Here is an interview from Norman Nie, SPSS Founder and CEO, REvolution Computing (R Platform).
Some notable thoughts
For example, SPSS was really among the first to deliver rich GUIs that make it easier to use by more people. This is why one of the first things you’ll see from REvolution is a GUI for R – to make R more accessible and hereby further accelerate adoption.
This is good news if executed- I have often written (in agony actually because I use it) for the need for GUIs for R. My last post on that was here. Indeed the one reason SPSS was easily adopted by business school students (like me) in India in 2001-3 was the much better GUI over SAS ‘s GUIs.
However some self delusion/ PR / cognitive dissonance seems at play at Dr Nie’s words
If you look at the last 40 years of university curriculum, SPSS – the product I helped build – has been the dominant player, even becoming the common thread uniting a diverse range of disciplines, which have in turn been applied to business. Data is ubiquitous: tools and data warehouses allow you to query a given set of data repeatedly. R does these things better than the alternatives out there; it is indeed the wave of the future.
SPSS has been a strong number 2- but it has never overtaken SAS. Part of that is SAS handles much bigger datasets much more easily than SPSS did ( and that is where R’s RAM only size can be a concern). Given the decreasing prices of RAM memory, the BIG-LM like packages, and the shift for cloud based computing(with rampable memory on demand) this can be less of an issue- but analysts generally like to have a straight way of handling bigger datasets. Indeed SAS with vertical focus and the recent social media analytics continues to innovate both itself as well as through its alliance partnerships in the Enterprise software world- and REvolution Computing would further need to tie up or sew these analytical partners especially data warehousing or BI providers to ensure R’s analytical functions can be used where there is maximum value for their usage to the corporate customer as well as the academic customer.
As you can see from the graph (note the post 2001-2004 period) – which is a nice smoothed curve, textbook normal distribution on the left side, SAS Institute grew during the tough economic year of 2008 to show slowed but firm revenue growth. However if you use the same price/revenue multiple as for the SPSS acquisition ( 1.2 billion/ 300 million (2008) revenues) – that would put a price of 9.2 USD billion on SAS Institute.
Who has that kind of money? Well it seems the usual suspects are-
Fiscal year 2009
GAAP revenues were up 4% to $23.3 billion, while annual GAAP net income was up 1% to $5.6
billion. Total GAAP new software license revenues for the year were down 5% to $7.1 billion.
GAAP software license updates and product support revenues were up 14% to $11.8 billion.
GAAP operating income was up 6% to $8.3 billion, and GAAP operating margins were up 80
basis points to 36% in fiscal year 2009.
3) IBM -from ftp://ftp.software.ibm.com/annualreport/2008/2008_ibm_financials.pdf
Cash on hand was 12.7 Billion USD as on 31 Dec 2008, and the company repurchased it’s own stock in 2008
In the current economic environment growth can come through acquisitions of newer clients ( not much) or new companies. IBM has capabilities to acquire BOTH SPSS and SAS Institute and merge the strong R and D facilities.
profit after income taxes for 2008 was slightly lower than for the previous year, we increased cash flows from operating activities 12% to € 2,158 million (2007: € 1,932 million) through efficient management of working capital.
To finance the acquisition of Business Objects, we entered into an agreement for a credit facility that was originally for € 5 billion and is repayable by December 31, 2009 (amount outstanding on December 31, 2008: € 2.3 billion). We did not draw the full € 5 billion available under the facility because we paid part of the purchase price from available cash.
To increase financial flexibility, in November 2004 we obtained a € 1 billion syndicated credit facility through an international group of banks. We already had other lines of credit in place; the new line was arranged to provide additional financial flexibility. As in the previous year, we did not draw on this facility during the year.
At the end of 2008, the other, bilateral lines of credit available to SAP AG totaled approximately € 597 million (2007: € 599 million). We did not draw on these facilities during 2008 or 2007. Several subsidiaries in the SAP Group had credit lines in their local currency. These totaled € 52 million (2007: € 44 million), for which SAP AG was guarantor. At the end of the year, the subsidiaries had drawn € 21 million under these facilities (2007: € 27 million).
Given these cash positions it seems that almost everyone can buy SAS Institute if and this is a big IF- someone sells it. Microsoft which some years allegedly tried and lost at acquiring Yahoo ( only to realize huge savings!) and SAS, would be also another suitor for SAS- and Google also has the financial and operating synergies with the best text mining capabilities could also act as a white knight in merging it’s Google Applications and Enterprise solutions ( especially the cloud based OS and cloud based productivity suite) with SAS Institute. I personally would favor a Google- SAS Institute joint venture on enterprise software solely based on the common history and shared values ( Note Google has dual ownership stock including class A and class B shares)
Another option could be using the Google Way and for SAS Institute to go for dual ownership IPO, with class A shares for the common public and class B shares for the founders and executives. A substantial endowment to colleges and universities can also be expected in the future, given the philanthropic tradition of SAS Institute owners and executives. Also could SAS try and buy SPSS- it would lead to synergies in both software ( with the SPSS GUI) as well as new clients. At the very minimum it would boost the valuation of other stock in this sector as well make SPSS more realistic valued.
So who will buy SAS Institute?
I don’ know 🙂 and I am just brushing off my half a decade old financial valuation skills here
Some pending news and posts- It appears that the company SAP is moving closer to major acquisitions. This includes launching more and more applications that are analytical in nature as well coming together in an alliance with hardware major Teradata. Teradata off course is a very close partner to SAS Institute. So could SAP and SAS and or Terdata be moving closer to a major announcement on BI and BA merging.
The open source database movement with Hadoop is the one which can be the real game changer in the managed database industry and AsterData is the company to watch here.
However R with its modular extensions is a different paradigm in language developement and SAS no longer has the nimbleness or flexibity in creating such apps- at the same time it has lost a fair deal of credibility in the young academia (due to R) as well cost sensitive consumers (due to WPS)
The succession issue of Jim Goodnight continues to be the biggest problem for SAS Institute- Jim is not getting younger and his second line is not expected to be of the same class as the Sall/ Goodnight partnership. Of all the major companies in software, Jim Goodnight stood alone in remaining private and thus managed to escape distractions of share prices while building up the franchise. Surviving oil shocks, cold wars, three recessions Mr Goodnight has cared for his local community as well despite being active in SAS and fending off sustained attempts by open source languages.
. An automatic partner for Mr Goodnight should have been Google or even Google Labs with the Brin/Page duo being the top data miners ( commerically) of this generation as Sall/Goodnight were 30 years ago.
SAP may spend a lot of its cash but the supply chain paradigm is best served by SaaS and exemplified by Salesforce.com and Force.com developers.
As the ancient Chinese said- May you live in interesting times.