By Angel Mehta, Managing Director, Sterling-Hoffman Executive Search
Angel Mehta: The Web services / integration market seems to have been through it's own boom/bust cycle, so tell me a little bit about the state of the market today and how webMethods is positioned.
Phillip Merrick: I think that we're differentiated in a couple of important ways. First, we simply have a broader product portfolio than our competitors and within that portfolio, things are internally integrated a lot more than with say, IBM, who would be our biggest competitor.
This thing that we call "integration" has evolved in a couple of important directions. The base infrastructure is conforming to standards; in particular, the Web services standards. Increasingly customers want to look at integration not on its own but as part of an approach to putting service-oriented architectures across their enterprise. We've made moves in the last six months to offer capabilities not just for doing business process integration with Web services, but also allowing customers to manage that service-oriented architecture across the whole enterprise and beyond. We're doing that principally with a product we call, "webMethods Fabric", so that's what's happening on the infrastructure side.
On the other end of the scale, you've got much more of an emphasis these days on delivering real business value out of IT projects.
Angel Mehta: That's certainly not restricted to the integration market, though…
Phillip Merrick: Of course not, but the point is, we're seeing it in spades. So at the other end of the scale, we find ourselves doing a lot more for customers in the area of business process… business process management and business activity monitoring. We're seeing a lot of interest in it, particularly from large manufacturing and financial services customers.
Angel Mehta: Would not the business intelligence vendors be all over the opportunity for business activity monitoring? How is webMethods attacking the problem differently?
Phillip Merrick: Well first of all, we have a view of the business process right across the enterprise and it's a real-time view. So as opposed to the approach of putting everything into a data warehouse and getting it done once a day or once a week or worse, we're actually able to look at the key information, particularly key performance indicators, on a real-time basis. We can bring artificial intelligence technology to do things like event management… so we can actually instrument business processes across the enterprise, capture events out of that instrumentation, and then use things like neural network engines to analyze what obviously becomes a big series of events. The analysts effectively set some key metrics, decide what the right ranges are for those metrics, and then we use the event management engine to figure out whether these key indicators are staying within the specified range. If not, we set off alerts and take appropriate actions.
The point is, you have to look at business activity monitoring as not just being a static report on some snapshot state of the business - but as an active, living report about what's happening in the business. If that's the approach you take to business activity monitoring, then business process integration is actually a pretty good place to get started.
Customers and analysts both have confirmed this. In the end, business integration players will be the biggest beneficiaries of the adoption of business activity monitoring by large enterprises. So I think we're in the right place at the right time.
Angel Mehta: During the bubble I think it was thought that B2B trading exchanges, the B2B market places, would drive that need for integration outside the firewall. How much of your business still comes as a result of those exchanges today? Or has the focus been completely removed from that area?
Phillip Merrick: We certainly did business with quite a number of those industry-backed exchanges, though typically not the smaller dotcom ones that have since fallen away. But the exchanges that were setup by the Global 2000 companies are actually moving along; they're running into the billions in terms of the transaction value running through them. B2B is a very broad topic, of course. I will tell you that the interest in business-to-business integration is definitely back these days. The interesting thing is that the greater bulk of that interest is in applying older technologies, in particular EDI, to the Internet infrastructure and that's where things like EDI INT and AS2 are becoming really significant, particularly with mandates from major companies like Wal-Mart and so on that their suppliers get off the bands and move EDI transactions onto the Internet using EDI INT and AS2 standards.
Angel Mehta: Last year, webMethods did a number of acquisitions. Tell me about some of the challenges involving your approach and why you chose to make the acquisitions you did.
Phillip Merrick: I think the Number 1 thing we think about is what more can we do for our customers? How can we help them more effectively solve their business integration and infrastructure challenges? So in one of those acquisitions you referred to, we acquired a leading edge portal technology. Not so much because we saw the pressing urge to move into the portal market but because our customers were telling us that was something that was incredibly interesting to them. In general I'll tell you that we're very careful about what parts of the market we move into. We're in the integration business and the last thing you want is for the customer to look at your offering and say, "Wait a minute, your own product offering isn't that integrated!"
With the acquisitions that we made last year in the October timeframe, we were looking for start-up companies that had already integrated their products with our products at actual customer sites. The business activity monitoring product, which we acquired from the Dante Group, had already been integrated with the webMethods Integration Platform at several key accounts, for example.
Angel Mehta: What about the operational challenges of the integration of the new company. Is there any advice you'd have for software CEO's that are planning to broaden their product suite via acquiring external technology?
Phillip Merrick: The majority of all M&A transactions end up failing, as I'm sure you know, and my view on that is they don't have to. Advice? Just the basics. Do the homework up front. Understand exactly what you plan to do with the acquisition and make sure that you can map details of all the things that are going to have to happen for the acquisition to be successful. If you're acquiring for customers, for example, make sure that the customer relationships are as solid as people are making them out to be. If you're acquiring for technology then obviously do heavy due diligence on architecture. These things sound like very straightforward things, I know, but it's amazing how many times these things just never get done before M&A transactions are executed.
The second thing is to have a plan for integration and execute on it. I've talked to a number of folks on this topic and one of the common themes you hear is that in many cases, the acquiring company had a plan for integration but just never properly executed. And ultimately, corporate integrations are decided by the people involved. It's very much a people matter - so you've really got to pay strict attention to what is happening on the ground day-to-day with the folks on both sides of the transaction. You need to quickly get to the point where everyone feels like they're all part of one team… otherwise, you're just setting yourself up for 'us vs. them' problems down the road and that's ultimately what destroys the value.
Angel Mehta: You mentioned that many M&A integration plans don't get executed on. Can you elaborate on WHY you think that is?
Phillip Merrick: Sometimes management has a tendency towards moving on to the next big thing. Particularly if the company is doing a lot of acquisitions, then there is this tendency to just focus on the deal. It's the little things that always fall through the cracks… like making sure that everybody is outfitted with business cards that have the right logos on them. Things like that. I mean, that's a pretty trivial example; but there are so many small items that make it obvious to the outside world that the company was never integrated. So in those cases, it's that not enough attention is paid to the process. On the other hand, you can be totally over-bearing about the integration process and end up creating exactly the result you wanted to avoid - an 'us vs. them' mentality.
Angel Mehta: You mentioned IBM as your biggest competitor, though BEA has gone aggressively after the integration market as well. How do you view them?
Phillip Merrick: BEA is a fine company and they have a fine application server offering. We're also told that their portal offering is quite reasonable. However, they have struggled mightily to bring a competitive product to market in the integration area. It's relatively unusual for customers to consider the BEA product for heavy-duty integration. When they do make it on to the shortlist, they're almost always eliminated if they're up against a product like ours.
Angel Mehta: How has webMethods evolved since it's founding? Tell me about the different plateaus you've had to transcend, and what impact does each transitional period have on the organization? Has webMethods ever had to remake itself?
Phillip Merrick: When we founded the company we called the company, "webMethods" because we believed in technology that today we now call, "Web Services." webMethods actually means Web Services, believe it or not. In fact, Microsoft uses the term 'WebMethods' to refer to Web Services in .NET. At that time, the things that we found interesting was very much focused with things like XML on documents to the extent it was being used or being accepted for integration with more for documents and document exchange. So we ultimately had to refocus more on integration as defined by the market at that time and so that took us down the path of document-based business-to-business integration and took us down the path of more traditional EAI - enterprise application integration.
We moved even further down that path with our 2000 acquisition of Active Software. It was at that point that we underwent a further transition from being very much focused on the B2B side of the market to being focused on the entire enterprise infrastructure. Now, you can argue that we're in another transition, positioning ourselves quite literally as the industry's first Web services infrastructure company. We call ourselves 'the industry's first' because we were first to market these ideas back in '96-'97. We developed the precursor to SOAP and WSDL back in the '97-'98 timeframe.
We're now actually coming back to that and we're the first Web services infrastructure company because we're the first to PROVIDE capabilities -- in the area of integration, portal, business activity monitoring, business process management -- all of these important infrastructure areas all on a solid Web services -oriented architecture base. So, again, you can argue we're going through a state of transition right now. I view these things as being exceptionally healthy. The company has been, and I think you have alluded to this in your lead-in to the question. The companies that aren't able to go through this process of either continual or periodic reinvention are not staying relevant to the market and they're the ones that sort of grow up with the market niche and then die with the market niche. We're fortunate in that the primary market we operate in is such a large part of the market because integration is such a big problem for IT across all kinds of organizations. But, nevertheless if we weren't evolving with the market and, in quite a number of the cases leading the market, we become less and less relevant to customers and we can suffer the same fate. One of the things that I like to remind my management team is that software companies rarely die, they just fade into deep dark irrelevance and what we need to do is to stay vibrant and continue growing and continue thriving.
Angel Mehta: I'm always fascinated by founders that are still in leadership positions with their companies well after the enterprise has moved out of the startup state. So let's talk about your personal transitions; how has your job as founder evolved? How have you had to remake yourself as a leader?
Phillip Merrick: Yeah, that's a great question. Certainly, what I do on a daily basis is very different from what I was doing 8 years ago when my wife and I were founding the company. Certainly, in the earlier days I was able to be much more hands-on with things like the technology and product development and so forth. My background is engineering. I built products. I actually built our first prototype product when we were getting the company off the ground, which you just can't do as CEO of a public software company. It would actually be a very bad thing if you did do that. I remember the day probably about 4 years ago now where our engineering team came to me and said that they've removed the last line of code that I had in any of the products. That was a sad day, but a highly appropriate day because you do have to evolve and change whether you come at things from the sale side or you've been a manager for some time or you're coming at things from the engineering side. You've got to understand what the requirements are for you.
Angel Mehta: At what stage did you have the most fun?
Phillip Merrick: There were aspects to the job of founding the company that were not fun at all. As you put on the rose colored glasses of hindsight you think, "Gee you know it was a whole lot of fun back then" … but you forget that you spent a good part of a whole year doing nothing but trying to raise funds for the company.
Certainly, at that time there was a nice atmosphere of having just a few people in a small highly focused team; that was enjoyable. Today, the things that I dislike are having to sit through an intense meeting on what Sarbanes-Oxley means for corporate governance, for example. That stuff is necessary, but I don't know many people who get excited about that. Maybe it's not politically correct to talk about that in public circles, but it's just not something that is fun if you're an engineering-oriented CEO. I'd rather talk about our customers and how to help them. I get excited about our technology. That's just the way I am.
So what are the things I enjoy? What is really fun is seeing major Fortune 20 organizations betting a large chunk of their business on our integration platform products. That's enormous… just hugely satisfying to me and the people at this company. Being able to help those customers with their business based on the technology we're delivering. We know there are lots of our customers who have been able to dramatically improve their businesses as a result of deploying our software -- that's a high point. You only get a little glimpse of that when you're a small start-up. It's not until you're a much larger company that the truly large customers, the General Electrics and Motorola and so on, are willing to bet a chunk of their business on your software.
So when you actually get to see a company through to the point where you're helping large customers, it is enormously invigorating and makes up for all those boring or frustrating processes involved when you are managing a publicly traded company.
I also get a tremendous amount of satisfaction being able to provide some really interesting career growth for a whole bunch of people… people who in some cases have been with us for quite a long time… 6 or 7 years… to some degree, they've grown up with the company and seeing that up close is hugely satisfying also.
Angel Mehta: What is the most difficult decision you've had to make as CEO of webMethods? What was the hardest decision?
Phillip Merrick: The hardest decision is when you realize that you are going to have to let people go. I don't think there's a single company in software industry that has been able to avoid that over the last 3-4 years.
Angel Mehta: Have there ever been times when you've wanted to quit? I always wonder about people that manage to stay the course, sometimes through sheer stupidity perhaps, and come out better for it on the other side.
Phillip Merrick: I don't know, although I really like the expression you use… 'sticking with it through sheer stupidity'. I think that anyone who claims that they've never thought about doing something different is probably being less than generous with the truth. It's a matter of understanding what value you can drive in society. I don't want to talk in overly grandiose tones, but if you think your business has value and you think you can continue to bring value to the business, then the right thing is to just stick with it. Even in a very well run company with great opportunities there are certainly days that are better than others. Sticking to it is the important thing, and some people do give up too prematurely. Here's a parallel for you. I firmly believed that what we were doing with webMethods back in '96-'97 was going to lead to something very big. Maybe I wasn't doing the best job of articulating that belief, because we got turned down all over the place for financing… but I was determined we were going to get the financing to drive the company forward. I just kept banging on venture capitalist doors until eventually we did land it. Ultimately the kind of funding that had previously been unavailable became available to us.
Here's something else: One of the things I've noticed is, not quite as many founder CEO's are out there as they used to be.
Angel Mehta: Not at all, you're right… aside from the well known guys like Larry Ellison, Gates, etc.
Phillip Merrick: I think that quite a few people when the downturn hit in late 2000 early 2001 said to themselves, 'Well, I've been lucky to make enough money here so I don't have to do this anymore'… and they'd just bail out. You know what? People who did that missed out on an opportunity to really learn something about management because let's face it; managing an enterprise in the high-tech world between 1996 and 2000 was a whole lot easier than it is now. There were a whole bunch of management lessons that were made available when the downturn hit, and the people that bailed missed out on learning.
Phillip Merrick is a 21-year software industry veteran and the architect of webMethods' original product offering, which pioneered the concepts of Web services. Since founding the company in 1996, Phillip has provided both thought leadership and product leadership-defining and delivering business solutions for Global 2000 companies. -. Phillip has established webMethods as the leading vendor of enterprise integration and is charting new ground with Web services infrastructure software, earning widespread recognition among analysts, media and investors. Feedback on the interview can be sent to: phillip.merrick@webmethods.com
Angel Mehta is Managing Director at Sterling-Hoffman, a retained executive search firm focused on VP Sales, VP Marketing, and CEO searches for enterprise software companies. He can be reached for feedback at: amehta@sterlinghoffman.net
