CEO Likes SAS Position

 
 
By Dennis Callaghan  |  Posted 2004-11-08
 
 
 

CEO Likes SAS Position


With $1.34 billion in annual revenue, SAS Institute Inc., in Cary, N.C., is the largest business intelligence software company and the largest privately held software company in the world. Its founder and CEO, Jim Goodnight, sat down with eWEEK Senior Writer Dennis Callaghan at the companys recent BetterManagement Live Worldwide Business Conference in Las Vegas to discuss a wide range of topics.

Why do you consider your new Financial Intelligence solution to be SAS most important product release this year, next to the SAS 9 platform release in March?

I would certainly rank it up there with our Marketing Automation solution, which we announced earlier this year. We have had a financial consolidation and reporting system for about four or five years now. This new release sits on top of version 9 and uses a very large amount of middleware sitting on the server so a lot of the softwares actually written in Java. Its is unique in that [we] have developed algorithms that allow everything that needs to be computed to be computed on the fly, so nothing is precomputed. Its just each time you ask for a value, you get a subsecond response, and that value appears. Now from a budgeting standpoint, that means that budgets are rolled up instantly and every change that somebody makes in a budget, its just instantaneously updated. Whereas, now, most budgeting systems take several hours to get everybodys stuff together and updated. So we believe that we probably have a three- or four-year advantage on any of our competitors in this space right now.

To read more about SAS Financial Intelligence, click here.

Is Hyperion the company youre targeting with this release?

Absolutely. We feel like theyve been a little bit occupied, shall we say, with the Brio [acquisition] and that theyre having a hard time trying to get that and another acquisition they did a few years ago [Arbor Software] integrated.

Whats coming next? Whats the next solution area youre going after?

We have an additional major release of our operational risk software coming up later this year. And early next year, well have a new release of our Web Report Studio, which is our query and reporting tool for the mass audience.

Would operational risk management be a component of the Financial Intelligence solution?

A lot of people think it should be. They certainly think it needs to be part of the corporate compliance area. So weve had a lot of people ask us to include operational risk as part of our Sarbanes-Oxley [Act] solution.

Do you have any plans to do that at this point?

Oh yeah, eventually itll be merged in. But since both our OpRisk and Sarbanes-Oxley corporate governance software are proceeding very rapidly on totally separate tracks, its going to take us a little while to pull something together. These are all things that are underway right now. Weve got so many of these things.

So its too soon to say when that would actually happen?

Yes.

A lot of business intelligence software vendors are claiming to be in the predictive analytics space these days, or to have a predictive component in their software. Do you see anybody challenging SAS in that area?

In the analytical space, SPSS of course is still out there, when we are competing in a pure statistical mode, statistics solutions, we do run into them about 9 percent of the time. But theyre the only ones who have any real analytics stuff. What makes SAS so powerful is not just the analytical piece, but the entire platform. The fact that we have the ETL [extraction, transformation and loading] capabilities already built into SAS—developing your metadata, scheduling jobs to run, pulling everything into your warehouse, doing data cleansing, doing also analysis and reporting on the warehouse. All of these things give us the depth that the other products dont have. And also most of our analytics—quite a few of the analytical procedures—have been converted to use of multiple threads. So our entire base engine is multithreaded. Basically, about a third of our procedures a year are being converted over. We did the most important ones first, things like sorting.

Next Page: Sizing up Siebel.

Sizing Up Siebel


Siebel Systems Inc. is making a big push into business intelligence and analytics. It showed a slide at its user conference two weeks ago that listed IDCs top vendors for customer analytic applications, and it listed Siebel as No. 1 in market share and SAS No. 2.

Thats based on numbers that Siebel provides IDC. We cant do much about that. Put Siebel into perspective. Last year, I think their revenue was $1.4 billion, and ours was $1.34 billion. About two-thirds of their revenue is from services. So you figure, at best, they had less than $500 million in software revenues, whereas we had $1.3 billion. So from a pure software standpoint, we are two to almost three times larger than Siebel.

Their softwares so difficult to install, you have to spend a fortune to have it installed. Thats where they make their money, on installing the software. Thats why theres a lot of other models that have popped up in this sales force automation area. Like Salesforce.com, theyre doing extremely well. That model where somebody else worries about the software and keeps it up and running is pretty good for that area.

Would you consider using a hosted service like that for your companys sales force?

Actually we have our own software that weve written. Its being used worldwide, its Web-based. We looked at the cost of implementing somebody elses software for that and we just felt wed rather develop our own. But theres a never-ending list of features that people want to add to it.

Thats strictly an internal initiative, you still have no plans to branch out into that kind of operational software as a commercial venture?

I dont think so. I think the market is pretty saturated with that particular type of software. The Salesforce.com model is such a good model, I think even large companies are now using it.

That model seems to be working for that space, but would or could a hosted model like that work for SASs business?

Were looking at probably $40 million in revenue this year from our hosting business, our ASP stuff. Were doing quite a bit of analytical work where were getting terabytes of data from one of the large banks and were doing quite a bit of analytics work on that to help them understand their customers better. Plus we are hosting some drug compound applications for some of the pharmaceutical companies. Were doing a lot of Web analytics as well.

Getting back to the Siebel question, do you take them seriously as a competitor?

No. I dont believe the numbers that theyre quoting. Im sorry; I dont believe them. If they only had $500 million in software revenue, how could $300 million of that come from analytics? Its just unbelievable. Unless they think of their whole software offering as—now theyve just renamed it—analytics. I mean, give me a break, that numbers way off.

IDC numbers come directly from the vendor. Theres no validation. I know we have a hard time when we turn our numbers in, trying to fit all the different revenues we have into the different buckets that they have. Obviously Siebel put as much as they could into the analytical bucket so they could claim the bigger numbers.

Actuate is pushing an Eclipse-based framework that all companies would share and build technology off of, mainly in the query and reporting area. Is that anything that SAS would have any interest in?

Actually, were on the board, and Eclipse is a lot of our desktop. Eclipse is designed for desktop users, so its Java-based desktop stuff. Its got a good set of components in it and we are on the advisory board. It is one of our standards. But Actuate, they basically threw a bunch of components in. Theyre only good if you want to build an application, you get a bunch of components that help build an application. I think they gave them away because they couldnt sell them. Im not real clear on that, Ive just had some very brief conversations about that. But this is an IBM initiative, they started it.

So Eclipse is in SAS 9 today?

Yes. It provides a framework. If youve got three different departments writing desktop applications in J2EE, then at least youre going to have some common look and feel.

There have been a lot of intellectual property lawsuits going back and forth in the business intelligence space between companies like MicroStrategy, Business Objects, Cognos, Actuate. Has SAS ever been involved in this type of dispute?

I think our last intellectual property [issue] was back in 1984. Its been a long, long time.

Do you think theres any merit to any of these lawsuits?

First of all, we have a basic problem with the U.S. patent office. Starting about nine years ago, they just opened the flood gates, any software patent was now going to be allowed. It had been not allowed from the early 60s on up until 1995. So we had a 35-year period where you could not patent software, you could not patent algorithms. And then there was some judge ruling about putting stuff in [online] shopping baskets and all of a sudden the judge ruled that anything is patentable.

So now youve got 35 years of prior art sitting out there in corporations all over the globe, just about everything that ever has been developed or invented for software is sitting out there somewhere. And then you have a bunch of these people come along and start to say, OK, Im going to patent this, Im going to patent that.

Patents have gotten to the point now where we do them just for defensive purposes, so if someone tries to have a claim against us, we can say, Oh, weve already patented that. I personally think that patents ought to be not allowed for software. They ought to throw out everyone that there is.

For software, what weve always used has been copyright and trade secret. That has been sufficient for all the years that weve been in business to protect our software. The idea that somebody could patent [software] is just wrong. The Patent Office, rather than sitting up and doing a better job, they simply stamp everything approved and theyll say, Well, let the courts worry about it.

The entire time during the Clinton administration—and I dont know how much its changed now—they would charge $1,500 per patent application and that $1,500 went into the general fund and the patent office got about $200 per patent to pay the patent researchers to do their jobs. So they were incredibly underfunded. And they were dumped on with tons and tons of patent applications that had not been properly researched. There was just no other patent existing that this patent covered even though the software out there had been out there for years.

Some guy tried to make us pay him up. He said he had patented the idea of changing something on a CRT screen that actually went all the way up to the database and updated the database, just by making a change to the screen, which is, what the hell else are you going to do? And he said he had a patent on that. And he came by waving at us and said youre violating my patent. And we said, get lost, take us to court.

It wasnt even a company, it was just a person who had filed a bunch of patents on every little nonsensical, I mean, just trivial stuff that we do all the time and have been doing for years.

Isnt Oracle your biggest competitor across the board?

About 9.9 percent of our sales situations, we are competing against Oracle. And theyre our largest [competitor].

Next Page: Weighing in on Oracle.

Weighing In on Oracle


So with that in mind, do you care to weigh in on Oracles takeover attempt of PeopleSoft?

First of all, I think PeopleSoft was absolutely stupid not taking the $27-per-share offer. That was unbelievable, that offer. Theyve lost a lot of business because of the FUD [fear, uncertainty and doubt] factor. Very few people are willing to install PeopleSoft right now because of the FUD stuff. I personally thought when [Oracle CEO] Larry [Ellison] first made his offer, he was just messing with these people, just to mess up their quarter. But then it dragged on and on, and its messed them up now for over a year. Larrys stated idea was to discontinue the software, just put maintenance on it. That doesnt make people feel good about the software.

But SAS must have a lot of common customers with PeopleSoft. If PeopleSoft became part of Oracle, wouldnt those customers have to consider Oracle technologies instead of SAS?

These are operational systems. Just about everything Oracle does and everything PeopleSoft does are operational systems that are mainly concerned about updating records and updating files, making payroll happen and all that kind of stuff. Were in a much deeper, heavier analytical space.

But if you compete against Oracle in a lot of areas, wouldnt that mean some of these PeopleSoft customers would be more likely to consider Oracle in those areas, rather than SAS?

First of all, if they do the acquisition, itll mess Oracle up for a year, which I dont mind. What we compete against Oracle with is primarily data warehousing. They believe that since they can store data in a database, it automatically makes them a data warehouse vendor. Without the analytical and reporting tools to go with it, thats only half the solution. We provide both the storage ourselves and the analytical capability.

Does a hostile takeover like this and rumors of more acquisitions to come give you more confidence in your decision to keep SAS private?

Absolutely. Not so much the acquisitions but the fact that by being private, we dont have to worry about making our numbers every quarter. Were not quarterly focused; were focused on the next two years. So we have a rolling two-year cycle that were looking at that were more concerned with. I feel sorry for people that have to be concerned about making their numbers every quarter or the analysts are going to say bad things about them. Thats a shame. I wish the SEC wouldnt require quarterly [earnings reports]. They ought to go to every six months or something. They really ought to go to yearly reports instead of quarterly.

So its safe to say then that SAS isnt going to go public anytime soon?

Not anytime soon.

Whats the biggest challenge for SAS going forward?

The challenge is to probably continue to be able to stimulate the workplace, to make sure that we dont get lethargic. That we always keep focused on what our customer needs are and where the markets going. That we try to keep keenly focused on that area and not get distracted with other things. Of course, thats always the challenge for any company to do that.

Were here at this conference because SAS bought a company [ABC Technologies]? Are there any more acquisitions in the future for SAS?

There is nothing at all on our horizon. We did three last year and were still trying to finish off the stuff we did there. We bought MarketMax—we went to a lot of retailers and took a look at what we had and what MarketMax had and said, OK, what else do you need? And they helped us build sort of a roadmap, things like demand planning, pricing optimization, things like that. So what were trying to do right now is fill in those holes that exist between the two products. From our OpRisk stuff, were still trying to finish that up. Weve got a number of banks in Europe that have partnered with us and were working very closely with them to make sure that we have all the requirements that they need.

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