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December 19, 2004

Mercury Interactive approaches ‘critical growth year’

Next year will be critical for Mercury Interactive in breaking through the industry's magical $1 billion revenue barrier and moving closer to achieving its goal of becoming one of the world's five largest software companies, according to chief marketing officer (CMO) Christopher Lochhead. Gavin Clarke reports...

By CBR Staff Writer

Mr Lochhead told ComputerWire that Mercury has invested $450 million in products, people and partnerships in the last 24 months to grow its portfolio and geographic presence.

Money was spent on internal Research and Development (R&D), acquisitions including Appilog in May and Kintana during 2003, and channel partnerships with companies including Accenture and Wipro Technologies.

We want to break though the $1 billion barrier… our goal of top five means 2005 is a critical growth year [for us], Mr Lochhead said.

By the end of 2005, Mercury aims to have extended its product line around application performance optimization and IT governance, expanded its channel, and increased its presence in central Europe, Asia Pacific and Japan. We will have taken a material step forward to becoming a top five software company, Mr Lochhead said.

According to Mr Lochhead, Mercury set itself the target of top five in February 2002 and this month appointed president and Chief Operating Officer (COO) Tony Zingale to help achieve that goal. Mercury’s plan is to reach top five within the next three to five years.

The top five is populated by Microsoft, Oracle, SAP, Computer Associates International, and SunGuard Data Systems, whose individual annual sales growth ranges between 7.2% and 14.4%. Mercury’s latest figures showed 30% annual growth.

According to Mr Lochhead, Mercury sees opportunity for growth in a number of areas. One is through customer demand for the company’s self-styled Business Technology Optimization (BTO) products, which help customers’ troubleshoot and tune performance of their business applications.

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Mr Lochhead believes web services and Service Oriented Architectures (SOAs) will also mean more, not less, complexity – creating an opportunity for Mercury – as organizations attempt to develop composite applications and distributed applications that are capable of working with legacy client/server and mainframe systems.

Furthermore, Mr Lochhead expects increased interest in products from line-of-business managers as they attempt to gain greater insight into the performance of their company’s business applications. An emerging trend among Application Lifecycle Management (ALM) providers, like Mercury, is to provide dashboards for their products that serve-up statistics on the performance of applications.

A key driver in this has been increased regulation, with regulations like BASEL II in banking, for example, that have put increased accountability on chief financial officers (CFOs). Business managers like CFOs are increasingly relying on IT systems, like order processing, in order to hit their figures each quarter. If the system goes down late in the quarter, that’s not the CIO’s problem, the CFO gets fired. That’s why tolerance [for application failure] has gone to zero, Mr Lochhead said.

Over the last 14 to 16 months we have seen more and more biz people use our products, he added.

Mercury plans to capitalize on this next year, by adding functionality to other planning and portfolio management products that targets non-technical users, while also enhancing existing functionality. You will see us optimize business process testing and do more things that are specific to the needs of users, Mr Lochhead said.

Breaking the $1 billion revenue barrier is not simple though. Growing companies often require a shift in structure and philosophy to help stretch beyond the $1 billion figure, a fact learned by Mercury partner BEA Systems this year. BEA broke the $1 billion figure last year, but since then has seen sales, management and product restructuring against a backdrop of declining license revenue.

Mercury, though, believes it’s in a stronger position than BEA. Mr Lochhead pointed to pricing and competitive pressure in the application server market coupled with the bursting of the dot-com bubble as factors that causing BEA pain. Mercury, however, claims strong market share in application delivery and IT governance, while the market for these products is – according to Mr Lochhead – still growing.

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