A software rollercoaster
Wednesday 10 December 2014
Members of the Reuter Society and others, particularly those many talented technology and marketing people who were around in the 1980s and 90s, will be interested to hear that Tibco Software, spun off from Reuters in 1997, has just been sold for over $4 billion. Time for a reminder, perhaps, of the astonishing history of this company and Reuters involvement with it.
We bought the original company, then named Teknekron, in 1993 for $125 million and ran its products alongside our rival Triarch trading room platform. Both product lines addressed the challenge of processing large and diverse streams of incoming real-time data and distributing individual subsets, without any delay, to traders with particular areas of interest. This combined very well with Reuters own ground-breaking data feed technology, and yielded us two big sources of revenue per client.
After some years, Vivek Ranadive, the CEO, approached us with a request to launch a new venture, using the Teknekron technology to penetrate markets outside finance. Some $15 million of Teknekron revenue was derived from non-finance sectors such as chip manufacture, and he suggested that we allocate this to the new company in order to get things going. We agreed.
THE NEW COMPANY
Tibco Software was set up and at the same time set free, since we pledged not to exercise management control despite retaining half the shares. Two strategic investors were brought in and the Tibco staff were allocated the remaining 30 per cent of the equity. The new company received a perpetual licence to the Teknekron technology and agreed to leave the finance sector in Reuters hands.
While we were in effect gifting away some of Reuters assets, we had been searching for some time, with only limited success, for ways of diluting our almost total dependence upon the financial sector. We had learned enough from our experience in the trading room systems arena to be confident in the value of the same software proposition in other markets. And our investments in companies like Yahoo were going well.
BOOM, COLLAPSE, AND BOOM AGAIN
The Internet boom was gathering pace and we floated Tibco in 1998 for $5 per share (taking into account a subsequent share split), giving it a value well over $1 billion. Frenzied trading took it up to over $130 per share, at which point I recollect it was worth at least as much as Reuters which owned half of it! And then, of course, as the Internet boom collapsed, the share price came all the way back down to where it started.
While we were in effect gifting away some of Reuters assets, we had been searching for some time, with only limited success, for ways of diluting our almost total dependence upon the financial sector
Tibco spent the succeeding years proving the value proposition which the investors had rightly, if over-enthusiastically, guessed at. The company quietly expanded the product range through acquisition and internal development. It penetrated new markets such as freight, aviation, energy, insurance, government departments, telecommunications, department stores and many others. Reuters focus had meantime moved elsewhere and Tibco was also able to reclaim rights to exploit the finance market, now developing fast outside the trading room in new areas such as retail banking. Tibco revenue rose from near ground level to hit $1 billion.
In the last year, however, Tibco, while still growing, had trouble meeting high market expectations. The company came under heavy pressure from activists, many of them probably eyeing a quick profit from a sale. Tibco was ultimately acquired by a software-savvy private equity group for $24 per share.
SOFTWARE TAKING OVER THE PROFESSIONAL MARKET
Tibco exploits a market sometimes described as Big Data or Fast Data or both. Its clients understood that if they could track their customers against their products and services in real-time, they could expand their businesses significantly. They set themselves up to answer questions such as: Who are the customers? Where are they? Where are they right now (are they close to a store)? What and why did they buy? What and why did they not buy? Processing the answers provides answers to other questions such as: What do they or will they want? What satisfies them most? What offers will attract them right now? What action will soothe their disappointments? Tibco says it offers its customers a critical two-second advantage when swift decision-making determines success.
This should come as no surprise to us since, as its media revenues faded away, Reuters built its modern business on customers weighing transactions and doing them quickly, which is just what they did, of course, in those trading rooms Reuters and Teknekron served back in 1993. But big changes have occurred which now allow software companies to play a leading role rather than an ancillary one.
Though diminished by recent upheavals, the finance market remains important, but only as a part of a much larger technology and information landscape in which professionals add value to information they have, or can extract, from their own business. External news and data services are of secondary importance to many of them, courtesy of the search engines and self-publication on social media. Analytics services are also increasingly less important to those who have installed software from Tibco and others, which gives them an advanced analytics capability of their own.
THE CLOSING CHAPTER FOR REUTERS
Wisely managed, out of sight of activists watching the tea leaves each quarter, Tibco may well spring another of its surprises, but Reuters people will no longer be involved. Our last personal links, fostered in the early days by David Ure, who led the original acquisition, were severed when Philip Wood and I left the Board, after many years of service. We ceased to be directors when investors voted on 3 December to accept the Board’s recommendation to sell Tibco Software on what were seen as favourable terms.
This was hardly the end of an era. In truth, Reuters was only the midwife to this extraordinary company. The vision belonged to Ranadive. But without us, I suppose it is possible, maybe even likely, that the baby might never have been born.
Peter Job was lead director on the Tibco board which he joined in 2001 after retiring as chief executive of Reuters. He spent his career at Reuters from 1963 and after retirement occupied the next decade working on the boards of international companies including Royal Dutch Shell, Deutsche Bank, GlaxoSmithKline and others. ■