Witness Systems, Inc.

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Witness Systems, Inc.

INTERNET-BASED TECHNOLOGY SPURRING GROWTH

ACQUISITIONS SUPPORT COMPREHENSIVE PRODUCT STRUCTURING

TECHNOLOGY BREAKTHROUGH

Witness Systems evolved from Tesdata Systems Corporation, a publicly owned, computer testing and monitoring company, known for its Smart network monitoring equipment. The Witness brand developed with voice and data synchronization, an innovation that made the company a technological leader in customer service telephone call monitoring. Voice and data synchronization captured verbal activity from a call and synchronized it with views of the computer screens accessed by the service representative during the call. Thus, Witness gave customer service supervisors the ability to review each customer encounter as it had occurred, in order to identify the training needs of individual representatives. Witness Systems formed as a private company in 1988, focusing on market and product development for the Witness technology.

The next significant technological change occurred in 1991, when Witness Systems transferred its call monitoring application from the mainframe computers to desktop computers. Several improvements accompanied the change, such as preserving on hard disk a digital recording of telephone calls and data screens. Supplemental capabilities included information management for use in employee performance evaluations and information security measures.

Beginning in January 1995, Jim Judson provided strategic direction as president of Witness Systems. Under Judson, the path of product development followed from listening to customers about their specific needs, leading the company to add several enhancements and options. In 1997 the company introduced improvements to the software’s security capabilities, file and search capabilities, and replay speed and efficiency. A new central control console facilitated administration. The new Witness Evaluation and Report module improved on existing performance summarization. Simultaneous review, evaluation, and scoring could be achieved using forms, charts, and graphs customized according to the needs of individual call centers. Another enhancement involved the ability to monitor calls based on specific events, such as a sales campaign or by caller, as determined by customer account number. System improvements, ease-of-use, and a focus on accountability garnered the company industry accolades. Four leading call center industry publications named the Witness call monitoring system “Product of the Year” for 1998. Also, Call Center Magazine named Judson a Call Center Pioneer, in recognition of his attention to customer needs and requests.

During his three-year tenure at Witness, Judson positioned Witness financially for continued, rapid growth. In 1997, he obtained capital investment from Battery Ventures and a credit facility from Silicon Valley Bank. That year, in July, Witness hired several engineering, finance, and marketing executives to support growth. Overall, staff at the company increased from 22 in early 1997 to 90 in mid-1998. Under Judson’s leadership, revenue increased 300 percent, to $6 million in 1997; however, the company reported a loss of $2.3 million. The pace of growth accelerated after Judson left Witness in January 1998. Interim CEO Craig Richards oversaw the company in 1998. That year Witness opened its first international office, in Leeds, England, a leading base for call centers in the United Kingdom. Overall, sales doubled to $13.2 million in 1998; however, net loss doubled as well, to $5.3 million.

Under new CEO David Gould, Witness moved forward in its pursuit of growth, and by February 2000 the company was prepared for an infusion of new capital investment through an initial public offering of stock. Witness offered 3.8 million shares at $20 per share. The price rose to around $40 per share within the first month of trading. Witness applied the proceeds to pay debt, to fund working capital and operating losses, to invest in sales and marketing and research and product development, and to further international expansion. In April, Witness opened an office in Stockholm, Sweden, to serve the Scandinavian countries and Iceland. The June opening of the Sydney, Australia, office addressed demand in Hong Kong, Singapore, Japan, and New Zealand. In August, Witness opened an office in Amsterdam, Netherlands, to take advantage of the high level of trilingual capabilities of many people.

INTERNET-BASED TECHNOLOGY SPURRING GROWTH

The development of Internet technology opened new areas of expansion for Witness. In February 2000, the company introduced eQuality Interactive, a suite of call monitoring technologies designed for Internet-based customer interactions. The products recorded web chats between agents and customers for performance evaluation and analysis. In March, Witness extended the eQuality Interactive product with eQuality Response, an e-mail interactions monitoring program. In contrast to telephone interactions, written communications required a different set of skills and, therefore, different evaluation techniques. In addition to sorting recordings by customer representative, the software sorted calls by customer, who might encounter more than one representative during different shifts. In November 2001, Witness began to offer monitoring for online self-service transactions, whereby supervisors reviewed customer interfaces with a web site.

COMPANY PERSPECTIVES

Witness Systems is the worldwide leader in software and services that help businesses capture customer intelligence and optimize their workforce performance.

A natural extension of the call recordings and performance evaluations provided by eQuality involved the new field of e-learning. In response to customer suggestions, Witness developed e-learning software which utilized information garnered from call monitoring to create online training. In addition to improving the general quality of customer interactions, the e-learning tool offered training for new product or service introductions, special sales, up-selling, and cross-selling. Witness benefited from this early entry into e-learning, which proved to be a significant area of growth in 2002 when the economy and other call center service companies stagnated. To build on this strength, Witness launched a Business Consulting Services Group to assist customers in designing their online training program. Further development of e-learning occurred through a partnership with Phasient Learning Technologies, maker of training simulation products. In cooperation with Phasient, Witness developed eQuality Producers, with which call center managers could create training materials from agent calls by editing the calls to produce customer service training simulations.

Another avenue for growth through Internet technology pursued by Witness involved voice over Internet protocol (VoIP). In April 2003 Witness announced its intention to acquire Eyretel plc, a company that provided call monitoring technology to the financial services industry, specifically, in monitoring financial transactions. Eyretel’s presence in Europe and Asia complemented Witness’s strength in the United States. Through rapid integration with Eyretel, Witness exceeded its goal of achieving $18 million in annual savings through streamlined operations; the company attained that goal within four months. Significantly, the acquisition benefited Witness through Eyretel’s lead in the development of VoIP, which would facilitate call monitoring from a remote site. Also, Eyretel had signed a contract with Cisco Systems’ Call Manager product line; thus, Witness expanded on that partnership to bundle its software with Cisco’s. Witness further strengthened its VoIP capabilities through an agreement with Avaya, Inc., whose Communication Manager product, as well as its VoIP capabilities, complemented Witness’s call monitoring systems. Witness’s lead in VoIP supported a 60 percent increase in revenue in 2003, to $108 million. By September 2004, Witness introduced enhanced Internet protocol (IP) software for recording, categorizing, and storing IP telephony calls. In particular eQuality Contact Store enhanced user handling from a remote site and integrated calls from all locations for easier access and navigation through stored material.

Other new developments in call monitoring technology involved improvements to eQuality’s analytical capabilities. In March 2004, Witness offered integrated information to ease navigation through recorded customer interactions and to facilitate identification of patterns. In April 2004, Witness formed an Alliance with CallMiner, Inc., in order to combine the eQuality customer interaction recording software with CallMiner’s CoreEngine and TrendMiner programs. Speech recognition and related technologies would be applied to improve information retrieval. Potentially, a new product could chart topics that arose during customer calls through key words or phrases and then provide statistics for trend analysis. The alliance culminated in eQuality Call Miner, which analyzed speech patterns to identify specific words or phrases which could be utilized to choose calls for performance analysis by conversational context. Also, the voice recording could be converted to text for manager analysis.

KEY DATES

1988:: Innovation in voice-data synchronization provides basis for Witness call monitoring system.
1995:: Jim Judson provides strategic leadership as president of Witness Systems.
1998:: Customer-focused technology improvements lead to industry accolades for Witness products.
2000:: Witness launches Internet-based technologies under the eQuality brand.
2005:: Acquisition of Blue Pumpkin provides technology to unify call monitoring solutions on a single platform.
2007:: Verint Systems acquires Witness for $950 million.

ACQUISITIONS SUPPORT COMPREHENSIVE PRODUCT STRUCTURING

During 2005 and 2006, Witness purchased several companies of complementary technologies with the intention to unify eQuality products into a comprehensive system to be available on a single platform. Toward that end, in December 2004 Witness announced it would acquire Blue Pumpkin Software, Inc., a leader in performance optimization software for workforce management. Blue Pumpkin’s forecasting, scheduling, adherence, and planning software would enhance similar applications offered by Witness. Located in Silicon Valley, Blue Pumpkin specialized in small- and medium-sized businesses and had offices in Petach Tikva, Israel. The $75 million transaction, completed in February, entailed a payment of $40 million from existing cash resources and $35 million in Witness stock, or 2.1 million shares. In order to retain the quality staff at Blue Pumpkin, Witness offered stock options to 120 employees.

Synthesis of Blue Pumpkin and Witness capabilities manifested in the October 2005 introduction of Witness Impact 360 software and services. With the new product Witness offered clients a unified architectural platform and user interface which integrated the four primary functions of call center management: call monitoring, workforce scheduling, performance evaluation, and e-learning. Hence, 360 Impact was intended to optimize and simplify call center management by connecting separate but interrelated functions under one enterprise software system. Furthermore, the system would provide significant cost savings to customers who would otherwise purchase separate programs for each function. Product upgrades in 2006 included improvements to schedule forecasting and implementation capabilities, particularly in collaboration with outsourced call centers. Also, enhancements would allow for more accurate identification of peak and low call times.

Three additional acquisitions furthered development of the 360 Impact product, particularly for the retail financial services industry. In November 2006, Witness acquired Demos Solutions Consulting Group, Ltd., and Exametric, Inc., both of whom catered to the financial services industry with enterprise productivity and resource planning solutions. Hence, with the acquisitions, Witness sought to expand its customer base to banking entities. Witness paid $29 million in cash for both companies, and would pay as much as $18 million over the next few years, depending on revenue growth. The two acquisitions led to the November 2006 introduction of its specialized workforce management software, called Impact 360 for Retail Financial Services. The program was designed to synchronize retail outlets, customer contact centers, and certain accounting functions under one enterprise solution. Impact 360 would facilitate analysis and action on information about employee performance and customer interface. Other capabilities included forecasting customer volume in order to determine staffing; tracking, capturing, and analysis of employee keystrokes and screen navigation; customization of forms, reports, and graphs to summarize and evaluate employee performance; and determining training requirements. With the third acquisition, of Amae Software in December 2006, Witness obtained a user-friendly customer survey software that would enhance Witness’s Impact 360 Workforce Optimization suite with a customer feedback option.

Witness’s technological lead with the comprehensive Impact 360 package garnered repeat customer business, as well as new clients. In the last quarter of 2005, Impact 360 accounted for 25 percent of sales, compared to only 10 percent of sales from bundling for complete package solutions during the previous quarter. During 2005, Witness added 357 new clients and 75 percent of license revenue originated from sales to existing clients. Growth continued apace in 2006, with revenues reaching $221 million.

OWNERSHIP AND EXECUTIVE CHANGES

In early 2007 a number of surprising events occurred at Witness Systems. First, a Securities and Exchange Commission investigation into backdating stock options, which began in the fall of 2006, led to the resignation of CEO Dave Gould. Then, rumors swirled around the possibility of NICE Systems, Inc., acquiring Witness. Unexpectedly, Verint Systems, Inc., won the competitive bidding process, with a $950 million cash offer; it was $150 million higher than NICE’s bid. Finally, despite an options backdating probe at Verint, which led to the delisting of Verint from the NASDAQ, the acquisition process continued, awaiting only the approval of shareholders and boards of directors.

The merger between Verint and Witness would combine each company’s unique area of superiority, Witness’s in call monitoring and Verint’s in performance analysis. Also, the two companies offered strengths in different markets, with Verint operating in defense and enterprise sectors and Witness operating in numerous civilian industries. Despite these different areas of expertise, the two companies shared similar corporate cultures, with an orientation to customer-focused product development.

Mary Tradii

PRINCIPAL COMPETITORS

ASC Telecom LP; Autonomy Corporation plc; Cacti, Inc.; Consensus Communications, Inc.; ECI Telecom, Ltd.; Envision Telephony, Inc.; NICE Systems, Ltd.