MicroStrategy Incorporated

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MicroStrategy Incorporated

COMPANY FOUNDED: 1989

INTRODUCTION OF EIS TOOL KIT: 1992

TAKEN PUBLIC: 1998

COMPANY FOUNDED: 1989

Of MicroStrategy’s three cofounders—Michael Saylor, Sanju K. Bansal, and Thomas Spahr—Saylor was the guiding spirit and dominant personality. The son of an Air Force sergeant, he used an ROTC scholarship to earn degrees in both engineering and the humanities at the Massachusetts Institute of Technology (MIT). His plans of becoming an Air Force fighter pilot and possibly an astronaut were dashed when a physical revealed a heart murmur, disqualifying him. Instead, he took a job with a New York consulting firm to write a financial computer simulation model for du Pont’s global titanium business. When asked to sign a noncompete agreement, he refused and approached du Pont about working directly for them. In 1989, after completing the titanium project in 18 months, the 24-year-old Saylor told du Pont that he wanted to start his own consultancy to handle the company’s work. He quit before he even had an answer, but a month later du Pont agreed to his proposal and gave him a $100,000 cash advance on a $250,000 contract, as well as office space and computer equipment. Thus, MicroStrategy was born as a Wilmington, Delaware-based company.

To help him launch his start-up, Saylor recruited Indian-born Bansal, an MIT fraternity brother, who left the consulting firm of Booz Allen to become MicroS-trategy’s chief operating officer. Their first hire was a chief information officer, Spahr, another MIT graduate who had known Saylor since their junior high days in Dayton, Ohio. Du Pont served as MicroStrategy’s incubator. “In essence,” Saylor told Washington Techway in a 2000 profile, “we had no marketing costs, no sales cost, no facilities cost, a decent contract and a chance to get going.” The relationship with du Pont also meant that MicroStrategy would not need outside investors and was free to pursue its own interests.

MicroStrategy started out focusing on high-level computer simulations, but Saylor quickly concluded that the demand for such work was limited and he began searching for another way to use the technology to help a broad spectrum of companies solve business problems. Using a spreadsheet program called Wingz as a platform, in order to save money, MicroStrategy began developing executive information systems (EIS) to consolidate and present summary-level analysis of database information to executives for decision making. Du Pont’s fluorochemicals division, for example, used an EIS developed by MicroStrategy to break down its global business by region, industry, segment, and product.

INTRODUCTION OF EIS TOOL KIT: 1992

The company was not alone in pursuing the EIS niche, but what separated it from the pack was the 1992 introduction of the “EIS Tool Kit,” a Wingz-based software product that permitted the creation of an EIS without programming. Hence, a smaller company that could not afford to build an EIS was able to create an EIS using the tool kit in a matter of days. Saylor admitted to Washington Techway that the product was really little more than a “sales gimmick,” something to impress potential customers: “Just add 10 man-years of work, and you get an application.” Nevertheless, the product led to a sale to McDonald’s in 1993, providing MicroS-trategy with an opportunity to gain experience in practical data mining. With billions of records pulled from thousands of franchises in its database, McDonald’s wanted to use that information to do optimal marketing, to determine the sales impact of changes in price, advertising, menu, and any number of other factors. MicroStrategy graduated from summary-level analysis to doing detailed analysis. In the course of developing the McDonald’s system, Saylor came to understand the potential of data mining. “I realized it was going to be big,” Saylor told Washington Tech, “because with people collecting tons of data, you could make amazing conclusions from it. It was a fun business. It was intellectual. It was hard work.”

MicroStrategy switched from being a consulting company to a software company, and began developing proprietary data-warehouse analysis tools. The company posted revenues of $4.2 million in 1993. It employed about 50 people, but Saylor and Bansal were so optimistic about the company’s future that in early 1994 they decided to double employment. They also decided that they needed to relocate to a better technology hub than Wilmington, Delaware. Moreover, most of their employees were not yet married or homeowners, making a move something that needed to be done sooner rather than later. After considering Boston and San Francisco, they settled on the Washington, D.C., area, and in late 1994 moved the business to northern Virginia.

After completing the move, MicroStrategy introduced its first major product, DSS Agent (Decision Support System Agent), a sophisticated data-mining tool that allowed users to query the contents of enterprise data warehouses. It essentially laid the groundwork for a new segment of the business intelligence market that would become known as relational online analytical processing (ROLAP). The company began to grow at a rapid pace. After recording sales of less than $5 million in 1994, MicroStrategy grew revenues to $9.8 million in 1995 and $22.6 million in 1996.

COMPANY PERSPECTIVES

Our mission is to empower every business user to make more informed decisions by providing timely, relevant, and accurate answers to their business questions. To achieve this mission, we endeavor to build the best business intelligence software in the world—a single, integrated platform supporting all styles of business intelligence through the easiest-touse interface and delivery channel possible. We provide superior analytical performance to every business user in the format that suits them best—from high-level dashboards, to custom reports, to advanced analysis. We meticulously engineer our software to guarantee its reliability, scalability, security, and ease of administration for organizations of all sizes.

The company by this time had developed its own unique culture, which was very much a reflection of Saylor. He told Forbes, “Our culture is part intellectual, part military, part fraternity, part religion.” New employees, for example, were put through a six-week, six days-a-week, 16 hours-a-day “boot camp.” At the same time, employees were free to question authority, and everyone took a cruise together each winter. The company’s religion was the power of database mining, and its chief evangelist was Saylor, who began to gain press attention for his views on the future of technology. He was called a visionary and boy wonder. A Newsweek profile on him ran with the headline “Caesar and Edison … and Saylor?” He spoke of purging the world of ignorance, of “database resonance,” making database information available to a wider group of people, and “query tone,” essentially a database dial tone, meaning that users could make use of stored information as easily as they used a telephone. Someone visiting a city, for example, could mine a database to find the best place to have a shoe repaired in a particular neighborhood. What was radical about Saylor’s vision, according to Stewart Alsop writing in Forbes, “is that to answer some questions, a computer program would have to use data traditionally considered proprietary or otherwise off-limits. To find the best hotel, for instance, the software in Saylor’s vision might have to examine transactions on corporate credit cards. To find the best doctors, the software would need to access and analyze patients’ records.”

Saylor, of course, embraced the Internet. MicroS-trategy began adopting its flagship product for the Web in 1996, providing an interface to allow clients to use the Internet or an intranet to query a database without having to install any specialized software. It would take several more years, however, to refine the interface and allow the system to browse through hundreds of thousands of items.

TAKEN PUBLIC: 1998

MicroStrategy began signing up new clients at an accelerated clip, so that sales more than doubled to $53.6 million in 1997. Saylor was ready to take MicroStrategy public. In preparation, he read about 500 prospectuses to find the structure he liked, one in which insiders received ten votes a share. “The more I studied, the more I realized that there were two types of IPOs,” Saylor told Fortune. “There’s the IPOs that the entrepreneurs do when they want to get rich really quick, and then there’s the IPOs done by the billionaires, the moguls, like Murdoch, Malone, Redstone, Craig McCaw, Ralph Lauren.” MicroStrategy’s original underwriter, Goldman Sachs, did not support Saylor’s scheme, which he attributed to the firm’s reluctance to set up a precedent for other entrepreneurs and cede leverage over MicroStrategy, “including not having the ability to merge us out of existence.” Instead, Saylor took his offering to Merrill Lynch, which in June 1998 conducted the stock offering, raising $48.1 million for the company. Insiders did not sell any of their shares, although before the offering they split a $10 million dividend. The stock opened at $12 a share on the NASDAQ and in a matter of hours doubled. A month later MicroStrategy stock reached $44.50, making Saylor a paper billionaire. Over the next two years the stock continued to soar.

Saylor also continued to pursue his revolutionary dreams. Not content with just serving business clients, he wanted to make his technology part of people’s daily existence, so that in time they could not envision life without it. In 1998 he made a tour to pitch his idea of a personal information network to companies. He envisioned an information network that could supply personalized investment, news, weather, sports, and other information to subscribers through e-mail, fax, or cell phones. When no one expressed an interest, Saylor decided to go it alone, creating an Internet business he called Strategy.com. Then in January 1999 a pager company, Metrocall, agreed to license the technology and by the end of the year 40 more companies followed suit, including NCR, Earthlink, and Ameritrade. Perhaps even more ambitious was Angel.com, a service akin to having a guardian angel on your shoulder whispering advice. Using voice recognition software, the angel, essentially a smart telephone with an earpiece, communicated with a user through a series of prompts, providing information, including marketing messages for which Saylor hoped to receive a transaction fee.

KEY DATES

1989:: Company is founded in Wilmington, Delaware.
1994:: Headquarters moves to northern Virginia.
1996:: First web-based interface is introduced.
1998:: MicroStrategy goes public.
2000:: Company is forced to restate earnings.
2005:: MicroStrategy 8 is launched.

In early 2000 Saylor prepared to take Strategy.com public and made headlines by pledging $100 million of his own money to start a free online university and by renting Washington’s FedEx Field to host a Super Bowl party for more than 5,500 people. However, other events intervened that caused the cancellation of the offering and the shutdown of the nascent business. Instead the URL directed traffic to MicroStrategy’s home page. Angel.com, on the other hand, evolved into a provider of on-demand IVR (interactive voice response) and call center solutions to corporate customers. The bursting of the dot-com bubble certainly had an adverse impact on the development of these businesses, but even before the demise of the technology sector early in the new century MicroStrategy was staggered by its own problems.

The price of MicroStrategy’s stock spiked to $333 a share in March 2000, increasing Saylor’s personal worth to $14.5 billion, but it all came crashing down when the company was forced to restate its financial results for 1998 and 1999 due to improper accounting practices that booked revenues before they were actually received. The price of MicroStrategy stock collapsed and soon the company was being investigated by the Securities and Exchange Commission (SEC) and facing a lawsuit from shareholders. Instead of a $1 billion stock offering that had been in the works, the company had to settle for a much needed $125 million private placement of convertible preferred stock. Staff cuts of about 10 percent and other cost-saving measures were instituted, including the elimination of the annual cruise.

In December 2000 MicroStrategy reached a settlement with the SEC in which Saylor, Bansal, and Chief Financial Officer Mark Lynch each agreed to pay fines of $350,000 without admitting wrongdoing. The company also agreed to implementing a number of accounting changes and the appointment of an independent director to keep tabs for the SEC. Chastened by the experience, Saylor made other changes as well. He relinquished the presidency, bringing in Eric Brown to take over the post. Saylor also scaled back his ambitions, playing down the revolutionary talk in favor of focusing MicroStrategy on what was its core business: developing software that companies could use to analyze the databases to identify trends, producing actionable information that could result in reduced costs or enhanced revenues. The company also looked to broaden its customer base beyond major corporations, and to target smaller businesses it opened an online store and allowed customers a month to evaluate the software free of charge. It was also in 2001 that one of the cofounders, Thomas Spahr, left the company, reportedly under benign circumstances. He expressed satisfaction with the job he had performed in developing the company’s internal information systems and technology, but said he was ready to take some time off and perhaps later start his own company.

Spahr’s more visible cofounders, meanwhile, continued to rebuild MicroStrategy. It fared far better than the vast majority of high-tech companies during the early 2000s. For one, it had a client list that included a large number of global companies and had solid revenues to point to, unlike so many high-flying tech companies that had soared in the late 1990s only to crash and burn in the new century. As 2002 came to a close, MicroStrategy returned to profitability and its stock price began to regain lost value. Although revenues dropped to $147.9 million, the company netted $38.1 million in 2002. The sales force was expanded, leading to an increase in sales to $175.6 million in 2003 and $231.2 million in 2004, when the company introduced MicroStrategy Office, allowing nontechnical employees to take advantage of business intelligence tools. In 2005 MicroStrategy 8 was introduced, adding more capabilities, including the ability to easily tap into separate systems, such as finance and human resources, and enhanced web-based reporting functions. Sales increased to $268.6 million in 2005 and $313.9 million in 2006, and net earnings during this period improved from $64.7 million to $70.9 million. MicroStrategy had clearly found its niche. While Saylor, now over 40 years of age, was no longer the boy wonder, and his musings no longer drew comparisons to Thomas Edison, only time would tell if his visions for the future were prescient or merely precocious.

Ed Dinger