SAS Bucks the Trend

Company enjoys double-digit growth, but challenges await.

As CRM software developers line up to explain how the state of the U.S. economy is slowing their businesses, SAS Institute Inc. is preaching a message of expansion.

The developer of customer relationship management and other analytic applications not only is experiencing double-digit revenue growth but is expanding its offerings through a partnership with CRM leader Siebel Systems Inc. and with a hosted option for its own software.

As a privately held company, SAS, of Cary, N.C., isnt required to report earnings every quarter. But if it did, there would have been no earnings warnings, no layoffs and no retrenchment, said SAS officials at the SAS User Group International conference here last week.

Instead, the company would have reported revenues up 14 percent last quarter and 2000 sales of $1.1 billion. It would have announced that it was hiring rather than laying off. The company is aggressively looking to expand its sales force.

"I dont see [a recession] at all," said SAS President and CEO Jim Goodnight.

But for all the feel-good sentiments, SAS does face challenges.

For example, the company is in the midst of a long transition from providing application development tools and analytic frameworks for highly technical users to providing packaged analytical applications for business users. SAS is also working to overcome an image problem that links it to the mainframe world.

To be sure, the companys analytics wheels are in motion. Siebel, of San Mateo, Calif., is expected to announce that it is integrating SAS analytics with its operational CRM applications to offer personalized customer interactions at all contact points, according to SAS officials.

SAS itself plans to announce in late May a move to sell its software through a hosted services model. It also is working on Project Mercury, which will add multithreaded processing capabilities so its applications can process very large amounts of data faster. Those capabilities could be available as early as the first quarter of next year.

Still, much of the companys hopes are tied to its Enterprise Marketing Automation product. The application combines SAS analytics with marketing campaign management software from Intrinsic Ltd. and data cleansing software from DataFlux Corp., both companies that SAS recently acquired.

Though the company has a large and devoted following, SAS remains less well-known outside IT departments. Its packaged analytic applications competitors frequently try to paint SAS as a company tied to the 1970s and 80s world of mainframe computing and out-of-date for the Internet age.

Its a perception thats present in some SAS shops as well.

"We lost two associates from our IT group who in their exit interviews said that they liked working with SAS but it wasnt designed for business users," said Tom Baker, manager of business intelligence development at Quaker Chemical Corp., in Conshohocken, Pa. "They were concerned about their marketability because [they thought] their skill sets were for software that wasnt in heavy use among business users."

And SAS has yet to build a strong reputation among business users who would buy packaged applications such as Enterprise Marketing Automation.

Office supplies retailer Staples Inc., of Framingham, Mass., uses SAS tools to build its own analytic applications. Win Fuller, director of marketing analysis and reporting at Staples, said he might be inclined to look favorably on SAS packaged applications given the companys track record and strong financial position. But that would only go so far.

"Theyre a more established company, but they havent been doing [packaged applications] as a core competency," Fuller said. "Theyre branching out in different areas now, but those applications still need to be proven."

To capture the attention of line-of-business users, SAS has been trying to build its brand through radio and TV advertising for the first time.

It is also expected to launch a public offering of its stock, which would raise its profile. But an IPO (initial public offering) is still at least a year off, according to Goodnight.

The prospect of a SAS IPO is giving some customers pause. Avi Halutz, executive director of New York-based Time Consumer Marketing, said he wondered if SAS legendary investments in research and development—at least 30 percent of annual revenues—might be curtailed if it had to answer to shareholders.

"Once theyre public, theyll have different priorities," Halutz said. "I cant imagine theyll still be able to invest 30 percent of their revenues in R&D. That might be a problem."

"Id like to see them stay private," said Quaker Chemicals Baker. "My concern is that their support might go down from what it is now."

SAS employees are having doubts about the IPO as well, Goodnight said.

"A lot of people are asking the same questions at SAS," he said. "Theyve seen that stock options arent so wonderful."