Jeeves-Thriving Organically as a Humble Servant
Written By: Predrag Jakovljevic
Published On: April 17 2006
The maturing enterprise applications market should not overlook the lesser-known vendors which deliver the requirements users are increasingly demanding, such as interoperability, or intuitive interfaces. For more information on this market trend, see Driving Factors in the Enterprise Applications Market. Prominent among these small specialist providers is Jeeves Information Systems AB (JIS), based in Sweden. In essence, Jeeves develops and supplies flexible and technologically advanced business systems. This is meant to enable smarter business practices (bringing to mind the "Jeeves knows the answer before you know the question" motto) for enterprises in the manufacturing, wholesale and retail, and service and maintenance sectors. This note elaborates on the discussion begun in Competition from a Small Vendor.
The company was founded in 1992 by Assar Bolin, and was reportedly the third enterprise resource planning (ERP) system developed by the visionary. The flagship Jeeves Enterprise product was first installed in 1995. Today, the vendor has about 1,200 corporate customers and more than 20,000 users (not including some recently acquired products), and the company has been publicly traded on the Stockholm Exchange O-list since 1999. Bolin relinquished the chief executive officer (CEO) role in 2002, although he remains as an executive board member and product development leader.
This is Part One of the series Jeeves—Thriving Organically as a Humble Servant.
Until its recent acquisitions, which we'll look at shortly, Jeeves's business model was exclusively indirect, since most of its employees were working on product development. Its revenues are thus sourced from licensing and maintenance fees. Sales, installation, modification, and servicing are effected through nearly 400 partner professionals worldwide, which gives Jeeves a presence in about 50 locations in 18 countries, primarily in Europe. Jeeves's partners are represented in twenty locations in Sweden, which remains its breadwinning market.
Jeeves Enterprise's main product is a broad-ranging business system aimed at small to medium-sized businesses (SMBs). These SMBs have between 10 and 1,000 users, in both Microsoft Windows client/server and web environments, making the business system a good e-commerce platform. The system is built on Microsoft Windows NT/2000/XP/2003 and Microsoft SQL Server technology platforms, and includes a range of functions, from accounting, production, logistics, field service, and time and project management, to customer relationship management (CRM) and supply chain management (SCM), as well as workflow management and document processing. This plethora of different applications comes with preconfigured integration. The suite was built from scratch to support multitasking and multirecord keeping and integration. The latest additions and enhancements to the application suite are the product configurator, workflow, e-commerce, human resource management (HRM) and electronic document management (EDM) modules.
As a factor in its success, Jeeves cites its long readiness to harness the Internet. It will continue to embrace Internet technologies, including web-based client interfaces and device-independent interfaces. Jeeves products for collaboration, e-commerce, workflow, and HRM are largely founded on Internet-based technologies like Java 2 Enterprise Edition (J2EE) and Microsoft.NET. On the technology side, Jeeves Enterprise embeds a flexible user interface that enables custom design and a proprietary macro language, for customer modification and integration with other systems. Additionally, the product's distinctive design (which will be described later on) retains all customer modifications when upgraded. Reportedly, for all the above reasons, Jeeves's customers are highly loyal. Since Jeeves's inception, there has been (on average) an annual customer defection rate of 1 percent. These defections have occurred primarily when fundamental conditions have changed beyond Jeeves's control, as in the case of mergers and acquisitions (M&As) or liquidations. Loyal Jeeves users are characterized by their need for a system which is quickly and easily adaptable to changes in processes and demands.
In the fall of 2005, the vendor announced that Jeeves Enterprise was fully integrated with Microsoft Office 2003, using Microsoft Office Smart Client, the new technology that Microsoft had recently developed for integration of Microsoft Office with third-party vendor business systems. This made Jeeves Enterprise one of the first business systems in the world to be completely integrated with Office.
Understandably, some might question the motivation for talking at great length about Jeeves, because of such apparent weaknesses as its marginal market share in the global scheme of things. After all, many (at least outside Sweden) are likely to associate the name of the company with P.G. Wodehouse's famous butler character, or at best with the renowned AskJeeves search engine and portal. Indeed, it should be noted that, with less than $10 million (USD) in annual revenues, Jeeves still operates at a far smaller scale than many of its competitors, and its partners often call Jeeves the best-kept secret in the industry. Only time will tell whether, to what extent, and where the vendor will make the secret known. In the midterm, the vision for Jeeves is to become the top choice in business systems selection tenders, not only in Sweden, but in the whole of Europe.
Yet there are several reasons for us to look at Jeeves, starting with its ongoing stellar financial performance, which some might confuse (or nostalgically associate) with the ERP market salad days of the late 1990s, which are yet to be repeated in earnest in the somber 2000s. The company has been growing constantly ever since its inception, and has also been very profitable since 2002, outperforming almost every competitor (including mighty SAP) in terms of some financial metrics like revenue, or profit per employee.
For instance, in 2004 Jeeves won 110 new customers, whereas turnover grew by approximately 13 percent to 57.5 million Swedish krona (SEK) (about $8 million [USD]), with a 10.4 million (SEK) (about $1.5 million [USD]) profit. Profit grew an impressive 76 percent year over year, which to some extent compensates for the fact that Jeeves fell short of its ambitious sales growth objective of 15 to 20 percent (well above the market average, in any case). By way of consolation, its 18 percent profit margin vastly exceeded its profitability objective of 10 percent. Moreover, Jeeves shares gained 104 percent during 2004, and by December reached the initial public offering (IPO) price of 1999, a milestone shared with very few information technology (IT) companies. At the time, this made Jeeves shares the best-performing IT shares of the twenty-first century on the Stockholm Stock Exchange.
This trend has continued throughout 2005, during which most of the Jeeves markets have shown signs of improvement. This includes Sweden, its single largest market, which has shown both increased sales and improved business prospects. Revenue for 2005 increased by 45 percent, to 94.1 million (SEK) (about $12.5 million [USD]), of which approximately 83 percent consisted of licensing and maintenance revenues, which showed a whopping 54 percent annual increase. The revenue contribution from Microcraft's Garp product, which was acquired in March 2005, was 20.4 million (SEK) (about $2.7 million [USD]), and the mother company share was the remaining portion. Profits after tax amounted to 9.2 million (SEK) (about $1.2 million [USD]); Microcraft's contribution was 3 million (SEK) (about $400,000 [USD]), and the mother company share made up the rest, reflecting a merger of kindred, independently profitable parties with similar corporate cultures.
Based on current market trends, Jeeves's board recently maintained a forecasted goal of a 10 percent net margin, and an organic increase in software revenues of 15 to 20 percent remains. Prior to acquisition by Jeeves, Microcraft had 36 employees, annual revenues of about $3.5 million (USD), and nearly 1,900 customers. Microcraft has since become a fully owned subsidiary of Jeeves, and will initially operate independently in the market. This acquisition was a part of Jeeves's strategy to expand its operations and strengthen its market position. Garp is one of the most successful business systems for smaller retail, distribution, financial services, and manufacturing businesses (with up to 100 concurrent users) in Sweden, while Jeeves has a corresponding position for medium businesses. Both of the merging companies have the same, well-established partner model. They sell indirectly, via partners who conduct sales and implementation, and both remain product development companies, fundamentally.
Over the span of less than twenty years, Garp has developed into the third-generation, modern business system it is today, with a market-leading position in certain branches, such as the garment industry. Like its bigger Jeeves Enterprise sibling, Garp runs in Windows, and provides the opportunity to also use Linux/Unix as a server platform in the future. The two products have other features in common: user friendliness; several ready-to-use functions, procedures, and operational flows; short starting runs; and a system update philosophy which assures the quality of maintenance and administration.
Product Development Focus
This brings us to the fact that lately, product development at Jeeves has focused on development of an independent platform solution (in addition to the integration with Microsoft Office, as mentioned above), and on localization of the product for markets outside Sweden. To that end, in late 2004, Jeeves struck a strategic partnership with IBM, whereby Jeeves became a Premier ISV Advantage Partner to IBM. Accordingly, Jeeves joined IBM's ISV Advantage Initiative, a program designed to provide independent software vendors (ISVs) with technical and marketing support to help meet specific SMB information technology needs. This worldwide program is designed to help software developers reach broader markets, lower their costs of doing business, and take their products to market faster. It is administered by PartnerWorld for Developers, the developer resource for IBM business partners.
Towards its goal of developing an independent platform solution, Jeeves will soon offer Jeeves Enterprise for Linux and IBM DB2 Universal Database, as a complement to the Windows platform. This will make the system much more transferable and independent. Enabling Jeeves Enterprise on DB2 Universal Database running on Linux and IBM eServers like xSeries and pSeries should indeed help both Jeeves and IBM to expand further into the SMB market. Prospective user companies will be offered the opportunity to be platform-independent, both on the server and on the client side, and will also have the possibility of changing platforms in the future. The IBM DB2 family includes products that are designed and priced specifically for SMBs—they are easy to install and manage, scalable to business growth, rich in functionality, and based on open standards to allow integration with existing software and hardware platforms (see IBM Express-es Its Candid Desire for SMEs). To expand its visibility in targeted vertical industries, JIS has also pledged to work closely with IBM in various co-marketing and sales activities.
A Successful Player
The intriguing Jeeves formula for success, which will be explored in the next article of this series, has apparently been working well in an industry where many other players, if not most of them, fail sooner or later. Till the recent Microcraft Garp acquisition, the basis of the vendor' business concept had been unchanged since its founding in 1992. Namely, the vendor had faithfully retained the concept of having a single product with characteristic features: a high level of technological innovation; broad and reliable (bug-free) functionality; and an open, integration-friendly architecture, which will be explained shortly. Garp is built on architecture similar to that of Jeeves Enterprise, and thus, in the midterm, Jeeves expects to be able to coordinate technology and product development for each product. Later, however, the aim is to have one source code for both, without either of them having to be replaced or discontinued.
Jeeves's strongest market by far is the domestic market in Sweden, which is known for its functionally and technologically fastidious and forward-thinking users, and also for a number of other excellent domestic products, such as Intentia, IFS, and IBS. "Imported" products such as Microsoft Dynamics NAV and AX (formerly Navision and Axapta), Unit 4 Agresso, Exact Software, Visma, Hansa, XOR Control, Tieto Economa, Maconomy, Oracle, Epicor iScala, and SAP are not to be neglected either. The mere fact that Jeeves has a significant market share in this market (which constitutes 85 percent of its revenue) should tell us that the vendor has been doing something right.
According to DataDIA's recent independent research, Jeeves has about 900 corporate customers (about 14,000 users, not counting Garp), and has the largest market share in Sweden for enterprises with less than 1,000 users. This impressively outperforms several higher-profile products such as Intentia Application Suite (IAS, formerly Movex), iScala, SAP, IBS, IFS, and any legacy systems developed in-house. Along with this Swedish domination, Jeeves Enterprise is also an international product, with sales in another thirty countries, most of them in Europe. In Sweden, 46 percent of its customers are in manufacturing, 30 percent are in wholesaling and retailing, and the remaining percentage are in service and maintenance. SYSteam is the largest domestic partner, with six subsidiaries across Sweden.
The most important markets outside Sweden are the remaining Nordic countries, France, Slovakia and the Netherlands, all of which amount to about 180 systems (26 installations are in the US, India, and Asia). As in the other western European countries, these important markets are mature, with an abundance of competing products (much like the Swedish market). Yet in eastern Europe and among the new members of the European Union (EU), Jeeves is anticipating a growing market, and has particularly invested in Russia and Poland since early 2004. It takes time to build a well-functioning partnership, but the effort is now starting to pay off; Jeeves is increasingly well-known in those markets, where growth is expected to reach 20 percent per year (compared to a measly 3 percent for the western European countries, and compared to similar growth in North America). A large part of the effort in Russia and Poland has gone into localizing the product.
With a presence in Belgium, France, Germany, Holland, Ireland, the UK, Sweden, Norway, Finland, Poland, Slovakia, Russia, Turkey, Singapore, and the US, Jeeves has lately been striving to strengthen its position as a leading supplier of ERP systems in Sweden and western Europe, while also expanding in the US and eastern Europe. As mentioned above, besides the product itself, Jeeves's business model revolves around partnerships built on specialization at every stage, and recently the existing partners have generally had prosperous years with Jeeves. Also recently, the vendor has worked to further enhance and strengthen its partner cooperation, whereby a dozen or so new partnerships have been established, a significant majority of which were international. Jeeves has accordingly restructured its organization and business processes to improve its training ability and to quickly leverage new partnerships.
Internationally, the partnership structure is critical to boosting sales, and focused efforts in Poland and Russia in particular have lead to several new partnerships. Consequently, Jeeves expects visible sales results in the foreseeable future, primarily in Poland. The Russian market has great potential, but localizing the product there has provided a greater challenge than expected, and we may have to wait until at least late 2006 before any sales breakthrough is seen. Since the product was localized in the Slovakian market a few years ago, over twenty replacement installations have been made by the partner Softip to their own existing clients. Another promising venture, as mentioned above, is a completely new partnership agreement in France, signed in April 2005. Together with this partner, Jeeves has established a co-owned French company to drive sales in cooperation with local French partners, with direct access to clients. As France is Europe's second-largest market for business systems, the potential is vast, and sales have reportedly already started.
This concludes Part One of the series Jeeves—Thriving Organically as a Humble Servant.