Columns

Good days for Goodnight and SAS

• By Wayne W. Eckerson
• May 1, 2003

Whether or not you like SAS Institute’s products/solutions, you have to admire the maverick nature of this $1.2 billion software firm. While SAS’ unique business model makes it an oddity in the industry, there is no denying that its peculiar approach to making and selling analytical products has served the firm well during its 26 years of existence.

But what makes SAS unique? And will these attributes help or hurt the firm going forward?

Differentiators

SAS is one of the largest privately held software firms in the world, and it takes “private” to the extreme. It has no outside investors or debt, and there is no board of directors, just Dr. Jim Goodnight (below)-- the engineer-founder who still owns the firm and serves as CEO and president. What Dr. Jim says, goes.

But it is clear from spending time with SAS employees, as I did last month, that there is a very open channel between Goodnight and his staff. This is fostered, in part, by the fact that Goodnight still rolls up his sleeves and writes product code on a regular basis. With this kind of example, it’s no surprise that SAS is a techie-oriented company that is heaven for software engineers. Goodnight invests substantial sums to keep his employees happy. SAS has one of the lowest turnover rates in the industry and has won numerous awards for its employee-friendly work environment.

These values also shape the way SAS deals with its customers. Unlike most software vendors, SAS “partners” with customers. The Cary, N.C., firm sells software only through its field representatives, who often stay at customer sites for extended periods to ensure successful deployments. Underscoring this partnership strategy, SAS charges an annual subscription for its software rather than a one-time license fee like most vendors.

“Our subscription model requires us to remain accessible and accountable to customers,” said Goodnight.

Embracing solutions

These differentiators are currently working in favor of SAS as it undertakes a gargantuan restructuring of its product line.

Historically, SAS has sold high-end analytical tools to power users and analysts who want to access and manipulate data directly without going through the IT department. (In fact, SAS’ tools were often sold in stealth mode as a way to circumvent IT.) Today, however, SAS wants to sell business solutions to business managers and executives. (Ironically, this strategy once again bypasses the IT department.)

In recent years, many software firms have tried to shift from selling “tools to techies” to higher-margin “solutions for business people,” but failed miserably. Such changes require companies to overhaul their sales, support and development staffs, and to hire boatloads of domain experts to offer a credible story and applicable solutions to the market.

As a private company, SAS Institute can afford to retool its staff and product line without worrying about Wall Street punishing its stock value in the short term. Last year, SAS decided to take advantage of a soft labor market and snapped up domain experts in a variety of industries and application areas, especially finance, supply chain and marketing. It has also made several strategic acquisitions to bolster its applications portfolio.

These investments have evidently eaten into the company’s profits. (SAS does not disclose detailed financials.) But SAS is already reaping some dividends. It generated a very respectable $293 million from analytic applications last year, and expects overall revenue growth rates to expand from 4.4% last year to 10% or more in 2003 and beyond, according to officials.

Playing catch-up

But all is not smooth sailing for SAS. The same attributes that give it a competitive advantage can also slow it down.

* End-user reporting. Although SAS has offered analytical software for 26 years, it somehow allowed Business Objects, Cognos and other firms to take a commanding lead in providing query and reporting tools to business users. With an engineer at the helm, and no outsiders to push it, SAS has proven very inept at courting the common man.

* Data warehousing. SAS reps say that 50% of the firm’s revenue comes from data warehousing. Yet we at TDWI have difficulty finding members or attendees that have built their data warehousing environments on a SAS framework. On closer inspection, most of SAS’ data warehousing revenue comes from sales of the SAS base layer, which is bundled with all of its products and solutions, and SAS data connectors. SAS still has a ways to go to become a dominant player in the data warehousing space.

* SAS System 9.1. SAS is trying to address these shortcomings with SAS 9.1, the newest version of its business intelligence platform software. In Version 9.1, SAS Institute has overhauled its query and reporting software with a heavy emphasis on usability. The new tools, called Web Report Studio, provide state-of-the-art Web and Windows client interfaces and run against SAS enterprise servers. These tools subsume an older product line that emphasized platform portability over usability and was geared to technical report developers with SAS 4GL programming skills, rather than business users who simply wanted to create their own reports or views of data.

The new tools will help SAS catch up in an analytics market they should have dominated a long time ago. But the firm is confident that its long-term expertise in high-end analytics -- specifically statistical and rules-based modeling -- will enable it to deliver substantial value and create “new opportunities for SAS software in customer accounts,” according to one official. There’s no doubt that most analytical tools on the market today could benefit from better exploiting the output of statistical models, and SAS could lead the way here.

On the whole, however, SAS has a promising future. Without shareholders breathing down his neck, Dr. Goodnight can stay focused on long-term goals and drive his firm through the rough roads ahead at a steady and comfortable pace. With engineering-like determination and its own inimitable style, SAS will undoubtedly make a successful transition from a purveyor of technical tools to one of business solutions.