SAS sees the future in R&D and acquisitions

Business intelligence specialist SAS is the world's largest privately-owned software company, with nearly 10,000 employees in 50 countries and more than 40,000 customer sites.

SAS invests 25 per cent of its $1.18bn revenue into research and development (R&D) - which it claims is nearly twice the average for large software suppliers.

The company is looking to move into industry sectors where it has little presence and make strategic acquisitions to back up this diversification.

Computing met SAS chief executive Jim Goodnight to discuss the company's plans.

What sectors of business are showing the greatest interest in your products at the moment?

The financial sector will still be one of our biggest customers, with new legislation like the US Patriot Act meaning banking organisations will need huge amounts of anti money-laundering software. Fraud detection is a growing area around the world. Your bank could use our software to analyse someone who is likely to default on credit card payments.

We see a number of insurance companies using our software for fraud detection. Even retailers make use of it. Amazon used our software and managed to cut its credit card fraud by 50 per cent in the first six months of implementation.

But we have always been in other sectors and there is more interest from these companies now. For example, we are involved in genomics - developing models to help pharmaceutical companies analyse data and help develop treatments or understand diseases better.

Sony is using our software to better target people who download music and get them to pay for it, and our software will analyse customer data, even design marketing campaigns.

The retail sector will be our next target. We already have a presence but recently acquired Marketmax, a company that develops advanced retail planning and merchandise intelligence software with a customer base that includes Marks & Spencer.

Does the flat outlook for the IT sector affect your plans?

We expect to see double digit growth. Our software is not the five-year, $30m or $40m project.

So has SAS managed to buck the industry slowdown?

Our revenue model is based on a licensing model and this has helped protect us, as people keep paying to use our software, so we have a continuing revenue [According to SAS, 98 per cent of its customers renew their annual contracts]. Unlike many other companies we continue to invest in R&D. We actually increased our R&D and employed more people in this area.

Does being a privately owned company help?

My belief is being public is dangerous for software companies because you can't plan for the long term. By being a private company we can take the long-term view.

We don't have to worry about meeting expectations each quarter like public companies, which I think, is an unbelievably ridiculous situation where companies have to meet expectations quarter after quarter. So in 2001 we could increase employment by six per cent when other companies were laying people off.

Then in 2002 we increased employment by 8.5 per cent over that again while other companies were still having to lay people off. We could do this because we are private but a public company can't.

My concern is about my customers. I don't want to be in a position where I am always worried about shareholders.

Do you have plans to float the company? In 2002 you intended to sell 15 per cent of your shares on the stock market, but pulled back.

We don't have to go public. We have around $700m in the bank and no debts. But I think the question is the opposite and I would have to ask anyone right now why they should want to float on the stock market with public companies being looked at with disdain, in this country anyway.

Public companies are also under incredible pressure to adhere to new reporting regulations - such as the Sarbanes-Oxley law.

But these laws are to protect shareholders, surely they are a good thing?

They could be very dangerous. Take the 48 hour disclosure regulations. If a company has to report a loss and was bidding on three contracts it could lose the first one and if the other customers get to hear about it, the company could lose the rest. It could turn out to be disastrous for a company and stockholders and could lead to a lot of lawsuits.

Do you think other companies share your view of the stock market?

You now see a lot of companies trying to take themselves private. The problem is they just can't afford to.

Do you see signs of an upturn in the software sector?

I think we are seeing an improvement in the economy. Take the Sunday newspapers and how thick they are becoming again. This is always a good measure and shows people are starting to advertise again. But I don't think there will be an increase in IT budgets soon or IT spend reaching the levels of 1999 to 2000.

What plans do you have for SAS over the next few years?

We are one of the best companies in the US to work for and what I am trying to do is build an environment that fosters creativity and innovation.

We have made three acquisitions this year and I expect we will make more strategic acquisitions as we move further into phase three of our evolution and become more vertical, targeting specific industries.