Born in South Africa and educated in England, Barry Morris works out of Iona’s Boston headquarters and lives mostly, he says, in an aeroplane.
No wonder his accent has a hint of the mid-Atlantic. The CEO of Iona Technologies chooses his words carefully with an attention to detail that you suspect he applies to all elements of his working life.
He prefers to describe legacy systems, for example, as ‘working systems’ rather than risk criticising a customer’s existing infrastructure. “That’s what they are until someone switches them off,” he points out. And when we talk about takeovers, he refers to them somewhat euphemistically as ‘alternative strategies’.
But there was no confusion over the meaning of Iona’s profit warning, issued in spring 2002. For many in Ireland’s technology sector it was the subsequent drop in Iona’s share value that defined the real depth of this recession. When the company that had done more than almost any other to raise the profile of indigenous IT expertise – partly through its high-profile initial public offering (IPO) in 1997 – lets it be known that times are tough you’d better believe it.
Having gone public well before the dotcom boom when every two-dollar tech firm talked of an IPO, Iona seemed somehow immune to the vagaries of new technologies that sprung up quicker than the average boy band. We took it in good faith that its work in a mysterious space defined as ‘middleware’ was the real engine of the new economy, the glue that held the complex and cutting-edge business architecture together. And we were right. For a while.
Even as recently as 2001, things were looking reasonably healthy for Iona, as Morris explains: “It was a down year for the economy, but an 18pc growth year for us. It was a very successful time. We acquired three companies and were profitable.”
That said, the warning signs were already there. In previous years compound growth was typically closer to 40pc for a company that had become accustomed to growing fast and making money.
As it entered 2002 the company began to cut the cloth for more modest growth and profitability. By July, those plans were in tatters. “What surprised me was the degree to which there was a sudden summertime shut down,” recalls Morris. “Over a three- to four-week period it felt like guys had burnt their chequebooks.”
Did he have a theory as to why the bottom suddenly fell away? “There’s a budget cycle. People set budgets between October and September and most make an adjustment around springtime. In spring 2002 they clearly decided it wasn’t going to be an uptake year and the goal became ‘don’t spend money’. Some IT managers had their own personal bonuses associated with not spending money. It’s kind of hard to sell to people like that!” he says.
One thing quickly led to another. When a high-profile public company looks vulnerable, the rumour mill starts turning and talk is inevitably about takeovers. Morris isn’t having any of it. “It would be my job to take seriously any kind of approach, but there have been a lot of fairly vacuous rumours. What a lot of people don’t get about this business is that software companies are talking to each other all the time about alternative strategies, many of which may involve doing things together,” he says.
According to Morris, Iona’s long-term plan is not dependent on the intervention of others, which is precisely what helps to make it so attractive. “The company has invested enormously in the last three years on the next phase of growth and I know I can build significant shareholder value around the investments we’ve made. Therefore, I don’t feel we need to engage in alternative strategies. Does that make us attractive? Perhaps it does,” he continues.
“At the end of the day Iona is one of the few remaining independent software vendors that’s strong, with real customers, real business and real profits. It has technology that will be the most interesting part of the software industry over the next 10 years,” he adds.
The fact remains, however, that here and now business is slow. Does Morris see 2003 as the year when things will pick up? “The general view out there is that the overall IT spend for this year will be flat. My view is that within that spend a greater proportion of it will be spent on new IT projects than last year. Within that, integration is in the top three of what they will be spending on. There is an opportunity for companies in this space to grow, but I don’t think anybody is looking at it as an opportunity to grow 15 or 20pc in 2003,” he believes.
Would he be more specific about Iona’s own prospects? “We lost significant money in the second quarter last year. In July I set myself a goal saying we’re going to get this company back to profitability real quick. I’m not saying exactly when, but watch this space. We are going to focus on our substantial installed base – 80pc of the world’s telecommunications companies and 70pc of the leading financial institutions. We are going to upsell to these big blue-chip companies. The final piece of the strategy is to continue to develop the rapid integration of web services,” he reveals.
The striking thing about Iona is its unassailable belief that technology will transform the way that companies do business. Sometimes it sounds like a distant echo from the dizzy days of e-business mania, but Morris makes no apologies for repeating the pitch.
The bottom line is that survey after survey of chief information officers confirms everything Iona believes in. Top of the agenda for larger companies is integrating their internal business systems with a seamless infrastructure. Because this is not so different from the aspirations of a couple of years ago and the first wave of hype about the ‘new economy’, a ‘once bitten’ sensibility threatens to undermine sales.
In the past, according to Morris, vendors were all too quick to sell their customers all-singing all-dancing solutions that ultimately didn’t deliver. “There is a tendency in this industry to have big bang sales. Spend 10, 20, 30 million bucks, they say, and it will solve everything. What you actually get is high risk, high cost, lots of failures and an inability for smaller companies to even play,” he explains.
Morris believes Iona has had the solutions and is still developing them with products such as its Orbix E2A web services integration platform. “What customers are looking for is a reusable solution with lasting results. They are interested in risk mitigation and an overall lower cost. Those things we know how to solve and have solved,” he says.
What he is quick to distance himself from is much of the hyperbole and false promises of the first e-business boom. “There’s an awful lot of nonsense that’s been written about stuff like e-marketplaces. They were a swizz. It’s ridiculous to suggest that the big auto manufacturers will get together and buy rivets more cheaply. They’ve got massive buying leverage by themselves,” he believes.
He points out that typically 80pc of business takes place between existing customers, something that isn’t going to change because someone has a bright idea about putting a supply chain online. “Boeing, one of our customers, doesn’t buy wings from some company that it discovers on an EDI [electronic data interchange] repository in the sky,” he says. “It buys them from one of the three people in the world that can make them!”
Like last year’s PricewaterhouseCoopers technology forecast, Morris believes that companies will look to integrated internal business processes as the first step. “Today, the vast majority of large corporations have got an internal integration problem and that’s all they’re really interested in. They’re not interested in external integration,” he says.
Iona claims a significant competitive advantage in this space because it has done more work than most with what has become known as web services and, secondly, because of what it describes as a solution that changes the economics of the business.
“It’s not a technological advance but a change in economics on how you go about integration,” says Morris, offering a guided tour of IT advancements as a way of explanation. “If you go back to the Seventies, the IT platform was a steam-belching mainframe with a lot of dumb terminals hanging off it. As you go across the decades it became database-centric with Oracle. Then it moved on to an applications-centric era with the likes of SAP. Going forward it will be essentially network-centric.”
This brings Iona in line with the current thinking of Microsoft, Sun and IBM – to name but three – but how does it differentiate itself? Morris describes Iona’s ‘end to anywhere’ vision that’s based around an intelligent and high-performance backbone running through an entire corporation. The trick is to not just make it secure and resilient but to make it available with plug-in simplicity, enabling any element of the organisation to avail of the network. “It’s easy to do in a greenfield situation, but very hard to do in an established company,” says Morris.
The problem is partly due to legacy systems that make it difficult for different applications to be integrated. “Enterprise application integration [EAI] vendors are focused on SAP-type systems at the back. At the front there might be a Siebel customer relationship management system. They both have to do with customers but they’re not integrated,” he explains. “Why don’t you link these things together? With our approach the trick is not just in integrating Siebel with SAP, but also in keeping them working while including previous integration solutions in our solutions. It’s a hard problem.”
He continues: “One of the key things about how we differentiate ourselves is that we have unique patented technology at the heart of everything we do. This enables us to run over other people’s middleware.”
In the past companies have invested millions in projects that are rarely implemented. The unique selling point in the Iona pitch is rapid integration and relatively easy implementation that won’t cost a fortune.
“The primary reason EAI is very expensive is because it’s very dependent on skilled people,” he explains. “When you buy an EAI tool you not only have to license the software you then have spend five or six times more to pay gurus to write custom code. The key to cracking the economics of integration is about getting to the point where you don’t need black belt programmers to do the project.”
The foundation for what Morris describes as an ‘economic’ solution is a new generation of technologies. One key component is XML (extensible markup language), an open standard developed by the World Wide Web Consortium that ‘tags’ in the same way as HTML (hypertext markup language), but rather than use them to simply define the way a website looks, the tags define what the elements contain. XML applies rigid codes to notoriously complex processes, making it a key enabler for web services, ie the web-based applications that interact with other applications to integrate business processes.
At Iona, these are the broad technologies that underpin its product portfolio as they do with its competitors and occasional partners.
One part of its platform is XMLBus, a fast solution for integration problems that doesn’t require highly-trained programmers, meaning that a much bigger group of technically less-proficient people can work the integration systems. If this all starts to sound like Microsoft’s pitch for its .Net architecture, Morris has no problem with the comparison. “Yes, XMLBus is an enterprise version of Microsoft.Net and completely interoperable with .Net. The difference is that it’s more cross-platform. Microsoft’s goal is naturally to get its NT servers in everywhere,” he says.
This year will also see Iona launch something called Inferno, a codename for part of its second generation of web services product. Morris believes this will signal the opening up of the technology to smaller players. “With rapid integration solutions and lower costs, suddenly you’ve got something that’s appropriate to US$500m revenue range companies. Inferno will further that trend,” he reckons.
Having been instrumental in the evolution of web services and some 18 months after Iona shipped its first product, Morris believes his company has had the right vision from day one. “People at the time, even Microsoft, talked of web services in the context of a return to B2C [business-to-consumer], booking hotels or flights. We stood up and said it’s the integration problem that will be solved by this. Further down the track, your refrigerator might be talking to your robotic dog using web services, but I don’t care about that today. What I care about is solving enterprise integration,” he says.
The gamble for Iona is that business leaders share his enthusiasm.
By Ian Campbell
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