Interview: ‘Gentle’ SAS out to conquer (banking) world

Up until recently, SAS Institute could have been called the software industry’s best-kept billion-dollar secret. That was before Jim Goodnight, co-founder, chairman, and chief executive officer of the world’s largest private software company, went into high-profile mode this past year, appearing on American mainstay TV shows “60 Minutes” and “Oprah.”

The attraction for the mainstream media is that Goodnight appears to be an “anti-Bill Gates,” a soft-spoken executive in an era of rapacious corporate chieftains, running a highly successful company based in Cary, N.C., where laid-back staff extol great company benefits that make company employee retention rates legendary throughout the high-tech industry. Even veteran industry analyst Mike Schiff, at Current Analysis, has called SAS the “gentle giant.” But make no mistake: Goodnight is as ambitious as the next software mogul and his goal, bluntly stated in this IDG News Service interview, is to dominate the world financial software market by leveraging SAS’ expertise in statistics and analysis applications.

A few days before the company’s 28th annual SAS Users Group International conference (SUGI 28), at the company’s New York offices, Goodnight took a break from visiting banks to answer questions, charting the company’s course from its core analysis and statistical applications. In this edited Q&A, he talks about SAS’ latest products, including a new reporting and query tool dubbed Citation, slated to be unveiled Monday at SUGI.

IDGNS: Since its founding, SAS steadily branched out from its roots in statistical software and a focus on a few core markets, and during the past few years seems to be expanding more rapidly into new markets, especially in finance. How much broader is the company going to go?

Goodnight: SAS right now is already extremely broad. We cover everything from manufacturing to retail to banking to insurance. One of the things we’ve done over the last five years or so is to take the basic SAS tool set, wrap some knowledge around it and come up with solutions that apply across industries. For example Financial Management Solutions, ABC Technologies (analytic-based activity management), Supplier Relationship Management, Customer Relationship Management, and Marketing Automation run across all industries.

What we also are doing is verticalizing some of our sales groups. We still maintain three geographies in the U.S. But in addition to those three geographies everyone in financial services is under one roof now. We’ve also chosen the pharmaceuticals and the health-care industry as another vertical.

Given that, we began to see there was a need for the power of our analytical capabilities to meet federal compliance regulations imposed by the [U.S.] Patriot Act. Every financial institution in the country now is being required to put some software in place that helps detect money laundering. The financial sector already represents 35 percent of our revenue worldwide. So we have a huge untapped market for compliance with antimoney laundering. We have a product that went out last month, and we’ve got another release coming out in July, tailored specifically to helping banks and firms meet the requirements of the Patriot Act.

So we came along with this idea to verticalize at the right time. We saw two different banks this morning. They expect you to talk “bank talk” and they expect you to understand their problems.

IDGNS: So the code for this software is code you bring from the Base SAS product?

Goodnight: That’s correct. For Anti-Money Laundering, Base SAS is just about all we need. We added some work flow management to that and also a couple of access engines. We’re also writing some front ends in Java. It’s my goal to dominate the financial software market. Especially in the intelligence space.

IDGNS: Analysts have noted that your competitors position you as a proprietary system, only understandable by accountants.

Goodnight: This is precisely what companies are supposed to say about competitors. This is competitive stuff. I heard the CEO of Business Objects do that, when I was in the audience, saying BO is down here for the masses and SAS is up here just servicing a couple of statisticians in each organization. That’s how they position us. But certainly none of that is true. SAS adheres to almost all the different standards in the world and we’re no more proprietary than Microsoft or Oracle. If you stop and think about it, all these systems are proprietary; they just publish open standards for accessing them. And we adhere to these standards.

IDGNS: In your recent discussions with banks are you emphasizing the capability of your software for non-programmers?

Goodnight: For years we have continuously added ease of use, it’s always been at the top of our list of things to do. We’ve got a front-end product called Enterprise Guide that allows non-programmers to sit and use SAS via point and click and pull-down menus. We want SAS to be used by more of the masses.

For the last year and a half we’ve hired quite a few additional staff members to work on a project we call Citation, which is a Web-based reporting tool for the masses that is designed to compete head-to-head with Cognos and Business Objects at the low end. Over the years we have sort of ceded the low-end reporting tools to these other companies and they kept getting bigger and we said, “Wait a minute why are we giving away the low end of the market?” So we decided to make a concerted effort to go after the simple query and reporting that these other people do but at the same time we still have the in-depth analytics that can also be used.

IDGNS: Is it basically a new front end for SAS?

Goodnight: It’s a whole series of query and reporting tools. It allows you to manage data and define all the interactions between your data so that a person really doesn’t need to know what tables they’re stored in, they can just say, “I want to see the following items in a report,” and we do all the necessary joins and queries.

IDGNS: You offer a relatively low entry price point for your products, compared to what other companies charge for a one-time fee for rights to use software in perpetuity. But then you charge a high renewable yearly maintenance fee relative to the initial price point; what do you tell customers who might be concerned that they’re locking in to these maintenance fees, especially considering that with the expertise and time they invest in SAS, it’s sort of hard to get rid of the system once they’re in it?

Goodnight: We’ve purposely kept our fees very reasonable. Some of the perpetual-license companies not only charge five or six times normal first-year charges for their software, they make you start paying maintenance from day one. Our licensing model is a guarantee that we will be delivering new functions year after year. Some of the analysts are starting to believe that this is really a good model, that it does bring stability to companies. We have not laid off anybody in the last two years. In 2001 we actually increased staff by 6 percent, last year we increased staff by 8-1/2 percent while others were laying off people. We were able to use the fact that we have continuing revenue to actually bring in additional talent  to try to speed the software development process up.

IDGNS:  You have an employee retention rate that a lot of CEOs would be envious of but analysts have questioned whether, since you are private and thus have a relatively low profile for your size, you can attract the outside talent you need.

Goodnight: We can attract all the outside talent we want, I can promise you that. We pay very competitive salaries. We usually pay very good bonuses at the end of the year, and we provide tremendous benefits. A survey about a year ago showed that 87 percent of the staff do not want to go public.

IDGNS: Why do you think that is?

Goodnight: I think that everybody’s aware of the fact that if we had been a public company during the last two years we would have been laying people off, trying to maintain the bottom line. I made a statement, very clearly, that the bottom line’s going to go down a little bit folks, don’t worry about it because we’re going to staff up and hire some of the talent that’s on the street. So with a private company I am able to take a contrarian approach. There have been a number of well-known CEOs who have told me not to go public, that it would make my life miserable.

As far as going public, we will certainly look at it in another three or four years, but the country is turned off toward tech stocks right now. The multiples are bad and the profits are down and no one wants to get back into the tech market. The dot-coms and the investment bankers have pretty much burned us up for the next few years, and it’s going to take a while to get a recovery going.

IDGNS: In the supply-chain area, it appears as if you’re offering a complete system, which will bring you to compete with those from SAP AG and I2, for example.

Goodnight: I think it’s probably time for some innovation in the supply chain area. We haven’t seen much lately. SAS has always been in the supply chain business through our optimization tools. We came up with an extremely high-speed forecasting method that we call high-performance forecasting. It’s similar to the ARIMA [autoregressive integrated moving average] type models except we are able to compute extremely fast. We make millions of forecasts a minute, basically on what the demand is for every SKU. So if a company like Wal-Mart wanted much better forecasting on various SKUs around the country — and we’re talking millions of SKUs — that’s something we can do in an hour or two. That fits well into an ERP or supply chain system. There is no reason to be driving a supply chain with bad forecasts. If you can’t forecast your needs then all the optimization that the supply chain software can do is not going to help you.

IDGNS: So do you forecast going up against the big ERP players?

Goodnight: Let me just say that our No. 1 competitor is Oracle and our No. 3 competitor is SAP, so we already compete with these people, primarily in the data warehouse space. We are always trying to produce a better product, one that perhaps is faster, or more scalable, and right now the scalability area is one we’re very good at. Our [SAS] Version 9 runs on top of 64-bit platforms so we’ve got all the memory that we need to access. We also can do multithreading across different processes so we can fire many threads to help accomplish a task much faster. We probably have some of the most scalable software in the world.

IDGNS: SAS observers say that SAS has overcome a not-invented-here syndrome and embraced standards. Is SAS going full force embracing Web standards and is there a place for the company in the incipient market for Web services?

Goodnight: We’re supporting, for example, stored procedures so that you can invoke them via the Web. This is an idea that came up with Microsoft within the WS-I [Web Services Interoperability Organization]. So SAS will be deployable and usable with any Web application. We are certainly making sure that more and more of the things we do are targeted at the Web. We invested quite a bit on server side Java; we’ve got our own VM [virtual machine] platform written in Java to help provide a lot of the services that we need to use to do reporting and publish up to the Web. But we don’t compete with [IBM’s] WebSphere, that’s quite a different thing. This is another layer on top of WebSphere.

IDGNS: You had 4.4 percent revenue growth last year, to $1.18 billion. Can you break out profit, was that down from earlier years, given the current economic climate? How is the economy treating you outside theU.S.?

Goodnight: Profits were down under 10 percent this year; they normally run around 15 percent. But like I said, rather than lay off people we chose to take a hit on profits. Worldwide we finished up about 10 percent, though you have to throw the effect of currency translation on that. We’re seeing a slowdown in Europe right now in sales. The economy is really faltering over there. In terms of breakdown of worldwide revenue, compared to the U.S., we’ve been at 50-50 for the last four or five years, the only difference being in currency translations.

IDGNS: How is Asia-Pacific for you? Are there any particular challenges in the Chinese market?

Goodnight: I’d love to see that region grow and I think it will. In fact, we’re starting to see some profits in China right now, we’ve got four offices now and we’ve put in a management structure that’s starting to pay off. I’m not aware of any particular challenges there at the moment other than it’s a booming market and we need to work harder to get more market share.

IDGNS: You do seem to be taking a higher profile recently, getting the company name out there, appearing on TV for example. Is this the beginning of a more aggressive SAS?

Goodnight: We’ve always been as aggressive as we can be. I just think that over the next few years we’ll see SAS recognized as the analytical powerhouse that we really are. We’re really just expanding our area of expertise and trying to bring analytics to play everywhere. It’s time to quit running companies on Excel spreadsheets.