Vendor
Genesis
Two phrases that one rarely hears together are "IBM/390 mainframe" and
"eBusiness", but to Walker Interactive they make a perfect sentence. Walker
has carved out a very nice niche for itself as the financial backbone
provider to the giants. Now it is altering its product line - dropping
some products and developing a new architecture and positioning for the
others - to carry its clients into the eCentury. With 80% of the world's
data still estimated to reside on IBM mainframes, Walker doesn't seem
to lack for business.
Walker
was incorporated in California in 1973, where it began and is still headquartered,
and reincorporated in Delaware in 1992. Walker's high-end clients are
among the most demanding in the world. Companies like United Airlines
and K-Mart have millions of customer transactions to deal with and demand
incredible uptime reliability. The IBM/390 platform has both the capacity
and the stolid reliability to make it a natural base for these customers'
back-end systems. Walker has traditionally supplied a family of client-server
financial, operational and analytic applications to large enterprises
and larger mid-sized businesses. The applications included planning, budgeting,
forecasting, consolidation, financial, performance, work, materials and
procurement management. Key verticals have been banking, transportation,
utilities, retail, education, and government.
Coming
into FY1999 Walker had four product lines:
- Tamaris,
the keystone enterprise-level application suite
- Aptos,
a version of Tamaris for the mid-market, running on NT and Solaris servers
- Horizon,
a suite of analytic applications designed for financial reporting, acquired
with the purchase of Hunt Systems Group in 1996
- IMMPOWER,
enterprise-level asset management for capital-intensive companies, added
when the company purchased Revere, Inc. in 1997.
Flash forward
to the future for a very different picture. In the second quarter of 1999
the company decided to emphasize the Tamaris and Horizon lines and to
refocus itself as a provider of eBusiness solutions for enterprise-level
customers. It chose to sell the Aptos and IMMPOWER lines; divestiture
of IMMPOWER was completed in April 2000 and the company has a letter of
intent that should result in 3rd quarter divestiture of Aptos. Combined
revenues associated with the IMMPOWER and Aptos product lines were $13.6
million, $15.7 million, and $4.4 million in 1999, 1998 and 1997, respectively.
Figure 1
shows Walker's revenue and net income history. It is important to note
that there were significant accounting corrections in 1994 and 1999, and
smaller ones in 1996 and 1997. The most recent, in 1999, was for a total
of almost $15 million relating to the change in corporate strategy and
to technical revaluations of capitalized software assets, associated with
the planned divestiture of Aptos and IMMPOWER. Thus the apparent dip in
income for 1999 should not be compared on an apples-to-apples basis with
the previous years.
Figure
1. Walker Interactive Revenues and Net Income
click
here for larger view
Figure 2
shows how Walker's revenues have been derived from software licenses,
consulting and maintenance. Given the complex nature of the institutions
that Walker serves it is not surprising that consulting should be a large
part of their business. The ratio of consulting to licenses should change
over the next two to three years with the addition of ASP customers.
Figure
2. Walker Interactive Sources of Revenue
In June 2000
Walker adopted a Stockholder Rights Plan under which all stockholders
of record as of June 22, 2000 will receive rights to purchase shares of
a new series of Preferred Stock. The adoption of the Rights Plan is intended
as a means to guard against abusive takeover tactics and according to
the company is not in response to any particular proposal.
Vendor
Strategy and Trajectory
The new business plan emphasizes what Walker has dubbed "deep e-business."
This reflects the company's claim that, rather than graft a browser interface
to existing applications, it has done a thorough rewrite to provide seamless
integration between front- and back-end systems. The new technology is
based on Java server technology, with IBM's WebSphere application server
being the platform of choice.
The
new eBusiness model is defined in terms of five operational areas. Three
define products:
- e-procurement,
which supports all aspects of the procurement cycle from requisition
through payment.
- e-revenue,
which encompasses electronic billing, including collections and cash
application
- e-insight,
delivery of analysis to management through a portal
The other
two operational areas are the technology architecture that supports all
of their products and the consulting and service operation.
The Horizon
suite is incorporated into the e-insight area, but is also maintained
as a separate product line. It works with a variety of operating systems
and On-line Analytical Processing (OLAP) databases, and can be used with
non-Walker financial and operational systems. Its functionality includes
planning and forecasting, consolidated reporting, and OLAP reporting and
analysis.
The company's
overall strategy is focused on its key differentiator: "Everything we
do is built for volume," says Debbie Day, Walker's VP for E-business Solutions.
"We have server-side processing in our blood."
Although
it might not seem at first that Walker's strengths in volume processing
have much application to mid-market firms, the company believes that it
has a value proposition for them as well. It intends to reach transaction-intensive
firms in that space with an ASP offering. This has the potential of multiplying
their potential customer base by as much as fourfold. The company's ASP
offerings are hosted by Data Dimensions and by IBM Global Services.
ANALYSIS
Vendor Strengths
Walker
has carved out a tidy niche. Although it can certainly see competition
from such giants like SAP, PeopleSoft, and Oracle and slightly smaller
(although bigger than Walker) specialists as Comshare, QAD and System
Software Associates, none of these pegs fits exactly into Walker's peghole.
The
ability to serve businesses with many millions of transaction-generating
clients is not one that can be easily replicated. (Which is not to say
that it cannot be replicated at all; see Vendor Challenges - located on
the next page.) Walker has developed a good set of vertical clients, which
it supports with specialized features. By moving into the middle-tier
in such industries as banking and utilities the company should be able
to gain considerable momentum.
Perhaps
the greatest strength that Walker has right now is its courage. Its stock
was clearly impacted by its decision to redirect itself, although it bounced
back in the early part of 2000 and has not been much more volatile than
the market as a whole. Developing such an audacious plan and acting on
it shows that the company has the management strength it needs to defend
and expand its turf.
Vendor
Challenges
At some point in the movie that bears his name, Ivanhoe (played by Robert
Walker) takes on, single-handedly, all of the knights loyal to Prince
John. It's early in the movie, so poor Ivanhoe is eventually wounded,
to lie near death for many days being cared for by Elizabeth Taylor while
other sub-plots are developed. Is our Walker another Ivanhoe? Pushing
off into deep e-business was a necessary step to continue to serve existing
customers and attract new ones. But it of course reflects the reality
that rivals were already sharpening their lances. One of the questions
is whether Walker has made its new suit of armor strong enough. We'll
have to wait and see on that one.
Another
question is whether Walker can survive its radical transition. In its
new incarnation there are and will be many possibly unexpected changes.
For example, while Walker used to do most of its software development
in India, its new model calls for leading edge skills that it has only
been able to find in the U.S. This is not necessarily bad, since the higher
costs can be recouped from a greatly improved product, but it does signal
that the corporate changes may be pervasive. Another kind of change will
be the switch to ASP revenues. Selling and supporting ASP is a new game
and, even with its ASP partners running interference, Walker will find
itself interacting with customers in a different way.
BOTTOM
LINE
Vendor Predictions
Walker
is sitting on a very sharp razor's edge. In the last two years the stock
price has declined from a high of twenty to a low of less than three.
(See Figure 3.) Although it is clear that some of the decline mirrors
the general situation in technology stocks, the price is coming perilously
close to the book value per share, which would make Walker an extremely
desirable takeover target. On top on any purely financial considerations,
Walker also has expertise with high transaction volumes that would be
of value to other companies. Its customer list would also be a valuable
acquisition.
TEC
believes that there is a good chance (60%) that Walker's board will be
made an offer it cannot refuse within the next eighteen months. A likely
candidate here is Sybase, which continues to recast itself as a vertical
solution provider, see Sybase
Tag-Teams with Informatica). Or, given Walker's tight technical ties
to IBM, a purchase or large equity investment by that company is a possibility.
We
should note, though, that Walker's restructuring makes its current vulnerable
financial situation inevitable, and with luck and skill - the former being
unpredictable but the latter something the company has demonstrated before
- it can climb quickly from its current position during the next few quarters.
Vendor
Recommendations
Walker should intensify its efforts in the middle-tier with its hosted
solutions. First because of the potential size of the market, and second
because its already long sales cycle has gotten even longer with its transition
to eBusiness. Hosted solutions can be easier decisions for a company to
make than licensing, with its attendant server and infrastructure costs,
and shaving even a few weeks off the sales cycle can have measurable results
over a few quarters.
We
also have to wonder if the company is wise to continue with its Horizon
products. There is growing competition in analytics, and even if some
of these competitors cannot compete in Walker's high volume market (which
is not obvious at present) Walker might do well to cede the field to them
by licensing its technology while retaining the right to incorporate it
in the new eBusiness products.
User
Recommendations
The bottom line for the user is that Walker remains an excellent option
for high-volume transaction processing, especially in its core verticals
(transportation, banking, education, retail and utilities). In particular,
for companies just below the highest tier, Walker's hosted solutions might
be an excellent way to enhance both front- and back-office capabilities.