At software powerhouse SAS, the good life is under siege

At software powerhouse SAS, the good life is under siege
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First Published: Mon, Nov 23 2009. 12 23 AM IST

Nurturing creativity: A day care centre subsidized by SAS in Cary, North Carolina. The US software firm, which encourages employees to work 35-hour weeks, is consistently ranked among the best places
Nurturing creativity: A day care centre subsidized by SAS in Cary, North Carolina. The US software firm, which encourages employees to work 35-hour weeks, is consistently ranked among the best places
Updated: Mon, Nov 23 2009. 12 23 AM IST
Cary, North Carolina: A tour of its carefully tended, 300-acre corporate campus here leaves little doubt why surveys, year after year, rate SAS Institute Inc., the world's largest private software company, among the best places to work.
There is the subsidized day care and preschool. There are the four company doctors and the dozen nurses who provide free primary care. The recreational amenities include basketball and racquetball courts, a swimming pool, exercise rooms and 40 miles of running and biking trails. There is a meditation garden, as well as on-site haircuts, manicures, and jewellery repair. Employees are encouraged to work 35-hour weeks.
Academics have studied the company’s benefit-enhanced corporate culture as a model for nurturing creativity and loyalty among engineers and other workers. Six years ago, in a report on 60 Minutes, a news magazine on US channel CBS News, correspondent Morley Safer called working at SAS “the good life”.
Nurturing creativity: A day care centre subsidized by SAS in Cary, North Carolina. The US software firm, which encourages employees to work 35-hour weeks, is consistently ranked among the best places to work. Jeremy M Lange / NYT
But that good life is under threat today as never before. SAS’ specialty, a lucrative niche called business intelligence software, is becoming mainstream. Free, open-source alternatives to some of the company’s products are increasingly popular. On the other end of the spectrum, the heavyweights of the software industry—Oracle Corp., SAP AG, Microsoft Corp. and, especially, International Business Machines Corp. (IBM)—are plunging in and investing billions of dollars.
“It will be a dogfight,” says Bill Hostmann, an analyst at Gartner Inc. “SAS has never faced a competitor like IBM And I do think IBM sees SAS as a big, fatted cow.”
The term “business intelligence software” applies to a wide range of products and services, but all the technology is aimed at helping businesses mine nuggets of insight from mountains of data. SAS has traditionally specialized in advanced software to analyze huge data sets and to generate predictive statistical models for large corporations and government agencies.
Credit card companies, for example, use SAS to detect unusual buying patterns in real time, and to spot potentially fraudulent charges. Giant retail chains use SAS to tailor pricing and product offerings down to the store level. Telecommunications companies use SAS to identify the few thousand customers, among millions, most likely to switch to another cell phone carrier, and to aim marketing at them. SAS software is also used to parse sensor signals from North Sea oil rigs, combined with weather and structural data, to predict failure of parts before it happens. Of the 100 largest companies worldwide, 92 use SAS software.
But as the stream of firms’ collected data turns into a torrent, SAS and other software companies are trying to find new ways to harness it. The information is generated not only by computerized systems for tracking operations, customers and sales. It also comes from new data sources such as website visits, social network chatter and public records accessible over the Internet, as well as genome sequences, sensor signals and surveillance tapes, all in digital form.
This data explosion, experts say, is an untapped asset at most companies, which lack the tools and skills to exploit it. Yet the long-range potential, they say, is to use this data for far more fine-grained analysis of markets, customer behaviour and operations, making business more of a science and less a seat-of-the-pants art.
”Now, the data is available so business can move toward evidence-based decision-making,” says Erik Brynjolfsson, an economist and director of the Center for Digital Business at the Massachusetts Institute of Technology. “This market is a huge opportunity.”
That opportunity is not lost on SAS. “Our advantage is the incredible depth of our technology, developed over years and applied to specific industries,” says James H. Goodnight, the chief executive and a co-founder of SAS. “No one can match our toolbox.”
Indeed, no one underestimates SAS’ technical prowess. The big question is whether the firm’s seemingly pampered culture can embrace the higher-octane institutional metabolism that it will need to succeed.
“We know we have to change—no question about it,” says Jim Davis, 51, a senior vice-president at SAS. “Our market space has changed dramatically in the last 18 months or so, more than at any time over the 33-year history of the company. We can’t sit back. Things are only going to get faster.”
SAS invested heavily in research and development, and even today allocates 22% of the company’s revenue to research. The formula has paid off in steady growth, year after year. Revenue reached $2.26 billion (Rs10,531 crore) in 2008, up from $1.34 billion five years earlier.
Yet the company also faces the classic challenge of being the innovative pioneer—enjoying rich profit margins but facing new competition from rivals seeking to gain market share with lower prices and substitute technology.
In the last two years, the major software companies have scooped up firms in the business intelligence market. Among the larger moves, SAP bought French firm Business Objects for $6.8 billion, IBM bought Cognos Inc. for $4.9 billion and Oracle picked up Hyperion for $3.3 billion.
Still, those firms compete in the broad business intelligence market for reporting and analysis products. Such data on sales, shipments, customers and operations amount to a numbers-laden portrait of the recent past. The SAS stronghold is a more sophisticated kind of software typically called “advanced analytics and predictive modelling”, which uses historical and current data to try to peer into the future and model likely outcomes.
The competitive thrust that really grabbed SAS’ attention came in late July, when IBM announced that it planned to pay $1.2 billion for SPSS Inc., a maker of predictive modelling software. IBM has placed SPSS and Cognos into a new business analytics and optimization group. That business will be supported by 200 scientists, and the company has said it will retrain or hire 4,000 consultants and analysts to work in the group.
“This is the big growth strategy for IBM, the company's next big play for this decade,” says Ambuj Goyal, a computer scientist who is general manager of IBM’s business analytics software unit. “SAS comes from the legacy world of statisticians and programmers. The real opportunity is in deploying this technology broadly in corporations.”
To counter IBM and others, SAS is looking to forge a tighter relationship with a big technology services company. It is also shortening product development cycles to 12-18 months, down from 24-36. “That’s what the market expects,” Davis says.
The most sweeping change is the company’s move toward the Internet model of software delivery—as a service that customers tap into over the Web, much as Google Inc. and other Internet companies do. SAS has dipped its toe in, with some initial products. But a major expansion is planned, supported by a vast $70 million data center scheduled to begin operating next year.
The remotely delivered software is part of a drive to broaden the market for SAS technology beyond an elite corps of quantitative analysts and into the rank-and-file of corporate professionals.
Analysts say firm’s strategy looks sound, even if the outcome is uncertain. “SAS has to do a lot of things right to succeed,” says Peter Sondergaard, senior vice-president of research for Gartner. “But if it executes correctly, it could be a winner.”
©2009/The New York Times
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First Published: Mon, Nov 23 2009. 12 23 AM IST