In an unguarded moment, Mercury Interactive’s new chairman Amnon Landan concedes that, just like himself, Mercury is in fact half-Israeli and half-American: "Technically, we’re registered as US company. I think we’re a US company with a very strong Israeli orientation. In fact, the real answer is that we’re a hybrid company. That’s the truth."
It’s difficult to take him to task for such a confused reply. Even since he joined Daisy - the first start-up company set up by Mercury’s founder Aryeh Finegold - Landan has spent more time in the US than in Israel. "The only place from which it’s possible to run a high tech company is where the market is. And the high tech market is, first and foremost, in the US," he says.
Mercury currently has more than 700 staff. The management and some 200 support and marketing personnel are based in Sunnyvale California, and another 100 employees are scattered in sales offices all over the US. The largest body within the company is its development center in Israel, which employs 300 people. The rest of Mercury’s staff are deployed throughout the world.
"Globes": What makes you different from other companies?
Amonon Landan:"One of the most difficult problems in many companies is that the management must do the thinking and take all the decisions. We’re very decentralized, and we make it possible for staff to do their own thinking and take decisions. All other companies have well-defined procedure for doing deals, such as signatures by three executives, etc. We, on the other hand, work on the basis of a broad definition of appropriate procedure. A salesman is allowed to tailor a deal to the customers’ needs. Some Mercury projects come into being because some engineer has had a brainstorm and started implementing it under wraps. But we look the other way, and let our people go ahead with such things. Our Internet support system, for instance, started out as an initiative by the workers. We let them play around with it, and now we have an excellent support service."
It seems that the world is changing, and only Mercury stays still: software for testing other software.
"On the contrary. We’re changing all the time. We started out as a company that developed a combined hardware-software solution, and then we became a software company. First we sold our products to engineers, then we started selling to enterprise information divisions, then we moved into ERP, and then into Y2000 testing. Now we’re making the biggest change of them all: e-commerce."
Wait a minute. Are you about to turn into an e-commerce software developer?
"Within the space of three quarters, our software for testing e-commerce Internet sites became one of our best selling products, accounting for more than 40% of our sales in the last quarter. In addition to our traditional big customers, who have now embarked on e-commerce projects, there’s also a group of new companies: Internet companies such as Amazon.com, E*Trade, Schwabb,- which are our customers, and start-up Internet companies such as Value America or DoubleClick."
Did E*Trade buy your software before or after its great computer crash?
"Before. What caused the crash was that they upgraded one of their routers, but skipped the test run phase, and the system crashed. But that’s got nothing to do with us, because the router was installed by E*Trade’s systems group, and our customer is E*Trade’s applications group."
Getting into the Internet business requires a modification of a company’s business model.
"It affects the products we supply. What we’ve been doing up to now belonged in the category of testing - an examination conducted before a system is operated. When it comes to the Internet, testing is carried out in the production environment, while the system being tested is running."
How will the change affect your pricing method or the way in which you do business?
"At the moment we’re putting together a pricing model based on usage levels. If it works, it will be very productive for us, and affect other areas, such as the nature of the service offered customers. At the same time, we’re developing hosted versions of our products. This means that the customer will be able to use them via the Internet without installing them in his system. The first module is ready, and by the end of the year, all Mercury’s products will be fully Web-enabled. This will make it possible for us to take advantage of the opportunity to offer testing services via the Internet."
As well as to offer your products at rock-bottom prices, just like Scitex did when the PC was introduced into the field of graphics.
"So far we don’t see downward price pressures. The big boom will come from the development of the inter-enterprise business. Will unit prices fall? Yes, but the market’s growth rate will be higher because testing will become increasingly important. As long as information systems were designed for internal use within an enterprise, companies could keep their problems under wraps. But nowadays, if you have a problem on your e-commerce site, everybody will get to know about it. You’ll lose deals, and, which is even worse, your reputation will be tarnished. The scale of testing has also changed. In the past, testing a 1,000-user system was considered large-scale load testing, but nowadays we’re testing 100,000-user systems. And the number of e-commerce sites grows at a mind-boggling pace."
Testing services on the Internet require high-quality communications lines. Are you planning to buy a communications company to ensure service quality?
"The hosting market today is estimated at $150 million, and many analysts believe it will reach $10 billion by 2001. I think this is a conservative assessment. Infrastructure will be greatly important, and when we provide such services, we’ll cooperate with hosting companies to receive a reliable communications infrastructure."
And perhaps, at long last, join the mergers and acquisitions game.
"So far, in the market in which we’ve been operating, acquisition opportunities weren’t that interesting. We felt that the market was very big, and that it was better to focus on our market, rather than move on to other markets, in which we would hold only second or third place. Today our annual sales turnover is $170 million, and I feel we’re in a position to make acquisitions."
How come nobody’s bought you up yet?
"We’ve had various offers, but we weren’t interested. Our price has always been high, because we don’t intend to sell off our company. A hostile takeover would also be difficult as far as we’re concerned. There are few hostile takeovers in high tech, and we’ve got a "poison pill" defense written into our company articles. The minute a hostile takeover crosses a certain threshold, the board of directors is entitled to dilute the shares, thereby reducing the holding of the raider. Our next objective is to become a software company with a $1 billion annual turnover, and in order to attain this goal, we’ll resort to acquisitions as well. Judging by our growth rate, we’ll be there within two-three years, with the help of acquisitions."
Whom are you going to buy?
"The candidate must be significantly smaller than us and suitable in terms of corporate culture: energetic, fast-moving, and with loads of vim. Its acquisition should accelerate our entry into a large market, chiefly in the testing of the availability level, performance, and expansion potential of systems operating in an Internet environment."
What’s the most difficult thing for you in Israel?
"Israel isn’t producing enough engineers trained to support high tech operations. When we started operating, we could choose almost anyone we wanted. But today we must compete with at least five other companies over each worker, just like in the Valley."
What’s the secret of survival in the high tech sector?
"The key is to be constantly on the lookout for impending changes. We made the switch to e-commerce even as our Y2K activity was in full gear, because we kept asking ourselves what’ll happen when Y2K is over."
Even mighty Microsoft has missed out on the Internet. How does one keep onself on the ball?
"You devolve responsibility and decision-making powers to a lot of people within the enterprise. Responsibility makes people use their brains. Our involvement with Y2K was initiated by our salespeople. I thought it was a waste of time and hopeless, but after a single quarter it was already clear they were right, and the company moved into Y2K."
Mercury founder Aryeh Finegold left last week. How does it feel to be an "orphan"?
"I’ve learnt a great deal from Aryeh, and I think that, in the course of the years, we complemented each other. My move into the new post of company chairman was very natural. At the beginning, I ran Mercury’s R&D operations, until Aryeh came into my room one day, closed the door, and said, "I think you’d better go to the US." After a month I went to the US with all my family, and started building up our US operations.
"After three years difficulties cropped up in Europe, and we agreed that I would take on responsibility for Mercury’s activity throughout the world. I turned our Europe operations around, and became company president. Eighteen months later I was CEO. The fact that Aryeh chose to stay here was, in fact, part of the process of delegating power to me. All in all, we’ve been close comrades in arms. The process took a long time, and reached its completion a few days ago."
Published by Israel's Business Arena July 28, 1999