Curtains for TV’s Video on Demand

A Chip Company Leaves Princeton

Ariel Closes After Ten Years

Biotech Hangs On To Empty Space

E-Marketer Survives Bankruptcy

From Soccer Balls To Home Appliances

Family Owned Firm Leaves Princeton

Princeton Teaching Associates Software

Corrections or additions?

This article by Barbara Fox was prepared for the January 29, 2003 edition of U.S.

1 Newspaper. All rights reserved.

Recession: Mother of Reinvention

After 30 years in business, a marketing company closed

its doors last August with no notice. One of Sarnoff’s first spinoffs

got sold to another company that went bankrupt in October. A 10-year-old

publicly held hardware company closed last January. A chip design

startup got bought out by a bigger firm last year, but saw its office

closed two weeks ago.

The bad news continues. Throughout the downturn the pharmaceutical

area has remained relatively strong, but even the big companies have

started to announce layoffs. And the smaller biotechs — Orchid

BioSciences, Pharmacopeia, and Nexmed, to name a few — also struggle

when investors get more cautious. One of them, Swiss-based GeneProt,

has paid two years of rent on 60,000 square feet of space in North

Brunswick because it can’t get enough backing to move in.

But some companies have reinvented themselves. In the much maligned

E-commerce field, one of the most visible companies in Princeton,

Just Balls, gave up on the Internet sales model last June, and its

founder, Jim Medalia, moved to a new field. Impower, the Internet-based

spinoff of direct marketer American List Counsel, went into bankruptcy,

recovered, and last year moved to the west coast. At a start-up E-learning

company, Princeton Teaching Associates, the staff had to work without

pay to finish their products, then decided to farm out the marketing

tasks. For this salvation by reinvention story, see page 42.

In the following pages we look at some responses to the plummeting

bar graphs — companies that went out of business, that suffered

a severe downsizing, and that are operating despite the odds.

Some might take a leaf from the book of 69-year-old Vito Verruso,

who runs job fairs. If job fair participants are bellwethers for the

economy, prepare for another year of belt tightening. Verruso says

he used to get 80 to 100 recruiting companies paying $500 per table,

and now he is lucky if he sells 25 tables. He used to get up to 600

job hunters, and now he gets 1,500.

"I hate to paint such a bleak picture," he says, "but

we are not going to see a recovery until sometime next year."

What people and companies need to do, he says, is reinvent themselves.

Personally, he says, he took a leaf from People Express, the no-frills

airline of the 1970s. So now he is staging "no frills" job

fairs. "No donuts. No coffee. No lunch." And the price for

companies to recruit has dropped from $500 to $350. Participants come

for free.

Next up for Verruso: his Mega Job Fair on Wednesday, February 19,

at the Edison Clarion (732-821-7048, Nonprofits

get a $100 discount as a Verruso standard policy. "My father always

said, take care of the nonprofits, because some day they may take

care of you." In Verruso’s new no-frills mode, he has extended

this discount to military and educational recruiters.

"I am very proud that at my age, nearly 70, I can reinvent myself,"

he says. "That’s what the IT people need to do. The IT jobs are

finished. There are no computer jobs. They should start working in

retail. A friend of mine who switched careers is now a regional manager

at Staples. Talent will be recognized."

First in this lineup are the IT and computer companies — Diva

(Sarnoff Real Time), TranSwitch Corporation (Systems on Silicon),

and Ariel Corporation. Many many more computer companies and software

services firms are downsizing quietly, including Broadbeam, Dataram,

and Sarnoff Corporation. Nextira (aka Williams Communications and

Bell Atlantic Meridian) closed a 100-person office on College Road

in November and employees are working from their homes. Some companies

simply decline to answer questions about staff size.

Top Of Page
Curtains for TV’s Video on Demand

In the early 1990s the Sarnoff Corporation was looking

for new ways to use its expertise in video compression. It had experts

serving on the international standards committees for what is now

MPEG, and it was doing parallel processing with what was known as

the "Princeton Engine."

Working with "video on demand" seemed like a perfect fit.

Films would have to be significantly compressed in order to send them

to individual subscribers. And though parallel processing was too

expensive for small applications, using it for video servers seemed


One of Sarnoff’s early spin-offs, Sarnoff Real Time had the first

Video on Demand system that was low enough in cost to make it look

like a profit maker for cable systems. Sarnoff Real Time moved out

of Sarnoff’s incubator in 1996 and was purchased by a big California-based

firm, Diva, which spent a lot of money when money was easy to come

by. At one point, said an insider, "Diva was raising so much money

that they had to turn it down." It offered seamless integration

of a complete on-demand television solution, including hardware, software,

and a wide range of programming.

Diva shut down in October, 2002, six months after it had signed a

five-year lease at the Forrestal Center for just over 20,000 square

feet. About 60 employees on College Road lost their jobs.

This was the final step in Diva’s Chapter 11 bankruptcy. Employees

had thought they saw a rescuing angel in Gemstar-TV Guide, which made

some job offers and was planning to purchase Diva’s intellectual property

as part of a $40 million pre-packaged bankruptcy deal. Gemstar planned

to use Diva’s technology to partner with Thomson Multimedia on an

interactive television network.

Just days before settlement, Gemstar got worried about a possible

antitrust suit and backed out. Because it had already told Diva’s

customers that it would not continue to work in the Video-on-Demand

area, Diva had no more VOD customers. Its VOD clients — AT&T Broadband,

Charter Communications, and Insight Communications — had all found

other providers.

One potential buyer, according to a trade magazine, is Liberty Media

Corp. and its Liberty Broadband Interactive Television subsidiary.

But as of now the intellectual property formerly owned by Sarnoff

is languishing, waiting for a buyer.

"Diva could not dig its way out of the $500 million in debt it

incurred from the early business model assumption combined with the

days when it was too easy for high tech companies to raise money,"

says someone close to the firm. Diva had been a pioneer of VOD, but

as is often the case in big business, first can be last.

Top Of Page
A Chip Company Leaves Princeton

Milton Chang had high hopes for his start-up chip design

firm, Systems on Silicon, when he moved it from his house to an office

on Cornwall Road in Monmouth Junction. He sold it to a public company

last year (U.S. 1, April 24, 2002). But on January 16 the parent firm

announced it would close down the office. It’s the second semi-conductor

chip company to close in six months — Philips Semiconductors,

or what used to be VLSI, left in June, 2002.

Chang founded Systems on Silicon Inc. (SOSi) to design chips for the

access networks that connect subscribers with their telecommunication

service providers and allow for easy access to Voice Over Packet,

virtual private networks, and videoconferencing. Yet it was also supposed

to help traditional applications ( The overall

market for his device was expected to grow to $2.7 billion by 2005.

"The telecom industry has a long way to go to restructure itself,"

is Chang’s only comment about the closing of his division.

He had sold the firm to his former employer, TranSwitch Corporation

(TXCC), a Connecticut-based multi service access solutions company

for the communications semiconductor industry. Transwitch paid $2.4

million, but $1.5 million of that was assumed debt and only $900,000

was in cash. SOSi was to operate at Metroplex on Cornwall Drive as

a wholly owned subsidiary of TranSwitch. After the recent downsizing,

TranSwitch has 250 employees.

Each of Chang’s 12 employees was offered a package with stock options

at the time of last year’s sale.

Milton Chang has a B.S in electrical engineering from Chengkung

University in Taiwan in 1984 and a Ph.D. from Michigan State in 1992.

He spent three years with Siemens in Taiwan as a chip designer, moving

in 1995 to TranSwitch in Connecticut, as manager of Internet VLSI,

and landing in 1999 as engineering director for Intec Systems in Manalapan.

To start his company he used his own money at first, then raised a

seed investment from family and friends. Finally, he closed Series

A financing with TranSwitch in 2001. He had also raised funds from

a venture capital company, Global Technology Venture, based in Boston.

Systems on Silicon’s chip was expected to come out at the end of 2002.

"There wasn’t sufficient customer demand to make it a priority,"

says a TranSwitch spokesperson. "We put it on hold."

TranSwitch Corporation (Systems on Silicon) (TXCC),

1100 Cornwall Drive, Suite 10, Monmouth Junction 08852. Milton Chang.

732-398-0048; fax, 732-398-0552. Home page:

Top Of Page
Ariel Closes After Ten Years

Ariel Corporation was founded in 1982 by two digital

audio engineers, Anthony Agnello and Mark Clayton, to create and offer

development tools to help utilize digital signal processing (DSP)

technology. A Brooklyn native, Agnello is the inventor of the harmonizer,

an effects system for electric and electronic instruments that adds

extra assonant tones to a pitch, even when juxtaposed over dissonant


"What Ariel does is create components for high-end signals," said

Agnello then. "It focuses on applications that require much more

processing power than can be squeezed out of single DSP chip."

His company went public in 1994 and in 1996 he moved it from a castle

(literally) in Highland Park to a custom-designed Cranbury site, noted

for its more-than-casual atmosphere (U.S. 1, February 7, 1996).

Along the way the firm repositioned itself to be an Internet software

supplier at the crossroads of the Internet Service Provider (ISP)

and Linux markets, selling to such customers as AT&T, Boeing Aerospace,

Hewlett-Packard,Lockheed Martin, NASA, Rutgers, Texas Instruments,

and Xerox.

Jay H. Atlas was appointed CEO in December, 1998. In 1999 Ariel had

65 employees on Route 130 and also had offices in Texas and Maryland.

But it had significant competitors (Cisco Systems and Lucent Technologies)

and a burn rate of $2 million per quarter. In 1999 it had only $6

million in cash but needed to hire staff to fill anticipated orders.

On January 31, 2002, it closed down.

Top Of Page
Biotech Hangs On To Empty Space

A young Swiss-based company made a very aggressive move

in 2000. It leased the just-built space in a 60,000 square foot addition

to the Technology Center of New Jersey. The NJEDA, developer of that

center, might have divided the space up for smaller tenants, but GeneProt

preempted that with its 10-year contract.

So why didn’t GeneProt open its labs in the United States in 2002

as planned? GeneProt’s fortunes changed, and the space remains empty.

But the rent is being paid. One reason why is because this young bioinformatics

and proteomics company is partnering with two powerful firms, Switzerland-based

Novartis and Compaq. GeneProt analyzes proteome samples for Novartis,

and Novartis has more than $40 million in GeneProt stock. Compaq,

GeneProt’s technology partner, supplies the computers for 51 mass

spectrometers running around the clock.

GeneProt describes itself as an industrial scale proteomics company,

also involved in datamining, that can help shorten the time needed

for drug discovery. But it will depend on other companies for partnerships

and profits, and — perhaps because of the weakened economy —

it has not racked up many deals.

Nevertheless, GeneProt does have the deal with Novartis and it has

just announced a second agreement. Serono, a global biotechnology

company with five products on the United States market, will test

some polypeptides and proteins that GeneProt discovered with its datamining


The NJEDA gives assurances that is not losing money on the GeneProt

deal, though it has restructured the lease. GeneProt signed a prepaid

one-year lease for 60,000 square feet beginning July 1, 2002 and ending

June 30, 2003. "We are still counting on GeneProt to occupy

some space, though not as much as they originally planned," says

Glenn Phillips, spokesperson for the NJEDA. (GeneProt had hoped to

build an additional 40,000 square feet.)

"The lease contains milestones that, if satisfied prior to June

30, 2003, would convert the lease into a nine-year lease. If they

do not hit the milestones, there is a liquidated damages clause that

would require GeneProt to pay the EDA," says Phillips. The building

is now vacant and the company works from its Geneva facilities.

GeneProt, 671 Route 1 South, Technology Center

III, North Brunswick 08902. Keith Rose, chief scientific officer.

732-246-8950; fax, 732-246-8948.

Top Of Page
E-Marketer Survives Bankruptcy

One optimistic E-marketing company that went bankrupt,

Impower, is now alive and well in San Francisco, and a company that

it bought — Datamark Technologies — has bought itself back

and is operating profitably.

In January 2001 Impower was an 80-person division of American List

Counsel with an E-mail database program and outsourced mail distribution

solution. It did interactive direct marketing for such clients as

American Express, Dell Computer, Time Warner, Barnes&,


Impower was sharing quarters with the 20-year-old American List Counsel,

and both companies were cramped. Donn Rappoport put ALCs cozy corporate

home — a converted farmhouse on Orchard Road — up for sale,

and made plans to move to the Dow Jones campus on Route 1 and Ridge

Road. ALC and Impower rented 110,000 square feet, about one-third

of the new building that Dow Jones no longer needed. (Later this building

would house 9/11 refugees).

Among the owners of Impact were Donn Rappoport, chairman of American

List Counsel, and Harry Brener, of Technology Management & Funding.

Impower ignored the dotcom downturn that started in the spring of

2000. With $42 million in venture capital, Impower grew to 120 employees.

But in May, 2001, Greg Ellis (an Opinion Research alumnus) was brought

in to do a turn-around and in August, 2001, he took the company into

Chapter 11 bankruptcy. Said Ellis at that time: "Like lots of

Internet companies, this one raised quite a bit of capital and built

out an infrastructure in anticipation of a very large business and

grew very rapidly for some time. As with lots of dotcom companies,

lots of our customers vaporized. But we have the core of a healthy

business, just nowhere near as large as anticipated."

When Impower came out of bankruptcy, Greg Ellis left. Now Tom McCarty

is the president of Impower, which relocated to California and works

on projects with American List Counsel. As part of the bankruptcy

settlement, Jack Kaplan and David Berk bought back Datamark Technologies

from the creditors. Datamark had been owned by Datamark for just one

year before the buyback in March 2002.

Datamark remains profitable. "We’re a great little business. We

do electronic gift card and loyalty programs to retail, restaurant,

and hospitality market," says Kaplan. His clients include RJR,

Brooks Brothers, and J. Crew.

Datamark Technologies, 4300 Route 1, Building 5,

CN 5367, Princeton 08543. Jack Kaplan, president. 609-580-3500; fax,


Top Of Page
From Soccer Balls To Home Appliances

Jim Medalia made a big splash in the E-commerce field

in 1998 when he opened a six-person company to sell sports equipment,

namely balls, over the Internet. Photos of him splashing around in

a bin of brightly colored balls made the covers of every area publication.

He compared his firm with the online bookseller (U.S. 1,

August 12, 1998).

Then came the dotcom decline, and of all the online sporting goods

companies, JustBalls! was the only one to survive. Its business plan,

however, did not. JustBalls’ CEO Jim Klein, brought in by investors

two years ago, has reorganized and renamed the firm Integrated Sports

Marketing Group (ISMG). Medalia and his wife have left and are starting

a new energy-related company NWattUSA (

Ever the ad man, Medalia has a catchy slogan, "Your energy —

you can bank on it." This time, however, his business plan is

grounded in bricks and mortar. "We have aggregated highly energy

efficient products to replace energy consuming appliances with highly

efficient system. We can raise property value significantly as well

as reduce cash flow for the home, and we also finance it," says

Medalia. He has lined up partnerships with appliance firms and mortgage

companies and has lined up statistics to prove that spending money

on energy saving is a lasting investment in the real estate.

So it seems that, once again, Medalia has latched onto The Next Big

Thing. If the Internet was the bandwagon of choice for the ’90s, energy

will be the all-consuming topic of this decade, he predicts: "In

August 2003 the caps will come off the energy prices, and prices will

rise 25 to 200 percent."

Top Of Page
Family Owned Firm Leaves Princeton

A 10-person firm founded in 1970 closed its doors last

August with no notice. "They had been here for 30 years, and they

vanished," said one of the tenants at Princeton Service Center.

The website is still up, the phone has been disconnected with no forwarding

number, and the company’s attorney, John Crayton, failed to return

numerous calls.

Research 100 was one of Princeton’s more than 50 market research firms.

In 2001 it expanded to 5,000 square feet and built a focus group room

with one-way mirrors. The firm offered custom market research to manufacturers,

advertising and service organizations and had senior citizens as a


Mark H. Sandler, the president, was a 1981 graduate of Ithaca College

who had gone right into the family business. He has said his earliest

memories of the market research business involved coming to work with

his father, then working at Opinion Research. His father, Michael

H. Sandler founded Research 100 in 1970 with some of his colleagues.

Industry sources say that Mark Sandler has moved to Florida and is

serving his remaining clients from there. The market research business

can operate from anywhere. Sandler had said that most of his qualitative

studies were done in cities close to the client, such as New York,

Chicago, Dallas, Houston, Tampa, Fort Lauderdale, and Atlanta. Qualitative

studies usually involve focus groups, in contrast to quantitative

studies use telephone surveys or in-store research. Focus groups win

out over telephone surveys in a down economy.

And here’s an economy tip from Mark Sandler that seems prescient.

"When the economy gets soft," said Sandler, "our qualitative

work increases rather than our quantitative." Telephone surveys

are expensive, so when the accountants are seeing red, they are hard

to justify. "But rather than make a business decision blind, our

clients ask for `a small study,’ which might be a focus group."

"We have been tracking the relationship between our work and the

economy for more than 20 years," he said in July, 2001, "and

our work tends to lead the economy by about six months. When our business

goes up in terms of qualitative, in six months the economy will go

down. Right now, based on the business mix we are seeing, we are suggesting

that the economy will be soft through the end of the year."

Top Of Page
Princeton Teaching Associates Software

Educational software duplicates the one-on-one dynamic

of tutoring, rather than the static dimension of a classroom lecture

from a primary teacher," said Tim Cottrell, founder and president

of Princeton Teaching Associates Software Inc. (U.S. 1, March 4, 1998).

"That’s our core intellectual property."

Cottrell discovered his teaching talent as an assistant instructor

at Princeton University. Raised in western New York, with a B. S.

from Syracuse, Cottrell was working toward a Ph.D. in chemical engineering

when he won several Princeton teaching awards. Tutoring some local

high school students in math and science, word-of-mouth on Cottrell

was so successful that by the time he got his Ph.D in 1994, he was

offered $80,000 by his high schoolers’ parents to set up a professional

tutoring service.

He wrote down what he did in a series of steps, a learning algorithm.

"Once you experience yourself learning, you can apply that process

to any subject you want to master."

Point of view is just as important. "A crucial component, especially

with teenagers, is the ability to speak to them from a peer point

of view, instead of setting yourself up as an authority. That’s really

what led me to software. I could put more of what I knew about teaching

into a program and make it available to more people."

His first software was a teachers’ tool for AP Honors Chemistry, like

an online library. He and Patrick Dooley, the other principal at the

firm, did a project with Penguin Electronic Publishing: a CD-ROM complement

to the book, "Acing the New SAT" by Marcia Lawrence. He also

did software for Princeton University’s "I Ching" translation.

Cottrell obtained a $200,000 loan from New Jersey Economic Development

Authority’s Seed Capital Program to develop CD-ROMs for advanced placement

courses. But in 2001 his business slipped out of sight. He moved from

an office in Kingston to a storage space in Ewing and did not answer


"We worked without paychecks to finish the products, and after

we developed our first two products, we had to downsize to two staff

people to make it through the marketing period," says Cottrell.

His competitors included Peterson’s and Kaplan. "In competitive

reviews, our product would come out on top, but we were never able

to get the market penetration that they have."

This PhD chemist with no business experience learned marketing lessons

the way that most people do, by experience. "I thought if you

make great software and win awards, that customers would come through

the door. It takes a while to learn just how important marketing is.

But building a brand name takes time."

Cottrell decided to reinvent his company. "No matter how tough

it is, there is more than one way to skin a cat." He signed a

marketing deal with Films for the Humanities and Science, the four-decade-old

firm on Perrine Road in Monmouth Junction, to distribute the two products

he made with funds from the EDA seed capital loan. The teachers tools

products for AP chemistry and AP calculus have grossed more than $500,000

to date. They are CD-ROM based now and PTAS plans to release Internet-based

versions for the 2003-2004 academic year.

The company is also working on the conversion of its popular CD-ROM-based

SAT preparation product, "Acing the SAT," to an Internet based


As for Cottrell, he has full-time job at Lawrenceville School, where

he is director of information technology services and teaches chemistry

— a job that, like his products, was strategically chosen. "Working

at a school is a more realistic way to develop educational software

for a niche market product," he says. "I can do that here

without having the employee costs for running a business."

Re-invent yourself, says Vito Verruso. Think of another method to

skin a cat, says Cottrell. Turn to the Next Big Thing, says Jim Medalia.

There’s more than one way to survive bad times.

Princeton Teaching Associates Software Inc., 34

Lexington Avenue, Ewing 08628. Timothy R. Cottrell, president. Home


— by Barbara Fox

Next Story

Corrections or additions?

This page is published by

— the web site for U.S. 1 Newspaper in Princeton, New Jersey.

Facebook Comments