Profit Magazine
September 2000

A DOT COM WITH CASH FLOW; WHAT'LL THEY THINK OF NEXT?
By Marvin Bryan Financial Editor

Keep your eye on KMGI.com, Inc. In the risky world of cyberstartups built on hype and stock floats, this company is different. It actually has that "unique selling proposition" that advertising and marketing mavens always look for, and it pays its bills out of the money it receives for its services. What a novel concept on the Internet!

In this case, the unique selling proposition KMGl.com's advantage over competitors- is that this Internet advertising/production firm has developed techniques that allow it to create sophisticated Web content ranging from commercials to entire sites that can be viewed with virtually no download time even by users of slow 28.8K modems, while achieving dazzling effects other Internet producers cannot duplicate. Certainly, every individual surfing the Internet from a modem-as most Web users do has abandoned new sites in frustration because they were taking forever to load; after all, looking at an almost empty screen for long minutes is neither entertaining nor informative. Well, KMGl.com stops that exodus. It helps site owners retain visitors and build an audience many times larger than was possible before.

This privately held corporation was founded in July 1998 by three young Russian immigrants. The original idea was to establish an ethnic advertising agency in New York that would specialize in reaching the estimated six million Russians in the United States who were looking for Internet sites programmed in their own language- a comfortable "extension of Russia." The name of the company at that time was simply KMGI. These initials represent the last names of the three principals: Alexandre Konanykhine, Nikolai Mentchoukov and Elena Gratcheva-plus the added word "International.'' Incidentally, Gratcheva is Konanykhine's wife.

Russian Invades U.S.-and Conquers!

For this comprehensive look at a very hot company, Profit Magazine interviewed Chairman and CEO Konanykhine, an amazingly talented and determined entrepreneur, who at age 33- already has a resume that would be a credit to a man 20 or 30 years older. His early life in Russia was detailed in a previous article, "Russian Rebel," published in our September 1999 issue. Interestingly enough, the author of that profile chose to reproduce Konanykhine's responses to questions by representing them in broken English, which was what he heard during that earlier interview. In contrast, during our interview less than a year later, Konanykhine spoke nearly perfect English although with a noticeable accent demonstrating the dramatic progress this young man can make in reaching goals he deems important.

When Konanykhine arrived in New York with his wife as a refugee in 1992, he told us, he spoke no English! "I started learning English," he recalled for us, "by buying a Berlitz CD ROM." Since completing the 20 lessons on that disk long ago, he has advanced to the point now that he reads and converses almost entirely in English. "I think in English too," he added with a smile.

In December 1998, Konanykhine and Mentchoukov, who functions as chief creative officer, noted the potential for developing commercials and websites using Flash, a computer program developed by Macromedia that permits the creation of animated effects combining motion, sound, interactivity and graphics in a form that can be viewed with any Web browser. [See the article on Macromedia in the January 2000 issue of Profit Magazine.] Konanykhine commented, "However, we thought the code produced by Flash was too bulky."

Introducing the Webmercial

Nevertheless, by February 1999 KMGI had introduced what the partners called the "Webmercial, a full screen. TV- quality, 5 to 7 second online commercial that would load and run almost instantly on the slowest modems. The principal secret was the use of vector based graphics, through which an image is described and displayed by mathematical formulas rather than by specifying each pixel that is to appear. Since the required files are tiny, they require little storage space or downloading time The little ethnic online ad agency had abandoned its original concept, becoming an online production company and ad agency catering to English language clients who wanted to have an impressive presence on the Internet.

A few months later, Macromedia introduced a new, more capable version of Flash, which it called Flash4. Using this new environment, KMGI was able to overcome the limitations of the standard HTML Internet programming language by creating effects with the combined power of languages such as Java, Perl, ASP and Visual Basic. Within two weeks of the formal release of Flash4, KMGI had actually unveiled the world's first fully functioning website developed without any use of HTML.

Today few of the clients of burgeoning KMGl.com have any idea that the company has a Russian origin. Konanykhine told us, "We have 52 employees now and expect to have 250 by the end of the year. Most of our executives and creative directors who work with clients are Americans who were formerly employed by top New York advertising agencies and TV production houses." And those KMGl.com clients have included such names as AT&T, Dupont NxView (a joint venture between Intel and Motorola), Brown & Williamson. Net2Phone, the New York Post, NetWest Group, New Media Capital, Unibanco, Internet Wire, and the Internet Financial Network. The company is headquartered in the Empire State Building.

Examining the "Unique Selling Proposition"

Why has KMGl.com been so successful? Its technical achievements place it far ahead of the competition. For example, its vector- based graphics can be animated to flow fluidly across a browser window, regardless of the window or monitor size, with full- screen scalability. In other words, content can be created so it will always fit perfectly within the browser window, with no scroll bars. If a user should change the size of the window, the vector based artwork will automatically redraw to fit the resized window perfectly.

Equally important, KMGl.com has created a vertical design hierarchy that can incorporate any number of independent layers. On the other hand, dHTML and ASP sites support multiple "layers" that are actually all part of the same file, meaning that individual layers cannot be imported or exported; only the entire file can be replaced- usually with an awkward wait and/or an empty screen until the replacement appears. Using the KMGl.com technique, any layer can be imported or exported, with the other layers remaining temporarily or permanently in place, and each layer can be given any desired level of transparency or opaqueness. The result is that images seem to flow continuously, with one effect replacing another in a seamless fashion. Activating a link can mean that the website remains intact while the new information is brought in. A Web environment created by KMGI.com can be different in many additional ways from what you would expect. A small "window" within a window can run a movie while other action is taking place in the main window. Presentations can be constructed so the surfer can "wander" through a site, such as a virtual city, and "enter" any chosen part of the scene, such in any order. The programming code executes so quickly that small pedestrians can be displayed walking and talking normally on the streets of such a virtual city even on a 28.8K modem.

You can investigate many of these capabilities for yourself by visiting the company's own site on the Internet at (You guessed it) www.kmgi.com. Specifically, check out the virtual city at www.kmgi.com/bw. However, we must caution you that your PC or Macintosh must have Flash4 installed in order for you to see the effects. Is that a problem? On the contrary! The latest versions of both the Netscape Communicator and Internet Explorer browsers include Flash4. But if you don't have those latest versions, when you visit the kmgi.com site, the software will detect that Flash4 is missing on your machine and will invite you to download it free of charge right then and there. Once it's installed, you can let the show begin!

Konanykhine's company has other advantages. Commercials and websites using its technology can be created with a fraction of the programming time needed by competitors. This means that KMGI can routinely produce its Webmercials for $4,000 to $20 000 each, rather than the $100,000 or more that advertisers regularly pay others for spots produced through traditional methods.

And website maintenance cart become a webmaster's dream. As a case in point, a large, comprehensive news portal can be handled by only two or three quality webmasters because KMGI can provide a streamlined process wherein all content is contained within a database module. Reporters, editors and graphic artists simply deploy new files to the server, and the KMGI architecture takes care of the rest.

A Record of Accomplishment

Has "good luck" also been a major factor in the success of KMGl.com? It would seem that a better explanation would be that the principals came to their present jobs with a background of outstanding accomplishments; one more accomplishment is simply to be expected.

Alexandre Konanykhine studied space research at the Moscow Institute of Physics and Technology, then-beginning in 1986 founded, controlled and managed a group of over 100 companies and organizations engaged in banking, investment, finance, real estate, trade, import- export, construction, consulting and information technologies, publishing, law enforcement and philanthropy. From 1991 until his departure for the United States, he was chairman of the board and president of the Russian Exchange Bank in Moscow.

Creative guru Nikolai Mentchoukov has an M.A. in art history from Moscow University and a B.A. in theater and cinematography from Moscow Artist College. In 1987 he founded Gneatis, the first advertising agency in post- Soviet Russia and by 1991 had developed it into a leading national agency serving clients as Coca-Cola, Eveready, Baskin Robbins and Glad, in addition to many leading Russian firms. He has also produced several acclaimed animation features and been a guest lecturer at leading universities in Russia. Today he is acknowledged as one of the most experts on Web development and rich media production.

At the present time, KMGl.com buys heavy online advertising schedules for its clients, as would be expected of a flourishing ad agency. But Konanykhine envisions KMGl.com becoming in the future more of a comprehensive production studio. "I see us switching from work for hire to creating proprietary products such as language courses and other learning programs and even entertainment."

There have been rumors that KMGl.com would soon be going public, so we asked Konanykhine if an initial public offering is in the immediate future. He responded, "We don't need an IPO for financing. Our operations are supported well by our cash flow. But an IPO would help us guarantee ourselves a dominant position in the industry." However, he prefers to wait until probably the spring of next year. He explained, "Part of the Internet bubble is going to burst- those companies with no income can't last forever. With fewer companies around, our position will be stronger."

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