Differentiation Is KeyDifferentiation Is Key

Amnon Landan permits himself a chuckle when referencing Yankee Group research data that estimates business-technology optimization will grow 18% in 2004 compared with the previous year. His decision to add business-technology-optimization tools to Mercury Interactive Inc.'s portfolio of products for testing code and systems quality and measuring an app's performance looks like one that will pay off.

"The economy started to rebound in the second half of 2003, but the rebound should take hold mid-2004," CEO Landan says. "The positive momentum we see in the United States and in Europe should continue into 2005." Mercury's revenue grew to $506.5 million in 2003, up 27% from the prior year. Mercury's average company deal fluctuates between $120,000 and $140,000, but in the third quarter, the company signed eight contracts valued at more than $1 million each, up from five in the prior quarter, a company record at the time.

But not every company will do well in 2004. The "laggards or the middle-of-the-pack" players trying to catch a tailwind to success will not benefit from a better economic environment this time around, as they have in the past. Only companies that managed to differentiate themselves in the last few years will find success as the economy improves, he says.

Landan counts Mercury among them. His ambition is for the company to rank among the top five global software vendors within seven years. Mercury last year unveiled its business-technology-optimization strategy, which aims at providing companies with business tools that help plan business-technology spending and projects. IT for the last 30 years has enabled processes and technologies used in manufacturing, sales, and distribution to become more efficient, he says. "But IT has never done for itself what it has done for the rest of the enterprise."

The strategy is partly the result of the $350 million investment Mercury made last year in research and development to identify emerging market trends and in acquisitions to help meet new demands. It paid $225 million in stock and cash to acquire Kintana, whose software tracks global business-technology projects, managing processes and preventing mistakes. Assets acquired from the deal reside in the IT governance business unit that supports business-technology optimization.

"Customers will buy what they need from vendors that can provide solutions in the most suitable way," Landan says. "I see an economic backdrop that will have a discriminatory impact on certain players." That most "suitable way" is a step away from buying perpetual licenses and instead subscribing to services for one to three years, he says. Nearly half of Mercury's new bookings are two-year subscription-based contracts, but Landan says the company wants to remain flexible--so flexible that it will give customers the option to take smaller bites from its services offering, with the ability to walk away after a month if they choose.

Landan's leadership training began at age 20, with leading a platoon of 25 soldiers for the Israel Defense Forces. He had to manage, motivate, and make tough decisions in uncertain conditions. The lessons he learned are the cornerstone for running Mercury.

Helping companies more effectively implement and integrate technology is a mission at least as, if not more, critical as coming up with the next killer app, Landan says. "Our industry has focused so much on the next big thing for so long and has neglected the much more important aspect of how the applications are consumed and used successfully," he says. "Companies must optimize and maximize their system by eliminating the applications and parts that don't work. This is where the industry is headed."