Unica Corporation

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Unica Corporation

Reservoir Place North 170
Tracer Lane
Waltham, Massachusetts 02451-1379
U.S.A.
Telephone: (781) 839-8000
Fax: (781) 890-0012
Web site: http://www.unicacorp.com

Public Company
Incorporated: 1992 as Unica Technologies Inc.
Employees: 241
Sales: $63.5 million (2005)
Stock Exchanges: NASDAQ
Ticker Symbol: UNCA
NAIC: 511210 Software Publishers

Unica Corporation is a leading provider of analytical client relationship management (CRM) and marketing automation solutions. It develops, manufactures, and distributes enterprise marketing management (EMM) software that businesses use to help identify, measure, and predict customer behaviors and preferences. Unica's software suite enables users to conduct large-sized, personalized marketing campaigns, to incorporate enterprise data, and to analyze the effectiveness of marketing efforts. Unica also offers consulting, installation, integration, and training services. The company has six international offices and global customers in more than 25 countries.

1992–97: THE ESTABLISHMENT OF ENTERPRISE MARKETING MANAGEMENT

In 1992, Massachusetts Institute of Technology graduate school classmates Yuchun Lee, Ruby Kennedy, and David Cheung founded Unica Technologies Inc., which developed software to help companies' marketing operations. The three men had met while at MIT, where each specialized in data mining, predictive modeling, and statistics. Avoiding the rapid growth models of other tech start-ups, the company funded its product development through 1997 with consulting services, a rare occurrence among technology companies who more generally sought and secured venture capital. "A billion-dollar company is built one brick at a time, and it's built as a company that knows how to make money," said Lee retrospectively in a 2002 DM Review article supporting his company's independent position.

Lee, who became chief executive of the company, had as a child in Taiwan decided to pursue a career in art and architecture. After his family immigrated to the United States when he was 13, he earned both undergraduate and graduate degrees from MIT as well as a masters in business from Babson College. Prior to founding Unica, Lee held senior-level positions at Digital Equipment Corp. and MIT's Lincoln and Media Labs. Lee did not believe that his science-related degrees meant he had abandoned his earliest calling. "I wasn't really introduced to software until high school. However, after I started programming, I realized that it is the ultimate, purest form of design. I consequently became very enthusiastic about computer science," he explained in a 2002 DM Review article.

In 1995, Unica introduced a line of software that simplified the task of building data-driven and statistical financial models. The Pattern Recognition Workbench (PRW) integrated a spreadsheet and an experiment manager that let users build nonlinear neural network models from data. Unlike dedicated neural network software packages, which supplied only a learning engine, the PRW integrated all the ordinary pre- and post-processing tasks that other tools left up to the user. PRW automatically evaluated every possible combination of input variables and came with an accompanying book by Lee, Solving Pattern Recognition Problems, to help users take full advantage of the PRW software.

Many of the customers for Unica's initial product were financial institutions that relied on network models to predict market price movements, volatility, and other market factors, such as interest rate fluctuations. Using the PRW, users could perform a "forward search," which started with one-variable models, from which it chose the best option and then added on variables, or a "backward search," starting with all variables and pruning off the worst until only one best option was left. At almost $7,000 for the PC version and $12,000 for the workstation platform, only larger, well-established companies could afford the cost.

1998–2000: NEW PRODUCTS, NEW CUSTOMERS, AND STRATEGIC PARTNERSHIPS

In 1998, Unica added to its product offerings with the Model 1, data mining software which offered four data mining modules and which ran all the standard statistical and nonstatistical techniques to develop a data mining algorithm. Model 1, distributed by Group 1 Software in partnership with Unica, quickly became the premier data mining software for database marketing in the Fortune 1000, used by organizations in a wide variety of industries, such as banking, marketing consulting, retailing, telecommunications, insurance, catalog, and healthcare.

Also in 1998, Unica introduced Impact!, a predictive marketing campaign management system that could deploy high-volume marketing campaigns. Impact! tapped directly into a companies' customer information and worked with data in whatever form available, whether flat files or database information.

In order to help customers integrate advanced data mining technology into their marketing campaigns, Unica also formed a consulting division in 1998. Unica Consulting Division consisted of a team of specialists skilled in the technology of data mining and the application of data mining to real world problems. This division began to offer training courses to teach data mining techniques and to apply them to real world marketing situations, such as targeted customer acquisition, customer retention, and cross-selling.

Unica grew as planned, "one brick at a time," and its revenues increased tremendously from 1992 to 1999, starting at $100,000 and increasing to $4 million. In 1999, the company raised $12 million from investment partners, including Summit Accelerator Fund, the venture capital arm of Summit Partners, and from JMI Equity Fund, all of which it saved. "Our venture partners provided us with security, connections, and helped get us organized more like a public company," according to Lee in a 2002 Boston Herald article.

COMPANY PERSPECTIVES

Our direction is simple. We are satisfying the demand of directors of marketing and the IT staffs that support the marketing operations. Through the ups and downs, we are very careful to ensure that we identify our customers and provide a product that clearly adds value and can be differentiated from a core-competency standpoint in the market. The truth is that we haven't shifted the direction of the company at all, even through the CRM cycle and the dot-com cycle. We're focusing on the areas in the market where we're adding value. For this reason, we're in sharp contrast to the foundations of many of the companies born in the dot-com era.

Unica also grew through forming a series of strategic technology alliances. Starting in 1999, it partnered with marketing services companies to market Unica's software, and with software companies, to integrate products and thereby expand the usefulness and applicability of each partner's tools. The partnerships contributed to Unica's steady expansion, and, by 2000, the company, now based in Lincoln, Massachusetts, had 200 client companies, offices throughout the United States, and a network of distribution partners in Europe, South Africa, and South America. With close to 75 employees, it was adding about two employees per week. In recognition of the company's steady performance, Ernst & Young chose Lee as a finalist for its Entrepreneur of the Year in 2000.

2000–05: RAPID GROWTH, INDUSTRY RECOGNITION, AND A FOCUS ON CUSTOMER RELATION MANAGEMENT

Lee and Unica's other managers made a decision in 2000 prior to the release of the company's next round of software. They changed Unica's focus from that of a data mining company to a company focused on customer relation management (CRM) in order to ensure its continued expansion. During the late 1990s, the data mining bubble having burst, those software applications that formerly had been devoted to mining became embedded in CRM and supply/demand planning. The idea behind CRM was to discover as much about a customer in real-time, regardless of the point of contact, and to suggest products or services based on customer responses to questions.

Affinium was Unica's first fully-automated marketing, or CRM, software suite, designed to help marketing professionals understand and track purchasing and other business-related behaviors; it was released in 2000 and represented an amalgamation of Unica's earlier products, including Model 1 and Impact! Affinium had four different applications: Affinium Model, a data mining tool; Affinium Campaign, a campaign management system; Affinium Interact, a personalized permission-based e-mail communications system; and Affinium Report, a business intelligence reporting and web portal.

With the addition of Affinium, the company also received a number of industry awards, including a ranking among the elite New England Technology Fast 50 for 2000, based on five-year revenue growth. Unica was named 174th of the 500 fastest growing companies in the country by Inc. Magazine, and 262nd on Deloitte & Touche's Technology Fast 500. The company opened new offices in Denver and San Francisco, the fast-growing centers for CRM, in 2000 and began its Alliance Program to guide successful collaboration between itself and its technology partners on CRM initiatives for joint customers.

The year 2001 saw Unica's 10th consecutive record quarter and an increase in revenues of greater than 2,000 percent from 1998. The company's outstanding performance resulted in its again being named to the New England Technology Fast 50 and moving up to 137th among the country's 500 entrepreneurial growth leaders as ranked by Inc. magazine. Between 1998 and 2002, the company successfully bucked the nation's economic downturn, with revenues that declined in only two of 15 quarters.

Unica received a patent in 2001 for technology that provided a unique, graphical presentation of complex modeling results. This technology replaced the traditional "life chart," a graph depicting the predictive value of a single model over random chance, and permitted users to monitor the predictive value of the best models as they were being built. The company received a second patent that same year for its optimization technology and methodologies that allowed users to break with the traditional approach of sending a marketing offer with the highest average response rate to all potential customers. Instead each individual received a targeted product offer as part of an "optimal" marketing campaign.

In 2002, Unica continued to develop its emphasis on customer support with its first annual two-day Global Customer Conference in Boston. "This conference enabled us to continue our dialog without customers and gather valuable insights and ideas, which will help Unica continue to develop and deliver leading-edge products and services that meet the specific needs of marketing organizations." It also met with its newly formed customer advisory board to discuss key business challenges and to learn more about how organizations execute marketing initiatives on the strategic and tactical level.

KEY DATES

1992:: Yuchun Lee, Ruby Kennedy, and David Cheung found Unica Technologies Inc.
1998:: The company forms Unica Consulting Division.
1999:: Summit Accelerator Fund, the venture capital arm of Summit Partners, and JMI Equity Fund Summit Partners invest $12 million in Unica.
2001:: Unica receives two patents for technology.
2002:: Unica holds its first annual Global Customer Conference; the company moves to new corporate headquarters in Waltham, Massachusetts.
2003:: Unica acquires Marketic SA of France; the company receives another patent for technology.
2004:: Unica opens an office in Munich.

More awards arrived in 2002. Unica was named one of the ten most influential e-business leaders in New England by the Mass Electronic Commerce Association and the editors of CMP's Intelligent Enterprise chose it to be seventh in their list of the 12 best IT solutions providers that turned data into intelligence, along with IBM, Microsoft, PeopleSoft, SAP AG, and BEA Systems. The company expanded into Europe, the Middle East, Africa, and the Asian-Pacific market with offices in London and Singapore. It opened regional sales offices and employed technical teams as well as instituting around-the-clock support in nine languages. The company, whose revenues had increased another 340 percent since 2000, served about 250 customers. In 2002, it moved to new corporate headquarters in Waltham, Massachusetts.

In 2003, Unica received another patent for creating data mining and modeling technologies that allowed for more accurate predictive models for expected customer behavior. This technology was a part of a move to focus on marketing planning rather than analytics and campaign management as marketers, faced with the continued economic downturn, were returning to direct marketing strategies to generate specific measurable returns on campaigns.

Unica acquired Marketic of France, which focused solely on campaign management in mid-2003. This acquisition conferred an immediate foothold in southern Europe and strengthened the company in the areas of financial services, retail services, and telecommunications. The company now counted ten of the top 20 U.S. banks, three of the top Canadian financial institutions, Europe's leading telecom companies, leading hotel and leisure companies, and key retailers, auto manufacturers, publishers, and insurers worldwide among its customers. Affinium was the product of choice by as many as four times the number of companies as any other EMM software suite. Unica enjoyed an estimated 33 percent share of new EMM customer sales worldwide and had 52 percent revenue growth per year, leading industry analysts to announce that it held the top slot among EMM providers.

Unica's revenues in 2004 reached $48 million, almost 40 percent higher than the year before, while the marketing software category as a whole grew 15 to 20 percent. The company had a three-year record of profitable growth. By 2005, it employed more than 250 people (up from 130 just two years before), including 67 outside the United States. More than 300 organizations used its Affinium Suite. Total revenue grew more than 30 percent to $63.5 million, and the company held its initial public offering, joining the NASDAQ. It opened an office in Munich as its activities increased overseas.

Looking to the future, Lee shared his view with DM Review that "[i]n the long run, Unica will be successful because our mission is to build Unica as a billion-dollar company…. We know the technology space and we know it's in its infancy in terms of what it can do in enterprise marketing software. We're confident of the opportunity out there." He was referring to the fact that 40 percent of companies surveyed in 2004 had raised their marketing budgets three to 11 percent that year, but most businesses had not yet automated their marketing functions. Unica believed that EMM was a needed alternative to ineffective, manual marketing solutions, a tool to understand customers, create and execute marketing campaigns, coordinate activities, and optimize resources. Its growth seemed to indicate that the companies it aimed to serve agreed with this view.

PRINCIPAL COMPETITORS

Applix, Inc.; Art Technology Group, Inc.; Blue Martini Software, Inc.; BroadVision, Inc.; CA, Inc.; E.piphany, Inc.; KANA Software, Inc.; MarketSoft Corporation; Marketswitch Corporation; Onyx Software Corporation; Oracle Corporation; Pivotal Corporation; SAP Aktiengesellschaft; Siebel Systems, Inc.; thinkAnalytics.