CRN Interview: Progress Executives Tout Gains

CRN: How would you characterize Progress' approach to partners today?

Alsop: I'd say the main changes have been an increased emphasis on working with the partners and making them successful--not only at a technical level, but a business level. We spend a lot of time on what we call business empowerment. A lot of [our partners] are very small. We have 2,000 partners. I think it's one of the largest partner bases in the industry, if not the largest--unless you count everybody who's ever dabbled in Visual Basic as a Microsoft partner or anyone who's downloaded Java as a Sun partner.

A lot of our focus is on working more closely with the partners to make them successful. In fact, that was one of the reasons why two years ago we brought back our managing director from the UK who had tripled the business in four years. We put him in charge of North America, now all of the Americas, where we're starting to see pretty strong growth. I'll say two-thirds of our revenue derives from [the channel]. It's very much built around both the technology and the particular business model with application partners, which I think is pretty damn unique in the industry.

CRN: How profitable are your partners?

Alsop: I know some of them are obscenely profitable, but then there are probably others that are struggling. We do know that the ones that have participated in our empowerment programs grew more than 20 percent last year--which in a market that's not seen that kind of growth in three years is a pretty dramatic statement.

CRN: How do you assess what kind of partners to work with?

Alsop: When we talk to a potential new partner we try to assess their qualities as a businessperson--whether they've identified a decent niche or whether they have a good plan to exploit it. Frankly, we like the small verticals that our partners dominate much more than someone who has a small slice of a big vertical.

CRN: How is Progress organized today?

Alsop: We now have the company organized in five business units or subsidiaries. Starting with the Progress Company, which is still 80 percent-plus of our business, that business includes the Progress databases as part of the Open Edge platform and 2,000 partners delivering 5,000 applications. Sonic Software is the application integration company. Then we had the recent acquisition of a company called DataDirect [Technologies], the leader in ODBC [Open DataBase Connectivity] and JDBC [Java DataBase Connectivity] drivers that is moving toward XML standards. Object Store, which is an object database, was part of the acquisition of Excelon. And then the fifth is PeerDirect, which focuses on database application replication so that instead of having one central, monolithic database you get the job done with a distributed network of databases.

CRN: Which of these units is [a wholly owned] subsidiary?

Alsop: Sonic Software and PeerDirect.

CRN: For years, the industry has argued about the merits of building applications vs. buying packaged applications. What's your current take on this debate?

Alsop: We have a Buy Build Both slogan that we use. If you strictly buy one of the monolithic application suites, you get whatever was in the mind of that particular set of developers with respect to how business processes work. Obviously, you can modify that, but the more you modify the harder it is to do the upgrades. We favor the best-of-breed approach. Through Sonic, we offer a relatively easy way to integrate applications. I would say that over the last couple of years there is more acceptance of that approach. IT and top management can't simply write a check to a [systems integrator] or to SAP plus a [systems integrator] and make the problem go away. It just doesn't work that way. Agility and the ability to modify and reconfigure the application is some part of life. You can't avoid it.

CRN: Does having an application development capability make it easier for one of your partners to target its efforts to a specific set of customers?

Rugg: That's certainly one of the things you see [among] Progress partners putting together the applications. They have in many cases targeted very specific vertical industries.

A good example is Precision Systems, which has an ERP system specifically for sawmills in the lumber industry. What they found is the big guys would go in and say basically, 'Here's an ERP system where, for example, in the auto industry we assemble a car from the various pieces, put it together and you end up with a product.' Well, in the lumber industry you're not doing that. You're taking a tree and you're tearing it apart and getting out two-by-fours, two-by-sixes, sawdust, bark mulch. What are you going to do, run SAP in reverse? Our partner knows how to put together an ERP system that specifically solves that problem. That kind of thing happens throughout our partner base.

Alsop: Our partners focus on either a vertical market that might be a $100 million market but isn't a $10 billion market. If they end up with half of it, they're a $50 million company but they're the dominant player in that market. Or they focus on a very specific function within a larger company. Domain expertise in specific functions is what [often] sets our partners apart.

CRN: Given the current economic climate, how is Progress as a whole doing?

Alsop: We're now growing faster than any of our competitors. In fact, in the last four quarters we're the only significant medium to large software company that's shown double-digit growth in both revenue and earnings.

CRN: What's driving that growth?

Alsop: The fact that we deliver an embedded database with the application that doesn't require a DBA makes it a lot easier for our partners to sell. The database goes in with the application, doesn't require a separate installation, doesn't require DBA, rarely, if ever, goes down. It's a moderately important selling point but an important longer-term customer satisfaction point.

I think this [indicates] an overall trend in the industry, which is that despite the fact that Mr. Oracle or Mr. Microsoft or Mr. IBM would kind of like to have you put all your data in their database, that's simply never going to happen. Companies have multiple databases, and they acquire other technology by virtue of acquisition. We're going to live with a distributed heterogeneous world for the foreseeable future. In that kind of world, [any] database that goes in and doesn't add to the IT burden is viewed as a positive.

Rugg: They're looking for a database that's really zero maintenance and has the lowest total cost of ownership. They're looking for a way of delivering the data services that they need into their application and getting the best bang for their buck.

CRN: Progress has changed some of its pricing strategies to help partners enable an ASP approach to customers. How does this work?

Alsop: Instead of charging up front for the product per processor per user, we work out an arrangement with our application partners interested in delivering their application as a service over the Web with a royalty rate. Then application partners have complete freedom to price the offering to their customer any way they wish: per transaction process, per user, per department, per volume of business the company does. Typically, if they don't charge per user per month they charge some kind of easily identifiable transaction fee. That business is still a small fraction of our overall $300 million-plus in revenue, but is growing very rapidly and doubled last year. We have chosen to use ASP as our testing ground for innovative new pricing.

CRN: As the nature of data management changes in the wake of moving to technologies such as XML Web services, how important is it to be able to manage data outside of the database?

Rugg: As the data becomes more distributed, the importance of systems that can move the data around like our Sonic product offering increases along with the importance of systems that can actually reconcile and coordinate the data. Not all applications have the same requirements for data.

CRN: How much opportunity is there outside of the traditional office application for creating custom systems for vertical markets?

Alsop: As soon as you get into remote offices, warehouses, oil fields, putting it on the Queen Mary or putting it in a lumber company, people basically want to treat the application like an appliance. You turn it on in the morning like your copier machine and you don't ever have to think about IT [operations] issues such as backups. That all has to happen automatically in a hands off, no DBA, no support way. That's where our technology traditionally plays the strongest. If you're talking about deployed embedded apps, that's where we play.

Rugg: There can't be any deployment conflict because you're not going to have an IT organization at all of those remote sites. There's huge growth for data-management solutions embedded in those kinds of systems.

CRN: How is this different from the way people viewed these types of systems in the past?

Rugg: Those types of systems [were] your operational systems out at the edge of your enterprise. They're the ones that run your business day-to-day. Historically, those systems have done the processing and shipped the data back into your transactional systems when you're actually transacting business. What's changing is operations [must] be able to respond in realtime and provide realtime intelligence on those business systems--and read and react [now, rather than] being able to react a month later once you've dome some analysis. To do that, those operational systems really need access to the data. They need to be able to store their data, they need to be able to cache the data, they need to be able to make more intelligent decisions. Therefore, the data systems are being pushed out to the edge of the enterprise. Moving the intelligence out to the edge of the enterprise and into those operational systems can be extremely powerful and makes the businesses more competitive.