The Minneapolis Star Tribune reported earlier this week that a scheme by the Minneapolis' convention bureau to make money developing and selling software for booking and managing conventions has gone slightly awry.
According to the paper, the Minneapolis City Council lent the convention bureau $2.5 million in 2004 to create the convention booking software with the idea that it would help pay for the costs of marketing the city to tourists. In fact, the bureau told the City Council that it only expected to use $1.5 million of the $2.5 million loan to develop the software.
But "a series of unexpected setbacks involving the technical work of developing the software" in 2005 led the the bureau to asked for (and get) another $2.5 million in loans to complete it.
But then in 2006, the bureau said it needed to borrow up to another $5 million to complete the software and market it. Surprisingly - or maybe not - the convention bureau got its loans because it was able to convince the City Council that the opportunity was both "tremendous" and the software was nearly finished (95% complete?). Council Member Paul Ostrow declared at the time: "We're quite confident that this is relatively low-risk."
Well, fast forward to the end of 2007, and so far, the bureau has spent $9.1 million and sales of the software, while now apparently complete (it is called the Internet Destination Sales System (IDSS)), hasn't yet turned a profit. At least $1.7 million in sales per annum are needed to just break even.
In addition, the financial resources devoted to the effort has taken money away from marketing Minneapolis to tourists - a bit ironic to say the least.
The City Council finally wised up and stopped approving any more money to the project. In addition, the person who originally sold the idea to the City Council has also decided to "move on."
According to one current City Council member, "The customers who have the product are very pleased with it. As are we. From that standpoint, it's turned out to be a great product. Time will tell how the business model is going to work." The story didn't say how many customers are using the software, but I suspect the sales price is considerably higher and the potential market size is much smaller than forecast back in 2004.
The convention bureau thinks it can make a profit on selling the software this year, while others think 2009 at the earliest. I'll keep an eye on this story and let you know how it turns out.