Netezza Corporation

views updated

Netezza Corporation

200 Crossing Boulevard, 5th Floor
Framington, Massachusetts 01702
U.S.A.
Telephone: (508) 665-6800
Fax: (508) 665-6811
Web site: http://www.netezza.com

Private Company
Incorporated: 2000
Employees: 90
Sales: $8.5 million (2003 est.)
NAIC: 341190 Other Computer Peripheral Equipment Manufacturing

Netezza Corporation is a private company based in Framington, Massachusetts, that makes enterprise-class data warehouse appliances. By integrating server, database, and storage in a single machine roughly the size of a refrigerator, Netezza has achieved a major improvement in the analysis of large amounts of data. What would take hours to accomplish by a general purpose computer system can be done in a matter of minutes by a specialized Netezza appliance. The least expensive of the company's products sells for $300,000, capable of holding 400 gigabytes of data, while the top-of-the-line model costs $10 million and accommodates 27 terabytes of data. A 100-terabyte machine is in the works, at which point Netezza will begin competing more directly with the major players in the data warehousing field: IBM, Oracle, and Teradata. The Netezza approach is so promising that the company has had its choice of venture capital firms through three rounds of funding.

Founders Gaining Diverse Experience During the 1980s

Netezza was founded in 2000 by its chief executive officer, Jit Saxena, and chief technology officer, Foster D. Hinshaw. Saxena was born in Bina, India, in 1945, the son of a doctor and the only one of four brothers not to choose medicine as a career. After earning degrees at St. John's College in Agra and Bombay's India Institute of Technology, he came to the United States for postgraduate work, earning a master's degree in electrical engineering at Michigan State University in 1968. He went to work in Honeywell's minicomputer division and then moved to Boston in the early 1970s to earn his M.B.A. at Boston University at company expense. He next took a position with Data General, heading the software development group. He stayed until 1983 when he struck out on his own, starting a Boston-area company named Applix Inc. to develop and sell word processing and spreadsheet software for corporate workstation computers using the Unix operating system. The company's eventual cash cow was a robust spreadsheet that could provide instant market data to financial traders.

Hinshaw, in the meantime, earned bachelor of science and master's degrees in Electrical Engineering from Cornell University, followed by an M.B.A. from Harvard University. He became involved in hardware and software development at the Department of Environmental Protection, Stone Associates, Design Marketing, and Maplewood Enterprises, and also developed on-screen TV guides at VideoGuide. He then went to work for Keane, Inc., a major software consulting firm, and became a Y2K consultant before becoming independent, handling such important clients as Staples and other Boston-area corporations. It was because of this work that Hinshaw came to understand how much time companies spent trying to merge databases and storage archives using software applications. The companies were accumulating data at a rapid clip and the only answer they had in dealing with this massive amount of information, to get some actual use out of it, was to keep the platform and try to speed up the hardware or the software. Hinshaw realized that this approach was losing the battle and a more radical solution was required. He began developing a parallel system for database analysis. In this way, a request could be reduced to a number of smaller, more manageable queries that could be addressed to the database simultaneously, then reassembled on the backside to provide a much quicker answer. He also realized that the bottleneck in most systems resulted from the transfer of files from the disk storage system to the processor. To solve this problem, he designed an appliance that put a microprocessor on each drive as well as a database program burned into the circuits. As a result, data requests were made at the drive itself, and instead of sending huge files to the main computer to be mined for information, the drives sent back pertinent data only, which could then be quickly organized and analyzed. Because so much needless activity was eliminated, Hinshaw's integrated, parallel approach was able to perform data warehousing chores at a much faster rate than traditional systems.

Saxena enjoyed a successful run at Applix, but as Unix workstations began to be superseded by the Microsoft platform in the 1990s, he had to switch gears and move Applix into business intelligence and customer relationship management. Realizing that he had done as much as he could with the company, he turned over the CEO position and became chairman. He also began looking around for new opportunities. One of the people he met with was Hinshaw, who was searching for a chief executive to run a company to develop his idea for a data warehousing appliance. Saxena was the only executive Hinshaw met who actually understood why his approach was so important. The two men agreed to team up, and in September 2000 they founded Netezza, which was Urdu for "results."

Initial Round of Funding in 2000

In December 2000, Saxena was able to raise $8 million in initial round start-up funds from venture capital firms Charles River Ventures and Matrix Partners. Matrix was already familiar with Saxena, having helped to fund Applix. Netezza may have had more difficulty hiring personnel than it did raising money. Hinshaw recruited at the Massachusetts Institute of Technology only to find students had little interest in the data warehousing field. Nevertheless, Hinshaw was able to build a staff of about 70 and Netezza set up shop in Framington and began developing the company's first product. Advance buzz about the company's technology was so strong that by late 2001, when the company was not yet generating a dime in revenues, Saxena was besieged by four venture capital firms eager to get a stake in the new company. After little activity in the previous year or so, due to a meltdown in the technology marketplace, venture capital firms had plenty of money to invest, an estimated $1 billion, and were now anxious to put it to work. But they were also cautious and only interested in the best available ideas. As a result, the right to invest in companies like Netezza was auctioned, leaving the vast majority of start-ups ignored. Netezza's second round of venture capital funding was completed in January 2002 after the venture capital firms bid up the company's valuation. Although the exact valuation figures were not revealed, it was understood to be a significant increase over the first round. All told, Netezza raised more than $25 million, with Battery Ventures leading round B, which also included the company's initial investors, Matrix and Charles River, along with Orange Ventures.

Other than venture capital firms, Netezza also received a vote of confidence in May 2002 when Ed Zander, who had recently announced his resignation as CEO of Sun Microsystems, agreed to join the Netezza board. Saxena had worked with Zander during his days at Data General, and he first approached him about joining the Netezza board in 2001. His presence on a company's board was in high demand, and since the mid-1900s, when he began serving on boards, he became a director at SeeCommerce, Portal Software, and Multilink Technology Corporation. For a start-up like Netezza to land Zander was a major coup and validation in the marketplace. As he told reporters, "I don't pick just any old board." Zander also made himself available to Saxena to fine-tune Netezza's business plan, and to help zero in on the company's primary customers. Zander was immediately helpful by downplaying Netezza's position as a potential rival to the servers sold by Sun, IBM, or Hewlett-Packard. Instead, Zander maintained that Netezza's appliance could complement expensive servers already in place, fielding data requests so that the others' servers could more quickly perform a business-intelligence application. In this way, Netezza could sell alongside the much larger companies, in effect acting as a partner. Such a message delivered by someone with Zander's stature was a major plus for the young company, but his presence on the board was also something of a distraction, as Saxena had to contend with rumors that Zander was about to take his job. That talk finally subsided when Zander took the top job at Motorola Inc. He would remain a vital member of Netezza's board and according to the Boston Business Journal, he placed "the occasional call to assist a sale, particularly in his old stomping ground of Silicon Valley, to prospective buyers who have reservations about entrusting their systems to a small Massachusetts startup."

Introducing the First Product in 2002

In the fall of 2002, Netezza introduced its first product, the Netezza Performance Server 8000 line, which was priced from $622,000. It was well received in the marketplace, despite being panned by Stephen Brobst, an important figure in data warehousing who had taught at MIT before joining Teradata. According to the Boston Business Journal, Brobst said Netezza's "designs were based on the work of Michael Stonebraker and were never intended for decision support. Brobst said that Netezza has put back to work employees and ideas from two defunct supercomputer companies: Thinking Machines Corp. and Kendall Square Research Corp., a Waltham company that dissolved amid financial scandal in 1992." Saxena responded by saying, "He clearly didn't understand what it was we were doing."

The people who did understand were the people who bought Netezza appliances and became the company's reference customers, who in the beginning were involved in retailing and marketing. They included Epsilon, a junk mailer that used high-performance analytics to segment and target customers for large-scale marketing campaigns, and The TJX Companies, a major retailing operation that needed quick access to inventory and customer service customers. These early users were quite pleased with Netezza's performance. Epsilon claimed the new boxes ran 20 times faster than the company's IBM computers and cost half as much.

Company Perspectives:

The power to question everything.

Netezza's investors were clearly satisfied with the company's progress, convinced that the company was on the verge of defining a new category and had the potential to become a major company. Its products were suitable for customers in a large number of industries, including financial services, healthcare, pharmaceuticals, and telecommunications. A telephone company, for example, had to come to grips with billions of phone calls and the reality that the volume of data was just going to increase with time. The only company offering a data warehouse solution was Teradata, but it could not match Netezza on price. According to one analyst quoted by Mass High Tech, Netezza's "biggest challenge is finding customers who have tried to solve this big data management problem on their own and have failed. Because if you're talking to people who haven't tried to do it yet, they won't understand the benefits."

In July 2003 Netezza completed the C round of funding, raising another $20 million, this time led by California-based Sequoia Capital. Netezza's previous investors also participated. At this stage the company had just five customers. Nonetheless, its backers were excited by the company's potential.

In 2003 Netezza broadened its range of customers to include bioinformatics and the life sciences market. Several years earlier as life sciences companies raced to sequence the human genome, a number of start-up companies attempted to develop database tools to help pharmaceutical companies sift through the massive amounts of genetic information their researchers were producing, but in the end the drug companies elected to develop their own applications. Unlike earlier companies, Netezza did not sell prepackaged applications. Rather, it offered an infrastructure that allowed the custom applications developed by pharmaceuticals to run much faster.

By September 2004, Netezza had 15 customers and had shipped 35 systems. Some of those companies—TJX, AT&T Wireless, and Nextel—were return customers. As a result, Netezza was on track to become profitable at the end of the year. In November 2004, the company added a new product to the 8000 Series, the NPS 8025, capable of handling one terabyte of information, a far cry from the hundreds of terabytes that systems constructed by Teradata was building for such giant retailers as Wal-Mart, FedEx, and Dell. Netezza hoped to have a 100-terabyte unit ready for sale in the next year or so. With spending on data warehouse systems reaching $15.5 billion in 2003, there was ample market share available to Netezza, which combined an attractive price with excellent performance. Saxena told Forbes in 2004 that he was certain Netezza would become a $1 billion company. It was also a certainty that when the time was ripe, shareholders would either take Netezza public or engineer an exit strategy by selling the company to a giant rival.