At the start of 1996, shares in Rational Software, the application design software specialist, were trading at a weak $8. Although the company’s revenue growth rate was running at 25%, investors were not impressed with its recent acquisitions which were impacting the company’s net income figures. Most of Rational’s contracts were in aerospace and defense – not deemed to be the most buoyant areas. A lot can happen in a year. In November, Rational stock soared to $44, driven to that all-time high by a serious of significant events that have pushed the company – once best known for its Ada and C++ language environments – into the forefront of the software development market. In October, Rational signed a far-reaching agreement with Microsoft under which Rational’s analysis and design tools are to be integrated and bundled with future versions of Microsoft’s development tools – Visual Basic, Visual C++ and Visual J++ (CI 3,013). Microsoft’s desire is to make its development offerings more palatable to large corporations, many of whom have used Visual Basic for small scale, rapid application development but have found that the lack of any sort of surrounding analysis and design infrastructure limited its scope for developing more sophisticated business applications. As part of the same theme, Microsoft is co-developing a code repository with Texas Instruments Inc’s software division which will enable programmers to check in and out their work. With the Microsoft deal, Rational also established a foothold in the hot market for software testing tools, with Microsoft selling its Visual Test product to Rational for $23m in cash. But Rational had further plans in that area. Taking advantage of its high share price, in November, it launched an agreed takeover of SQA Inc, one of the fastest growing software testing tools companies (CI No 3,043). Rational says that SQA and Visual Test software will be combined. Other event at Rational gave more of a hint of what might be coming soon. In late October, the company floated an additional 5.1m shares on Wall Street, providing it with a $150m war chest for further expansion. But the share price has also been boosted by revenue and profit growth that pre-dates the Microsoft and SQA events. Revenues over the last four quarters have been ticking along at a rate of 29% to 32%, putting it on target for a $113m calendar year end. Including SQA, the company will have revenues of $141m. At the same time profitability has been riding high, with net income rising to $4.8m in its most recent quarter to 30 September.
Rigorous application development
What has inspired those figures is Rational Rose, the company’s toolset for ‘visual modeling’. This includes a set of object- oriented products for the capture of business requirements, the analysis of how these can be translated into applications, the design of these applications and then their construction. Aside from its Ada and C++ development environments, Rational Rose also supports PowerBuilder, Visual Basic, Java, Forte and Smalltalk. To date, tools such as Rational Rose that impose a high level of rigor on the application development process have been employed widely in areas where the resulting applications have to have guaranteed reliability. In particular, programmers building military, aerospace or telecommunications software have had to use such tools, something that has made Rational the Ada market’s number one supplier. While recently such rigor has been out of fashion in corporate development departments, it is now finding favor as applications are increasingly being constructed from object components. The key to that high level part of building applications from object components is object modeling, and Rational long ago decided it wanted to own the model. In the past, it has drafted in all the three main methodology gurus – Ivar Jacobson, Jim Rumbaugh and Grady Booch – all of whom have lent their names to popular object development methodologies. Under the same roof, they have been working on a consolidated methodolog
y, known as the Unified Modeling Language, which is tipped to become the standard object application method (CI No 3,064). Rational is not the only modeling vendor to attack the software components field. Texas Instruments Inc, Select Software Tools Inc and Cayenne Software Inc are also there. But with a market capitalization of $1.5bn, $200m in the bank, revenues growing at 30%, profit margins at 17% and Microsoft in its corner, the application development spotlight is on Rational. The question is, where does the highly-acquisitive company go shopping next?
