By STEVE LOHR
A TOUR of its carefully tended, 300-acre corporate campus here leaves little doubt why surveys, year after year, rate the SAS Institute, 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 jewelry 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,” Morley Safer called working at SAS “the good life.”
But that good life is under threat today as never before. SAS’s 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, SAP, Microsoft and, especially, I.B.M. — are plunging in and investing billions of dollars.
“It will be a dogfight,” says Bill Hostmann, an analyst at Gartner. “SAS has never faced a competitor like I.B.M. And I do think I.B.M. 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 cellphone 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 companies’ 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 like Web site 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 behavior 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’s technical prowess. The big question is whether the company’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.”
THE company traces its roots to a time when computing was costly and for the few. Originally called Statistical Analysis System, it was founded in 1976 by Mr. Goodnight and three colleagues from the agricultural statistics department at North Carolina State University. Its techniques were initially used to calculate the intricacies of soil, weather, seed varieties and other factors to improve crop yields.
To build an audience, Mr. Goodnight spent nights packing up boxes of computer tapes and manuals, which he sent to university and corporate researchers. Soon, companies wanted him and his academic colleagues to develop software tools tailored for industry. In 1976 at a users’ conference, 300 or so people showed up, many from business.
“That was pretty much an ‘aha’ moment for us, that it was time to expand beyond the university,” Mr. Goodnight recalls. “It was a little scary, cutting the academic umbilical cord. But I was convinced we could do it.”
He and his colleagues at SAS developed their own programming language and software tools, and designed them for eggheads like themselves. Users were analysts with Ph.D.’s, working with programmers and employed by the largest companies at the forefront of using computing in their businesses, including banks, national retailers, insurers and drug companies.
SAS invested heavily in research and development, and even today allocates 22 percent of the company’s revenue to research. The formula has paid off in steady growth, year after year. Revenue reached $2.26 billion 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 companies in the business intelligence market. Among the larger moves, SAP bought Business Objects for $6.8 billion, I.B.M. bought Cognos for $4.9 billion and Oracle picked up Hyperion for $3.3 billion.
Still, those companies compete in the broad swath of the 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 modeling,” which uses historical and current data to try to peer into the future and model likely outcomes.
The competitive thrust that really grabbed SAS’s attention came in late July, when I.B.M. announced that it planned to pay $1.2 billion for SPSS, a maker of predictive modeling software. I.B.M. 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 I.B.M., the company’s next big play for this decade,” says Ambuj Goyal, a computer scientist who is general manager of I.B.M’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 I.B.M. 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 to 18 months, down from 24 to 36. “That’s what the market expects,” Mr. 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 and other Internet companies do. SAS has dipped its toe in, with some initial products. But a major expansion is planned, supported by a sprawling $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 the company’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.”
ACROSS its campus here, there are signs that the SAS culture is evolving with the times. Rick Langston, 54, a senior software manager who joined the company 29 years ago, smiles and shrugs when asked about the 35-hour workweek. After leaving the office, Mr. Langston routinely checks on work e-mail at home.
These days, he explains, SAS is a global company with far-flung project teams, and overnight e-mails can resolve problems and speed things along. Deadline work to meet product development schedules, he adds, can mean long hours at times. “But this is certainly not a place where you are working 60-hour weeks, week in and week out,” he said.
To be sure, the corporate cocoon in Cary can breed insularity. SAS, for example, was slow to recognize the brewing challenge from free, open-source alternatives to some of its products. A free programming language and set of software tools for statistical computing, called R, has become increasingly popular at universities and labs.
The company shifted course earlier this year and modified its software so programs written with R work seamlessly with SAS technology. “Shame on us for not engaging more with the open-source community,” says Keith Collins, senior vice president and chief technology officer. “But we’re committed to doing that now.”
THE architect of the SAS culture is Mr. Goodnight, a lanky, laconic billionaire. The benefits have built up gradually over the years as a series of pragmatic steps, he says. The day-care program began after a valued employee was about to leave to take care of her young child. The on-site medical checkups grow out of the belief that “good health is good business,” he says.
Today, SAS estimates that its health care center saves the company $5 million a year, by providing care more cheaply than an outside insurer and by not having employees leave the campus for doctor’s visits. Employee turnover at SAS averages 4 percent a year, versus about 20 percent for the overall software industry.
The office atmosphere is sedate. There are no dogs roaming the halls, no Nerf-ball fights, no one jumping on trampolines — no whiff of Silicon Valley. The SAS culture is engineered for its own logic: to reduce distractions and stress, and thus foster creativity.
“The SAS model is sensible and durable; there’s nothing faddish or ephemeral,” says Richard Florida, a professor at the Rotman School of Management at the University of Toronto, who has studied SAS and is the author of “The Rise of the Creative Class.”
During the technology boom at the start of this decade, SAS considered a drastic change in its model: going public. Goldman Sachs bankers were brought in as advisers, and in 2000 SAS recruited a former Oracle executive, Andre Boisvert, as its president.
Under Mr. Boisvert, SAS installed a new financial reporting system and paid the sales force incentive commissions rather than salary only. But when technology stocks plummeted, the appeal of selling shares to the public also receded. Mr. Boisvert resigned from SAS in 2001 and is now an independent investor and consultant.
Mr. Goodnight recalls those days as a brief period of New Economy surrealism, and going public as a path wisely avoided. SAS, he says, is a culture averse to the short-term pressures of Wall Street, which he characterizes as “a bunch of 28-year-olds, hunched over spreadsheets, trying to tell you how to run your business.”
Unlike many other tech companies, SAS has had no recession-related layoffs this year. “I’ve got a two-year pipeline of projects in R & D,” Mr. Goodnight says. “Why would I lay anyone off?”
Mr. Goodnight, though 66, has no plans to retire himself. His fingerprints, colleagues say, remain all over the business, especially in meeting with customers and in overseeing research.
He is not only a statistician, but also a bit of gambler who enjoys calculating his chances. For example, he is co-author of a paper that simulated millions of possible outcomes in blackjack.
Mr. Goodnight regards his new rivals the way a confident card player might. He likes the odds, and he likes his hand.
“We’re pushing as fast as we can to stay ahead — on the cutting edge of everything,” he says. “We’ll do fine.”