Progress gambles on ‘virtual VC’ strategy

Critics of Progress Software invariably used to damn the company with faint praise. Even some of Progress’s ‘cheerleaders’ tended to look upon it as a database and 4GL company with niche technologies pursuing, however happily, rather modest aims.

Rather than attack the likes of Oracle and IBM at the high end, Progress instead chose mostly to license low-cost databases and development tools to independent software vendors building vertical applications for the mid-market.

The business model continues to work well: recurring revenue from its thousands of licensees has helped to generate 11 straight quarters of revenue growth, pushing annual sales above $300 million. But the model has never seemed likely to promote the company into the industry’s premier league – at least not very quickly.

Perhaps the years of slow but steady performance finally got to the company’s executives. Progress’s engine of growth may still remain the supply of its OpenEdge platform to ISVs. But alongside that core business has sprung up a surprising assortment of specialist technologies, some of which were built internally, others acquired.

The company’s most recent acquisition, at the end of 2003, brought data connectivity specialist DataDirect into the fold, at a cost of $88 million in cash. DataDirect sits alongside an application integration developer (Sonic Software), an object database unit (ObjectStore) and a data and applications replication specialist (PeerDirect).

At first, it is not immediately clear why Progress chose these particular technologies. It says the five units are all part of the infrastructure for developing, deploying and integrating business applications.

There are few apparent synergies between the different subsidiaries, although some products are bundled together: DataDirect drivers are sold with PeerDirect products and are also embedded in OpenEdge, for example, while about 15% of Sonic’s revenues come from OpenEdge user companies.

Beyond that, the different units have separate sales forces, separate share option schemes and separate executive teams. Some of the divisions derive the bulk of their sales through the channel, while others sell direct to user companies. Moreover, OpenEdge competes in the mid-market, while Sonic is for organisations with complex integration tasks, which tend to be major enterprises.

But most of the units undoubtedly have one thing in common: they are positioned within what venture capitalists would call the ‘sweet spots’ of the technology industry – integration, mobile working and radio frequency identification (RFID).

For example, PeerDirect’s technology makes multiple copies of a centrally-managed application and deploys it over a wide area, making it attractive to mobile enterprises. And ObjectStore’s virtual object mapping technology enables applications to run quicker, even when handling the large volumes of data that RFID will generate. ObjectStore has also developed a real-time event engine specifically for RFID systems.

Progress’s CEO and co-founder, Joe Alsop, has reinvented himself as a virtual venture capitalist who hopes that at least one of his investments will take off. Which does he think will succeed? “That is like asking me which of my children is my favourite. I love them all,” he says.

Despite these new horizons, there are a few clouds hanging over Progress’s core business. Oracle is pushing into the mid-market, offering lower-cost versions of its database, bundled with features users previously had to pay extra for. And another threat is taking shape in the form of the open source MySQL database, which is gathering momentum.

For years, Progress avoided the most bruising battles in the database industry that ultimately led to the demise of Ingres and Informix as independent suppliers. If it is becoming increasingly difficult for Alsop to dodge a fight, at least his company can look to new growth markets to deliver the kind of steady returns that he has become accustomed to over the years.

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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