Firm hopes technology for creating characters can be 'gold standard'

Digital interactive characters have come a long way since Microsoft Corp. rolled out its much-parodied talking paper clip in the late 1990s to help users of its Office software.

Such characters have become so lifelike, they now star in films, are featured in video games and are increasingly being deployed on corporate Web sites to help customers.

Colorado Springs-based CodeBaby Corp. hopes its technology for creating such characters becomes the "gold standard."

Founded by a pair of medical doctors turned video game entrepreneurs eight years ago in Edmonton, Alberta, CodeBaby has a long way to go before it becomes the next Microsoft or Google Inc. as its supporters hope. The company employs about 30 people in an office just north of downtown Colorado Springs and plans to grow to 500 employees within five years, but must first gain some high-profile customers to fuel its growth.

"The reality of startups is that they either will be a train wreck or a huge success. Right now, all of the indications are incredibly positive, but we still have a lot of hard work to do," said Patrick Bultema, a veteran startup executive recruited in late 2007 to become CodeBaby's chief executive. "We are focused on creating a big company with a big outcome. We are seeking to be a category creator" for a new type of technology.

Greg Zeschuk and Ray Muzyka were best friends in medical school. After completing their medical residency program, they decided computer gaming was a more lucrative career than medicine and in 1995 founded BioWare Corp., which developed the hit role-playing computer game Baldur's Gate and the top-selling and critically acclaimed Neverwinter Nights series.

"One of BioWare's (strengths) was artificial intelligence (code) suitable for simulating conversational interaction games. They added a lot to that process to make a more interesting story," said Billy Pidgeon, a New York-based gaming-industry analyst for IDC, a technology research organization. "I can see that being applicable to markets like training and customer service that are money pits for many companies."

The pair started CodeBaby to develop artificial intelligence technology used in BioWare's games to power virtual assistants on corporate Web sites to help with customer service, technical support, sales and training. Zeschuk and Muzyka matched other investors that include the owner of Canada's largest pharmacy chain in three rounds of financing totaling "several million dollars," according to The National Post in Toronto.

"They picked up on the notion that emotionally engaging characters that worked so well in the gaming space also had relevance on the Web," Bultema said. "They started the company as a think tank exercise to play that out."

The company hired Shaheel Hooda, a Harvard University MBA graduate who previously had been director of business development for Trilogy Software Inc. in Austin, Texas, as CEO in 2002. Hooda told The National Post in 2007 that CodeBaby had "multiple concepts of what they wanted to do" when he arrived, so he narrowed the company's focus to using its animated characters for training and service.

CodeBaby first marketed its characters as the most powerful "virtual agents" available, but soon learned customers instead wanted the characters to follow scripts much like call center workers to speed deployment and make changes cheaper. The company signed early deals with tax-software maker Intuit Canada, Internet service provider Bell Sympatico and Royal Bank of Canada and was profitable by 2007.

Hooda left the company that year and Bultema said its board began seeking a "gray-haired, venture-capital investable, proven" chief executive. Bultema is a former venture capital fund partner who previously headed software firms XAware Inc., FrontRange Solutions Inc. and the Help Desk Institute. Bultema has since been filling out CodeBaby's management team with veteran startup executives and local college graduates.

Bultema plans to seek up to $20 million in venture capital to ramp up marketing and sales, not because its founders can't provide the cash but because of what he called the added "leverage, expertise and relationships" that venture funds can bring. He hopes to turn that cash into a company that generates "hundreds of millions of dollars" in revenue within five years that could potentially employ thousands of people.

CodeBaby has set high expectations - Bultema says he wants to make CodeBaby the brand for interactive characters much like Google is the brand for searching the Internet.

Mike Kazmierski, president of Colorado Springs Regional Economic Development Corp., said the company's potential "is limitless. CodeBaby could become the next Google or Microsoft," triggering another local technology boom.

Pidgeon, the IDC analyst, said the company should guard against unrealistic expectations.

While the potential of artificial intelligence technology is limitless, he said, and the uses for it are increasing exponentially, there is risk in new technology.

CodeBaby has about 100 customers who pay monthly subscription fees from $500 to $10,000. They include local commercial real estate broker Hoff & Leigh Inc. and the Experience Colorado Springs at Pikes Peak convention and visitors bureau. Bultema said CodeBaby characters should generate at least 10 times their monthly subscription cost in revenue or cost savings for the client company.

Holly Trinidad of Hoff & Leigh said the company's character, modeled after her, was installed last month to generate customer leads and has boosted the number of leads from Hoff & Leigh's Web site from one a week to one per weekday. The company plans to open branches in other cities starting next year, each with a Web page with a CodeBaby to make the site "more human" and generate leads, she said.

To meet its growth goals, CodeBaby must overcome customer reluctance to use animated characters. Much of that reluctance is fueled by the Microsoft paper clip, which Bultema called "annoying with no emotional connection, no context and wasn't very helpful."

CodeBaby also must persuade customers to use animated characters instead of video, which he said is more expensive to create and can't be changed without reshooting.

Although animated characters are common in video games, just one other company is a direct competitor to CodeBaby. New York City-based Oddcast Inc. develops Web-based avatars - computer users' representation of themselves - for consumers and businesses. But Oddcast's characters are designed to give consumers self-expression, a personalized and online communications vehicle rather than service provider.

Bultema said CodeBaby is selling its service much faster than it expected, even amid the economic downturn. Businesses are looking to cut costs by offering services on the Web instead of at call centers or retail locations, he said. The weak economy also has helped the company recruit; more than 1,000 people have applied for jobs since the company unveiled its plans Feb. 19.

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