Israeli software house Sapiens has come a long way from the acquisition of US company Smart Star in 1993, (which, to this day, people say "nearly finished off Sapiens"), to this week’s latest outsourcing deal. In the intervening period, the company’s shares hit rock bottom., it was put on NASDAQ’s "pink sheet", investigated on charges of manipulating figures, and was on the point of complete collapse.
Today, the company reported that it would provide a European company with computing services on an outsourcing basis, to the tune of millions of dollars a year, for three years.
In retrospect, one can say that that trauma led it to its current strategy and its plans for the future, which can be defined in a few words: more service contracts based on know-how developed in the company - and on manpower that it will recruit through acquisitions. The company is already promising that there will be more acquisitions shortly.
Sapiens started out as producer of an applications generator for IBM mainframes, developed by scientists at the Weizmann Institute. However, in the period 1992-1993, downsizing was the slogan of the day in the industry, and the company feared that its market, mainframe computers, was about to disappear. Against this backdrop it bought Smart Star, which marketed software for the client-server environment. Sapiens devoted its attention to the programs it had acquired - and lost many customers. After a couple of years it reversed direction, and gradually began returning to its historical roots.
At that time, it developed Falcon - a technological tool enabling automatic conversion from Assembler to C. A little background: Assembler is a mainframe language in which most programs were written before Cobol took over the market. C is a newer programming language. Today, most programs are written in C.
Falcon gave Sapiens a rare window of opportunity, when the year 2000 conversion market was reaching hysteria, in 1997. It then emerged that most companies were providing conversions for Cobol (which accounted for most of the conversion market) - but not for Assembler. The result: Sapiens turned Falcon into its main year 2000 conversion tool. Now, when the year 2000 market is starting to subside, Sapiens plans to turn conversions into an independent business. In fact, this is a new market, which Sapiens decided to enter only a few weeks ago.
Chief Technology Officer Shai Sole explains, "There are very interesting markets still working in Assembler but which now want to transfer to C. The computer environment of the airlines, for example, is written in Assembler. American Airlines’ system executes 5,000 transactions in a second, but it’s hard to maintain it. They want to change to C."
"Globes": How will you operate in this field?
Sole "The business model will be similar to that of year 2000 and euro conversions. We will undertake all the work, and carry out a full systems conversion."
Is the year 2000 commotion over?
"Most large companies are in the middle of or finishing the conversion process. But now, the second year 2000 wave is building up: checking conversions that have been carried out, and running simulations. This is a new market, that is just getting going. We recently checked a system that had been converted for the year 2000, and discovered malfunctions to the extent of 30% of the conversion. In one case, we found a program that had been completely overlooked, even though it was recorded as a program that had been converted."
In other words, following on from your year 2000 experience, you will become a company that provides services, instead of a software supplier?
"Three months ago, we decided to propose to Assembler intensive organizations that we should carry out their routine systems maintenance, and not just convert them. In fact, we are going over to outsourcing on a global scale. We have identified a worldwide need, and a business opportunity in the area of integration of different information systems."
Sapiens decided to focus its entire business on the field known as middleware, or connectivity between computer systems. For example, suppose a certain company sets up a commercial Internet site. Instead of it printing all the orders it receives on paper, inputting them into the mainframe computer, and then filling the orders (as many companies do today) - Sapiens will provide it with an automatic system that links the two computer systems.
Becoming a global service company demands a great deal of manpower. How are you gearing up for this?
"Mainly through acquisitions. At the beginning of 1998, we bought US company InsureTech, which specializes in the insurance field, with about 120 employees. In May, we bought Israeli company Cli-Al, which developed an applications integration tool. In July, we bought Saic with 80 employees. This year, more companies active in our main markets - the US and Europe - will be acquired, in combined cash and share deals."
It may be that this is just the right time for an adventure as far as Sapiens is concerned. In the third quarter of 1998, it sales totaled $18.9 million - 73% higher than in the corresponding quarter in the previous year. In the first nine months of the year, it had sales of $49.3 million - 60% higher than in the corresponding period in 1997.
At the same time as it published its results, Sapiens had a resounding win when it was awarded a euro project by French direct sales company La Redoute. It also signed an agreement with giant French services company Debis, and was awarded a project to build an information and e-commerce services system for Greyhound of Australia. Moreover, it gained a warm recommendation from Gartner for its euro conversion solution.
These agreements, and the outsourcing project it announced today, have prepared the ground for building a new brand as a global services provider - and entry into the completely new field, one of the hottest in the information systems world - that of building supply chain systems connecting organizations, suppliers, and customers.
Published by Israel's Business Arena on January 13, 1999