March 2005

Commanding New E-commerce Options

John Marrah has taken command of Ecometry’s future. The CEO of the application company which once led the market in new HP 3000 sales, Marrah pooled his personal stake in Ecometry late last year to buy the firm from its founders. Marrah had to attract a financial partner to make the deal a reality, finding a well-heeled one in Golden Gate Capital. Golden Gate already owned more than $1 billion worth of software companies. Now its financial strength looks to enable Marrah’s strategy for his e-commerce firm: growth through acquisitions along with an increase in revenues from established products.

Those products run for customers who include some of the best-known HP 3000 users in the world, the brand names that stand out in retail malls and on the covers of the most-mailed catalogs: Nordstrom, Lego, Time-Life, Brookstone, Hickory Farms, Levenger, Nine West, Coach, and Urban Outfitters. Explosive growth through the Internet shopping boom fueled Ecometry’s go-go years leading to the turn of the millennium. Marrah had joined Ecometry when the company was called Smith-Gardner, named after its founders and drawing nearly all of its business from the catalog channel. The dot-com boom led to an IPO for the company, which went private again in 2003.

Now the 43-year-old Marrah is taking Ecometry back into growth territory, the scenario he joined the company to explore after he led three turnarounds. As we took this issue to press Ecometry had just announced it made a $54 million offer to buy Blue Martini, an e-commerce solution supplier that might have once been considered an Ecometry competitor.

Mergers are becoming more popular in the HP 3000 community, with the Activant's proposed purchase of Speedware preceding Ecometry’s Blue Martini deal by a little more than one month. But what makes the Ecometry story even more interesting in light of its growth plan is the company’s re-embrace of the HP 3000 platform. Marrah wants his 200 or so MPE customers to know they don’t have to migrate away from the server by 2006, extending the company’s support of the 3000 by at least two more years.

Those HP 3000 customers still make up the largest share of Ecometry’s business. The company is straddling the past and the future of the platform by offering migration solutions through partners like Transoft while extending application support on the 3000. From his service in the US Marine Corps to a director’s post at Oracle age 26, Marrah looks like he’s always been eager to lead the way to higher ground. We asked him what drove his deal to acquire Ecometry and how the company’s expanded future looks for the sites that still rely on the 3000. We spoke in a pair of telephone calls in January and then in March, just after Ecometry announced its offer for Blue Martini.

So you started with the 25 percent of Ecometry you own in your effort to buy the company from its founders?

Exactly. I rolled over my investment in the company, and found outside financing to go and allow Will and Al to move on into retirement. I also found a financial partner to execute our strategy of growth — and really be in a very good situation where we could find some strategic positions that will add more value to our customer base and put ourselves in a much better financial situation moving forward.

Do you think the acquisitions that you’re keenest on right now would bring you customer base, or bring you technology?

I think both, actually. We have a pretty pragmatic view of what we’re looking for. We’re surely not looking to go fund losses. We have a very strong mantra of profitability at Ecometry today. We’ve all gone through the last couple of years and want to maintain our financial stability. The worst thing we could possibly do, and a disservice to our customers, is to make some kind of financial investment that would harm Ecometry — put us in a situation where we could no longer develop and support our product.

We’re looking at continually having net-positive additions. From a financial standpoint, such companies that can add financial resources and capabilities is a top-line requirement. Having companies that can add technologies that can assist our existing customers and extend our customer base are the three main areas we’re looking at. We’re focusing on multi-channel retailing. All the positions you’ll see from us are focused around providing technological solutions for multi-channel retailers.

It looks like Golden Gate, your financial partner, has also invested in Herbalife, an HP 3000 shop. Any connection there that might have spurred Golden Gate’s interest?

I thought that Herbalife was a 3000 customer also. But it never came up in the process. Yes, Golden Gate is an investor in Herbalife, and by now may even be the whole owner. Herbalife just went public.

Speaking of going public, a published report has suggested that Ecometry might be going public again. Is that in the future for the company?

You never know.

Well, it would an interesting move to go from private to public…

[Chuckles] Then back to private, and then back to public.

There was a stretch in the company’s history where it was working to regain profitability. Where did you turn the corner on that effort?

We turned that corner just at the end of 2003. For the fiscal year 2003, we were almost at break-even. For the whole 2004 period we were very strong financially.

What do think this change of ownership means for the HP 3000 customers you still support?

One of the things that this means is that we are going to extend support for the Ecometry product beyond the end of 2006.

What led you to make a change in your strategy?

The support network is really becoming a reality. We’re going to ask our customers to do a couple of things in exchange for extending this support. If we can get them up on those versions, which are easier to support than some of the older versions and are of higher quality, then we will extend that support. We’ll be asking everybody to get up on a current version by the busy season of this year.

Any other conditions for post-2006 support?

We’re going to tell the HP 3000 customers we’re not going to stop supporting their product at the end of 2006.

We’re not doing new modifications and enhancements to that platform. But we’ll be doing new UPS shipping stuff, credit card updates, that kind of enhancement. If there’s something that’s necessary to keep that 3000 platform alive and running, then absolutely we’re doing it.

How long will you extend the support for this application on the 3000?

We’re saying 2008 for now, because that’s as far as we can see. The biggest issue is third-party support at that point.

How does the MPE version of the application compare to the open systems version of Ecometry?

The functionality of the open systems product is quite a bit ahead of the MPE product. But if a specific customer doesn’t need need any of that specific functionality, then there’s no crying need for them to go off the 3000.

How long has it been since the MPE/iX versions of Ecometry got enhancements?

We stopped doing enhancements in April of 2004. But for people who that version is doing everything they need, there’s no need to change. No need to migrate if they’re happy on that platform. If they’re able to get third-party support, that’s great. I don’t want to force them off.

Any other enhancement news about the 3000?

We’re building a separate team of people to create enhancements on a one-off basis, through our professional services group.

Did you hire for that team, or just re-assign resources?

We’re taking folks and dedicating them to that work, our most experienced people for the MPE team. We have a very big product, so it was a huge challenge. We have people on the team that know multiple aspects of our product and had the highest quality metrics in their coding.

So you’re going to focus on that and point your 3000 customers at potential sources of that support?

Yes, there are all of those great, qualified third-party support companies.

Is the requirement to come up to a more current version of Ecometry going to provide your company with some revenue?

No, it’s free to them. They don’t have to pay anything to do that. There’s no revenue motivation at all. If we can get them on the most current version, it’s easier for us to provide better support.

Is there a cost savings you’ll realize then, by having the 3000 customers move up?

During these tough financial times, we’ve struggled with support and development. If we kept those older versions of the MPE product, that would be multiple versions that we’d have to support and code for, and the cost would have made us staying on MPE impossible.

We basically went and cut the company during the last four years almost in half, from a resource standpoint. On a hugely significant decrease in revenue we increased customers, increased support requirements, built a whole new open systems product that we’ve got 90 customers on today. And we never increased our support costs. We migrated customers almost for free. [Ed. Note: Ecometry has since announced its first increase in support costs in six years, 10 percent or less depending on a customer’s contract.]

We really bent over backwards to make it positive and easy for customers to do what they needed. In 20-20 hindsight, some of those things weren’t the best things to do from a financial standpoint. That’s an awful lot to do at once, and I’m really proud of the people in our company for accomplishing that. We’re the biggest company in our marketplace just on the open systems customers alone.

What’s really important to us today is that during that time, our customers did suffer some. Our support levels dropped. Now we’re really focused on product quality and product support, things that we haven’t been able to focus on for a year.

So we’re telling customers “Get on these new versions. They’re better versions, and they’re easier for us to support you on.”