NetManage has attained a growth rate that is ten times higher than the average logged by Silicon Valley growth companies. The company, established six years ago, today provides Internet communications products to 30,000 organizations world-wide, and to 90% of the 100 leading businesses listed in Fortune Magazine. Last year, the company posted a $125 million sales turnover, with net profits of $22 million. This year NetManage is expected to grow significantly and has set a target of $500 million in sales, due in part to a sharp rise in demand for intranet products and expansion of international activity.
NetManage's activity is primarily in the US and, via subsidiaries, in England, France, Germany, Japan and Israel. An agreement was recently signed for distribution in China, widely considered a promising high tech market with a rapid growth rate. In Israel, the company operates two centers, in Jerusalem and Haifa, employing 170. NetManage operates a development center and a marketing firm, responsible for product distribution to Europe and Africa. A large support center operates out of Haifa, one of three offering support to clients world-wide.
NetManage president Zvi Alon did not plan on managing a company this big. In fact, his goal was to establish a small company with volume of some $10 million. "We began selling in May 1990, with a long-range plan to provide products which would improve management and operations of network workstations. We called the company NetManage as it reflected the matter exactly. Even then, it was clear to us the world was moving towards personal and network client/server solutions. NetManage set out with this vision"
The company raised funds for the first time in 1992, despite the fact it was not in need of cash. Alon figured that in order to realize the company's potential, it should increase marketing efforts drastically. Within one year, the company grew from 10 to 33 persons, and sales rose to $50 million. NetManage was the first to use the distribution method which allowed clients to use certain applications for free.
"In October 1991, we initiated a meeting with 14 market leaders, including Microsoft, with a view towards creating a single standard for the Windows-environment communications market. We understood from the outset that some of our products would be able to exist only if they received de-facto standardization. For hours we tried to convince them, but in the end we announced we would distribute our product at no cost over the Internet. Two years later, NetManage's free product was the most widely used on the Internet."
Internet access within the US market has grown rapidly, together with an awareness of the advantages an open network affords. "Reactions were far beyond our expectations. We were forced to handle hundreds of thousands of queries a day, often from people who didn't know one end of a floppy disk from another. But a year later, millions of copies were in use all over the world." This popularity encouraged Alon to continue offering the basic platform free of charge, while at the same time selling an expanded software package.
The expanded product, Chameleon, is part of a wide group of applications but today the product includes 70 applications, instead of the original 7. The product has recently been upgraded to suit large organizations and intranet environments.
At a certain point, NetManage tried to make the basic product into a profit center, and began charging money. "We started with $200, went down to $80 and $30. Then we gave up and started distributing the basic product free of charge." The free distribution method is now used by many large companies, even Microsoft used it in its battle against Netscape, which made its name in the field using the method. "When Netscape began operations based on a World Wide Web browser, the matter also came up at NetManage. We considered if it was worthwhile going into this field, if we should develop our own product, and if we should charge for it. In the end we decided to focus on our area of specialization and offer our browser free of charge. Netscape decided to focus on its browser and servers, and in the meantime their strategy is working."
Because Microsoft offered no alternative to these products, NetManage decided to base itself on its own product, so as not to be identified with a Microsoft competitor. The decision was made despite Netscape's offer of free browsers in return for cooperative ventures. "It was clear that this sort of connection would be a clear move against Microsoft and we had no interest in doing that," says Alon.
"The strategy we picked was to take advantage of all the opportunities Microsoft opened before us, unintentionally, at the beginning of the decade. We chose to move quietly, in order not to wake the sleeping giant."
"At the end of 1995, we had the widest possible range of technologies before us, with a wide rage of tools compatible to a Windows environment over the Internet. It was clear we couldn't advance this alone, so we decided to reach a cooperative agreement with Microsoft, which at that time lacked a base for efficient Internet activity," Alon says. Thus was born the ActiveX Internet technology, which today is represented by Microsoft as the answer to the Java attack launched by Sun Microsystems.
The positioning of cooperation between Microsoft and NetManage stands out, but Alon refuses to relate its economic significance. At this stage, it is known only that Microsoft has integrated NetManage's Internet tools in its ActiveX interactive development environment, called Open Active X. At the same time, NetManage has made a bid for the intranet market, where Alon figures the big money is.