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| Home - Industry Article - Aug 05 Issue |
What Every CEO Can Learn from Informix's Failed Acquisitions
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After the Innovative merger debacle, Informix didn't venture into acquisitions. Phil White didn't believe in them. In a 1995 interview he said, "I think we are the only company that hasn't bought anything. We have a great stock price and a wealth of cash." Commenting about Sybase's string of acquisitions and the problems they created, he added, "I think it is difficult to acquire seven different software companies and integrate, support and migrate without having some problems. Had Sybase had to do again today (purchase Powersoft), I think they would never buy them. Powersoft is about worth half of what they paid for it. I think the market has changed."
Unlike at Sybase, Oracle's revenue growth had occurred mainly without acquisitions. Oracle relied exclusively on internally developed products. Likewise, Informix was committed to "build it inside" philosophy. However, Phil White broke his own rule and ended 1995 with a buying spree that surprised his employees, the industry, and most of all, Oracle.
The first acquisition was tactical. Informix purchased its Japanese distributor for $46 million. Essentially, White bought out its contract to sell Informix products. White mistakenly thought end-user enterprise deals would increase if Informix sold direct in Japan. However, the existing sales force was more adept at channel sales and not as adept at calling on senior executives in end-user accounts. On top of these organizational problems, Informix's products weren't fully localized to support the Kanji character set and lacked multibyte support. In the end, Informix gained little through the acquisition.
Informix's second acquisition was defensive. The data warehousing market was changing rapidly. As the decision support systems in the first wave grew larger and more complicated, they became difficult to maintain and performance suffered. To solve this processing problem requires relational online analytical processing or ROLAP.
To enhance its data warehousing offering to include ROLAP, Oracle purchased IRI Software's Express line of tools in June of 1995. To counter Oracle's move, Informix purchased ROLAP start-up software company Stanford Technology Group (STG) in October. While Oracle paid $100 million to purchase the ROLAP leader, Informix paid $16.5 million for STG. A similar difference in magnitude existed between the products" features and functionality. Even though Informix could now say it offered a true solution for data warehousing, Oracle's was far superior. Once again, little was gained from this acquisition.
The final acquisition was strategic. The incredible growth and momentum of the Internet had caught everyone by surprise. Microsoft was caught flatfooted without a browser, SAP scrambled to completely Web enable applications and Oracle and Informix struggled to find a way to store complex data: the pictures, video, and unstructured content the Internet required. With high hopes, Informix announced in December that it had reached an agreement to acquire Illustra Software for $400 million (although their revenues were negligible). Illustra was to be the foundation of Informix's Internet strategy. The combination of Illustra's DataBlade technology and Informix relational databases would create a new database called Universal Server. Informix had high expectations that Universal Server would have universal appeal that would propel Informix past Oracle. The reality of the acquisition would be quite different.
The Beginning of the End
The Illustra acquisition garnered industrywide praise and the press considered it a coup. A San Francisco Chronicle headline read, "Informix Beats Oracle to the Punch." Other articles carried titles including "Database War Declared," "Clash of the Database Titans," and "Can Informix 'DataBlades" Slay Oracle's Samurai CEO?" White proclaimed the Illustra acquisition as "A chance to take market share from Oracle and, yes, a chance to become the biggest database company."
Following the acquisition, Informix went on the offensive with a marketing campaign of a magnitude never before seen from the company. Aggressive promises were made about the availability of the merged product, which was now named "Universal Server." Coverage of Informix's Universal Server dominated industry news. Oracle was caught off guard and had to scramble to mount a credible response.
A few months after the media frenzy had subsided, a technology columnist predicted, "Call me a skeptic, but I would be surprised if Informix delivers on this one by the end of calendar 1996. If Informix can defy history by incorporating major technology through acquisition, it will have a winner."
When a skeptical interviewer asked White whether one database could support both online transaction processing applications and complex data, White somewhat prophetically replied, "The real issue is performance. Can we drive thousands of transactions per second with the Universal Server?" When Universal Server was finally released at the end of the year, the answer to this question was an emphatic "No!" Universal Server did not perform well, nor did it scale under heavy loads of database queries.
As significant as the performance problems were, perhaps the biggest problem was the cultural clash between the Informix and former Illustra employees. To the astonishment of many inside the company, they acted as if they had bought Informix. They continually complained they weren't getting the attention and resources they rightly deserved. To many Informix old-timers, it seemed like the Innovative merger all over again.
As the year 1996 closed, many longtime employees felt they didn't belong at Informix anymore. After many years as part of a cohesive team, respected employees and managers began to leave. An Informix vice president of product development discreetly began contacting companies regarding his team's desire to jump ship. Unbeknownst to the rest of the company, eleven of Informix's top engineers would defect to Oracle the following January in what would become one of the most publicized events of the year. Within Informix, the team of engineers had been lauded as heroes, and their forsaking of Informix sent shockwaves throughout the company.
However, to an outside observer, the skies still looked bright and sunny at Informix. As the year ended, no outward indications hinted that Informix had major problems. Informix would close the fourth quarter of 1996 with $270.8 million in sales, its largest quarter ever. It was the calm before the storm, and in ninety days the company would be changed forever. After seven years of not missing a quarterly revenue number, the company would miss the next quarter's number in a spectacular way by $100 million. And, the Illustra acquisition had ignited an incredible series of events that would ultimately land Phil White in jail.
Steve W. Martin is the author of The Real Story of Informix Software and Phil White: Lessons in Business and Leadership for the Executive Team (www.storyofinformix.com) and Heavy Hitter Selling: How Successful Salespeople use Language and Intuition to Persuade Customers to Buy (www.heavyhitterselling.com). He can be reached at: stevemartin@heavyhitterselling.com.
 
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