Q&A: Jim Goodnight, SAS

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

With revenues of $1.18bn last year, SAS invests 25 per cent of its revenues into research and development, which it claims is nearly twice the average investment of large software companies.

Now the firm wants to move into industry sectors where it has had litle past presence, and to make strategic acquisitions to give it the necessary clout to back up this extended reach.

vnunet.com met SAS president and chief executive Jim Goodnight to discuss the company's plans.

The financial sector is your biggest customer, but in what other major areas is your software being used today?

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 and skip out.

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 the genomics-developing models to help pharmaceutical companies analyse this 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 [and] 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.

The current flat outlook for the IT sector doesn't put a dampener on your plans?

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

So how has SAS managed to buck the trend?

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 yearly contracts.]

Unlike many other companies, we continue to invest in research and development. We've actually increased our research and development and employed more people in this area.

Does being a privately owned company also help?

My particular belief is that 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.

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 eight and a half per cent over that again while other companies were still having to lay people off.

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

Does this mean you have no plans now, or certainly in the near-future, to float the company? In 2002 you had plans to put 15 per cent up for grabs on the stock market - why the change of heart?

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 [the US] anyway.

Public companies are also under incredible pressure to adhere to new reporting regulations, such as the 48-hour disclosure law. [Sarbanes-Oxley was introduced following corporate accounting scandals in the US and places a heavier onus on company directors and executives to ensure greater accountability and transparency in their operations.]

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

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 companies get to hear about it, it could lose the rest. It could turn out to be disastrous for a company and stockholders, and could lead to a lot of lawsuits.

Is your view of the problems of being a public company a widely held one?

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

Are things getting better across the board for 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 advertising again. But I don't think there will be an increase in IT budgets soon and IT spending reaching the levels of 1999/2000.

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

We are one of the best companies in America 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 expect we will make more strategic aquisitions as we move further into phase three of our evolution and become more vertical, targeting specific industries.