Check out their press releases, and it might explain how they are being viewed as an e-commerce company with companies like Ameritrade, Thomson Financial Services, WashingtonPost, GE Financial Services, Earthlink, etc etc all signing up to the Microstrategy vision. And it might change why you should change from being short (sighted) to signing up to the inevitable(which is now definitely the case on the "street")
While you are at it, check out this interview which gives you an idea about the vision and man behind it.
Vienna, Virginia-based MicroStrategy (Nasdaq: MSTR) offers proactive, intelligent e-business solutions to companies such as IBM (NYSE: IBM), Nike (NYSE: NKE), and American Express (NYSE: AXP). Its e-commerce tools and data mining software allow companies to gain insight into customer buying patterns, preferences, and other metrics that help businesses turn information into sales.
TMF: When I think of MicroStrategy, I think of data mining software for business analysis. Is that too narrow a view?
Saylor: That's what we used to be about two years ago. We created this set of software that would mine databases and help people to make very sophisticated business decisions like in retail or with merchandising... But once that grew, it springboarded into the e-business area. We were working on these broad problems that would scan through 10 million customers or a billion transactions and extract lists of maybe 20 fraudulent accounts.
"Probably nine out of ten software companies never make it through the billion dollar threshold and it's because they define their business too narrowly."
We looked at that piece of paper and said, you know, if we just hand this to one person it's maybe worth a thousand dollars, but look what's behind that piece of paper. Is there a way to leverage that? The reason we were asking that question is that if you define the business as back-office data mining you could sell to 2000 companies. It would end up being about a $1 billion dollar business when it reached its peak and then you hit a wall.
TMF: Once you saturate the Fortune 500 or whatever.
Saylor: Yeah. My observation over the 10 years that I've been in the software business is that most enterprise software companies hit a wall with that basic concept. Oracle (Nasdaq: ORCL) did at $1 billion. Sybase's (Nasdaq: SYBS) performance slid off before they got there. PeopleSoft (Nasdaq: PSFT) hit it at $1 billion. Probably nine out of 10 software companies never make it through the billion dollar threshold and it's because they define their business too narrowly.
So in 1997 we were casting about for ways to break through that threshold. We had this fraud detection idea on our hands and then all of a sudden there was an epiphany. We realized that if you set up a website for a bank and the website is labeled fraud detection, you can then offer that to 10 million people. When people show up at the website, it asks whether they want to subscribe to fraud detection. The person checks the box and fills in a phone number.
When you put that into a big database, then you have a log of everyone that gave you permission to call them if there's something screwy with their accounts. In order to serve that customer base, you don't have to run any new queries. You've already got the queries and you're running it anyway... Then you format a message to call them and say, well, your ex-secretary is trying to move $500,000 to this Swiss account. The transfer will take place in three hours. If you want us to stall this for a day hit 1, and if you want to kill it hit 2.
Now what happens then is our query is no longer driving analytical decision making or analytical behavior, it's driving transaction behavior in the customer base. That's a pretty big shift because you go from having 500 users in a bank to having a million users. This was the exciting thing we realized a couple of years back. The killer applications for database is not analysis. It's insurance and insurance is driving transactions.
TMF: Give me a few examples.
Saylor: What can you insure cybernetically? The answer is just about anything. Like traffic insurance. I tell you when the traffic is jammed on your way to work. Or weather insurance. I wake you up in the middle of the night to tell you there's a tornado, go to the cellar. Or health insurance could be your daughter fell, broke her leg, and is in the emergency room, go see her. All of these things are portfolio insurance, right? You guys understand that really well. Maybe there's material news and downward motion [in a stock], whatever it might be. I proactively alert you, hand you the menu of options. I might hand you The Motley Fool opinions on what's going on, then I give you a transaction link.
TMF: What e-business products do you have, and what portion of your revenues does it represent?
Saylor: We have three primary e-business products... and those three opened the walls to go from 500 users to 5 million users. In terms of revenue, the revenue at this point in e-business is approaching 50% for the last quarter.
TMF: I understand that this broadcaster product is what's driving the sales. What is it that's gotten things rolling?
Saylor: I think there's lots of interesting infrastructures that are coming together. The Web was much less mature two years ago... Two years ago there were no digital telephone networks in America. The third is things like HTML e-mail which wasn't built into the e-mail a year ago and so now it is... The technology protocols are also more solid and more accepted. We have much better products too.
TMF: You also offer consulting services. What is your business mix?
Saylor: About 65% to 70% software, about 15% maintenance fees, about 10% consulting, and about 5% education.
TMF: Is that a mix you like?
Saylor: I think that for the enterprise software business it will be constant. But the thing that's going on here that's interesting is we're actually getting much more aggressively into a network or media business, a dot com business. As I've said, we had this vision two years ago that the world would be much more into insurance and transactions. And then we created the technology to do it and we asked the question, how do we commercialize the technology?
"I think our key advantage, if you want to boil it down to one thing we've got, is absolutely religious commitment to a technology future which I believe is 100% certain to happen."
We just did a deal with GE (NYSE: GE) whereby they use our technology to send alert messages to 2 million drivers of cars that are leased from GE to bring them in for servicing. You couldn't afford to do that with a person, but you really should because you've got a $10 million asset out there being depreciated by people who don't much care about it.
TMF: What about your network business?
Saylor: That's typified by the Strategy.com offering. Strategy.com is our real-time news-driven transaction network. What we wanted to do was take our technology and create the killer application. We figure the killer application is like Yahoo! (Nasdaq: YHOO) but for proactive intelligence. It's weather, traffic, sports, news, investments, all this kind of stuff. We're warehousing all of that news and we're building a website to let the individual sign up for what they want to track. You tell me how you drive to work and I track every day to see if your route is jammed, and on the day it is I call you with an alternate suggestion.
TMF: You launched the site when?
Saylor: About eight weeks ago. And it's probably more interesting than just a site. What we did is we created this entire infrastructure. We've launched an investment channel. We're about to launch weather and then after that news, all this year. So we've got those three channels. Each channel has a dozen or more programs which will tell you something you want to know based on your criteria.
What we did with Strategy.com was we decided we would market it with a syndicate model. We said, who would actually want to give out personal investment feedback via the telephone? The answer is every brokerage house, every bank, and every financial information website. The Motley Fool might want to call you on the phone and tell you there's some urgent new piece of information about a company you are invested in.
Well, in order to do that you would have to invest $10, $20, $30 million dollars or more in equipment to do it well. So if I was talking to you guys my pitch would be we're going to invest $100 million in Strategy.com. I've already got $30 million in it. Here's all of my existing programming. If you want you can actually offer a Motley Fool intelligence product and it could be powered by Strategy.com, but you have the major brand, not I.
TMF: Who have you signed at this point?
Saylor: We signed EarthLink (Nasdaq: ELNK) because they wanted to have sticky content on their website. We signed up a portal called Community of Science that has 500,000 clients. We also signed up affiliates like WashingtonPost.com because newspapers don't want to invest in this kind of infrastructure, but they do want to support you seven-by-twenty-four and they do want a cut of the transaction. We signed up USA Today and Nasdaq.com.
There's a million ways to benefit your organization if you're the one standing between the customer and the transaction. Our vision here is real-time, news-driven transactions. If you look at the World Cup, Brandi Chastain kicks the winning goal and for half an hour 100 million people will buy anything from you. Take your shirt off and sports bras become the rage for half an hour. Now after two or three days that passion wears off. And you've got to split that opportunity across 50 different distribution channels and people get caught in traffic and they get caught in a line in a store and they can't find the merchandise on the shelf. You know it's very inefficient distribution.
On the other hand, if I have 100 million people in my database and Brandi kicks that ball, then within 30 minutes I can pitch all 100 million on the Brandi commemorative biography, or Girls of the World Cup photo album, or whatever you want, right? My takedown rate is going to be like 20% because people are passionate and at that point they'll do it. That's real-time news.
TMF: It's meeting the right customer with the product at the right time.
Saylor: That's it. That's just classic merchandising. Like what you would read in a merchandising text book written 30 years ago. What's changed is the technology which brings that triple key value pitch to within 20 seconds.
TMF: How far can you take it?
Saylor: If you look out 10 years, the vision for Strategy.com is a billion people with wireless devices and access to the Web.... The most important channel maybe is a small hearing-aid-sized speaker in your ear. What you've got is an angel whispering in your ear telling you it's cold outside, carry your umbrella, drive left, there's a crime in your neighborhood, someone's trying to tap into your bank account for $50,000, right? And as it whispers, you've got the ability to respond very quickly. That ought to be big enough for us to be a $10 billion company.
TMF: In terms of valuing the company, your P/E is around 190. What kind of metrics would you encourage investors to use when valuing your company?
Saylor: I would point out that it's a fairly well-valued company compared to most traditional enterprise software companies. But actually it's only valued at about half or one-third of the multiples people are giving to e-business tools companies like Vignette (Nasdaq: VIGN) or BroadVision (Nasdaq: BVSN). Anybody selling enterprise software right now where they're expressed intention is to power the e-business sites of the future is getting in essence an infinite P/E. So I would say that we're fairly valued if you're valuing us as a high-growth enterprise software company that's trapped in the back office.
TMF: What gives you an edge over the competition?
Saylor: I think our key advantage, if you want to boil it down to one thing we've got, is absolutely religious commitment to a technology future which I believe is 100% certain to happen |
