SAS approaching IPO in expansive mood

SAS Institute, the world's largest privately owned software company, last week unveiled ambitious expansion plans in the run-up to an initial public offering (IPO) expected next year. The company intends to hire more staff and extend its activities through acquisitions and strategic partnerships, said Jim Davis, senior vice president and chief marketing officer, a radical new departure for a company usually more associated with the cloistered world of academia and specialized, high-end data analysis applications than the rough and tumble of Wall Street.

"We had a 14 percent increase in revenue in the first quarter of this year and we're expanding rapidly," Davis said, speaking at a meeting of SAS' European user groups in the Fortezza da Basso, a 16th century Florentine castle. The company has more than 3.5 million users worldwide, last year reported revenue of US$1.1 billion, a 10 percent increase on 1999.

"We believe having hit the $1 billion mark was a major milestone. What do we want the next billion to look like?" Davis said in an interview.

Until now the company has relied entirely on direct sales and it still believes strongly in that business model, Davis said. "As a matter of fact, we will add more than 1,000 employees over the next 12 months, approximately 300 to 400 in the United States and another 700 to 800 in SAS International," he said.

"Everybody is beginning to understand the power of analytics, particularly in tough financial times. We've got to get to market quicker than ever. That means we can't necessarily sit back and write all the components ourselves. We will continue to provide the solution, but we will fill the voids either through partnering or acquisitions," he said.

SAS has identified key industry segments that it intends to target and it is prepared to enter into partnerships to obtain industry expertise, he said. Talks are currently under way with companies such as e-business-oriented software maker Broadvision Inc. and Siebel Systems Inc., which makes customer relationship management (CRM) applications, he revealed. "We will create strategic partnerships where it makes sense, where we can't provide the service ourselves, and we have never done that before."

Over the last year SAS purchased Dataflux in the U.S. and Intrinsic in Britain, strengthening its presence in the data quality and campaign management sectors, as part of the new strategy of enhancing its solution offerings through acquisition, Davis said. "In both cases they filled a void in our solution offerings," he said.

SAS may respond positively to overtures from software vendors who are looking to incorporate analytics as a way of differentiating themselves from their competitors, Davis said. "We have got some crown jewels right now, as far as the industry is concerned: we did analytics before analytics was cool."

SAS marked the Florentine gathering of some 2,000 of its European users by announcing new products: IntelliVisor for Retail, which will enable retailers to derive value from the effective analysis of their customer data, and a clutch of three new enterprise marketing automation (EMA) products for the credit card, insurance and telecommunications industries, each with industry-specific analytics already embedded.

SAS President Jim Goodnight confirmed the company was still on track for the planned IPO. "We haven't said no yet," he joked. "We're still moving in that direction. We are right now trying to put in a global financial system so we can do quarterly reports as required by the SEC (U.S. Securities Exchange Commission)."

Relaxed and informal, SAS' co-founder doesn't expect a stock market listing to interfere with the company's traditions of looking after its employees and investing heavily in research and development (R&D). The company has an employee turnover rate of around 4 percent, as compared with an industry average of about 20 percent, Goodnight said.

"That differential saves us over $75 million a year," he said. A high turnover of staff means lost productivity and expenditure on headhunters and training. "That $75 million is just about the same thing it costs to provide the benefits," Goodnight said.

SAS traditionally reinvests around 30 percent of its revenue in R&D and Goodnight is not about to be pressured into reducing the figure in order to satisfy investors' appetites for short term reward. The company's practice of licensing its software for just one year at a time is an implicit commitment to constantly upgrade the product, Goodnight said. "That's one of the reasons SAS has been successful. We have continuously updated, improved and expanded our software. So it's not old software, ever," he said.

Goodnight has little time for the Wall Street pundits, whom he sees as exponents of short-sighted capitalism. "I don't worry too much about the Wall Street analysts. These are the ones who told everybody the last couple of years that they should be buying the dotcoms. I mean, how smart are these people? They don't know anything about running a company, and they are not very good at telling people what stocks to buy. I have no respect for these people, I'm sorry."

Goodnight does not see SAS moving into the enterprise resource planning (ERP) sector, a transactional, operational software area that he considers alien to SAS' core intelligence business. "We bring intelligence to all the data that people collect in their ERP systems," he said.

In supplier relationship management (SRM), for example, SAS has been working with Dun & Bradstreet Corp. to develop product identification codes that will eliminate the risk of companies ordering the same product under different names without realizing it, Goodnight said. "These are the kinds of CRM issues we solve. We have a competitive edge over other companies because they don't have the analytical capabilities that we do," he said.

One satisfied SAS customer is Michael Boyd, director of CRM at the U.S. clothing and accessories retailer Eddie Bauer. The company uses SAS Solutions for Customer Relationship Management to analyze the data produced by its physical stores, catalog and Internet channels. Over the years SAS analytics has enabled the company to save hundreds of millions of dollars through the selection of the most promising customers to target with mailed communications, Boyd said. "Personally I see SAS' potential for expansion to be quite significant. There's a much larger audience that they're really focusing on now," he said.

One of the users attending the Florence conference, Boyd believes the challenge for SAS will be to find the right balance between user-friendly tools capable of conquering a mass market and the sophistication required by high end users. "It's a high level tool and I hope it will always remain a high level tool," he said.

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