wholesaler Perspective
`While wholesalers were the central and most crucial factor to the success of eSkye, they
`realized the most intangible benefits from the system. Besides the direct benefits for reduced
`order entry cost, eSkye’s sales strategy was to leverage interest from the suppliers and
`retailers to entice wholesalers to join the eSkye network. Smoke believed that suppliers
`would pressure wholesales to join the network because of the tremendous value of
`information that suppliers would receive from complete coverage of the industry. He further
`believed that retailers would also pressure wholesalers to supply an on-line ordering system.
`Within a market, wholesalers embracing the eSkye system would presumably be viewed
`more favorably by retailers than those who still required manual ordering through on-site
`sales representatives.
`
`Of all three tiers, wholesales had the most concerns about the effect of the system on their
`position within the supply chain. Wholesalers traditionally maintained a tight grip on the
`information they gathered, viewing such information as proprietary and critical to
`maintaining their identity in the market. eSkye had the potential of destroying this identity
`as a retailer ordered product, not by distributor, but rather across the industry. To counteract
`this fear, eSkye emphasized the maintenance of wholesaler identity through links and
`
`Tuck School of Business at Dartmouth
`
`8
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`PROVI-1004 - Page 12
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`eSkye.com
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`no. 1-0014
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`customized web sites. However, wholesalers were still concerned that eSkye would
`inevitability cause brand erosion. Wholesalers had long s