How farm research planted the seed of a software giant

Thirty years ago Dr Jim Goodnight and his colleagues at North Carolina State University received bad news.

The government had pulled funding from a 10-year research project that was helping the local farming community with a statistical analysis system to work out how agricultural yields could be improved, so Goodnight and colleague John Sall decided to turn the project into a business.

‘We lost our federal funding, so if we were to stay on we had to find a way to pay our own salaries,’ said Goodnight.

That bad news turned out to be a blessing. Today, the business is called SAS and is the world’s largest privately-held software company.

According to Forbes magazine, chief executive Goodnight was last year ranked the 55th richest person in America, with a personal fortune of $3bn (£1.6bn).

The business intelligence firm has grown from its original seven staff to more than 10,000 worldwide. Last year it announced its 29th consecutive year of growth, with revenues of $1.7bn (£900m).

Goodnight attributes the company’s success to the fact that it has remained private and can devote its attention to its customers’ needs rather than to those of shareholders.

‘By staying privately owned we can take a longer term view. We don’t need to be focused on quarterly profits and most of our forward thinking is aimed two years ahead. Right from the start we have developed software by listening to our customers,’ Goodnight told Computing.

Other large software firms, such as Oracle and Microsoft, have often been forced to release software before it is ready because of financial pressures from shareholders, and this has affected their reputation, he says.

SAS has recently released anti-money laundering detection software, which was developed after speaking to financial services firm Morgan Stanley. With the US Patriot Act putting pressure on banks to spot terrorist and criminal money trails, SAS worked with several US banks, including Bank of America, to develop the software.

‘It took us a year to produce that software. We needed to test data and run different scenarios. It is not that difficult to stop money laundering if you can do the computations, but it does need huge amounts of data analysis,’ he said.

With his university background, it is not surprising that Goodnight is committed to investing at least 25 per cent of the company’s revenue back into research and development.

‘SAS software is licensed on a yearly basis and we want to reinvest into technology for customers. We use the money to improve the software, bring out new modules and ensure it runs on the latest systems,’ he said.

Regulatory growth and ever-increasing financial pressures in industries such as retail and banking are also likely to lead to further growth in business intelligence and data analytics.

‘Most business leaders have realised that their organisation will be left behind if they don’t get on the analytics bandwagon, because data is doubling every year,’ said Goodnight.

‘Business information is a strategic asset. You can use it to build predictive models and focus on customer behaviour.’

For example, HSBC, one of SAS’s major customers, is using transactional data and analysis of customer spending habits in 25 countries. The bank hopes to reduce bad debt and cut fraud by using the data to identify trends in criminal behaviour (Computing, 25 May).

Despite its success, Helena Schwenk, business intelligence analyst at Ovum, says SAS faces stiff competition from companies such as Microsoft, Oracle and SAP, which are aggressively targeting the same market.

‘Microsoft has made plans to move into the business intelligence market and will start to apply significant price pressure,’ said Schwenk.

‘SAS has the reputation of being at the more expensive end of the market and may need to re-evaluate its pricing model.’

But SAS’s recent decision to launch an on-demand software model could help it to sidestep this challenge, she says.

SAS could also face tough competition if it tries to broaden its offering and take on Business Objects and Cognos in the data query and business reporting markets, says Schwenk.

‘As history has proved, it is a really tough area to move into and compete in,’ she said.

But Goodnight says the company will continue to grow by listening to customers and acting on what they say. And despite the company’s acquisition of software firms Marketmax and Veridiem, most of its growth will be organic.

Unlike Oracle, SAS is not hellbent on acquisition, he says.

‘We do make the occasional acquisition. But acquisitions do not always bring the best time in a company’s life because it is a disruptive process. There is internal struggle and companies are rarely focused on customers,’ said Goodnight.

So where will SAS be in another 30 years’ time?

‘If we continue to listen and develop software that people want, then we should be around for ever,’ said Goodnight.

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