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TMF Interview With Intraware President & CEO Peter Jackson

May 18, 1999

With Yi-Hsin Chang (TMF Puck)

Founded in September 1996, Intraware (Nasdaq: ITRA) is a Web-based business based in Orinda, California, dedicated to selling enterprise software to businesses. Through the services on its website, Intraware IT Knowledge Center, intraware.shop, and Intraware SubscribNet, the company allows information technology (IT) professionals to evaluate, purchase, deploy and maintain their enterprise software. Intraware went public in February at $16 a share.

TMF: How do you choose which products to carry in your intraware.shop? Are you in a sense endorsing the products that you carry?

Jackson: We want to be the leader in the business software arena, and so the products that we pick for our shop are really the ones that our customers want us to manage for them with the set of services that we wrap around them. It's one thing to buy software in the old way, but in the new way and leveraging use of the Internet really puts us in a leadership position.

"Our method is to say we can deliver software anywhere in the world faster than anybody else over the Internet."
I say that because I think customers now are confused. There are 1,400 different products out in the marketplace. When you buy software, it really comes incomplete; it's revision 2.0, it's going to go through 2,200 releases over the next two years. Someone has to continue to touch and size that product, so we go to the customer and say: "What are the software products that you're using not only as client-server technology, but as Web-based technologies, but also desktop technologies, and how can we help you manage those better?"

TMF: You actually distribute software electronically. How exactly does this work in order to ensure a secure and efficient service for your customers?

Jackson: Well, the secure part of it isn't as big a deal on our end, although we think the secure software we use is all state-of-the-art stuff. Our method is to say we can deliver software anywhere in the world faster than anybody else over the Internet, and our challenge has been to become the experts at compression with large files and being able to deliver the software over the Internet. The fear of it being stolen -- you can actually get these software products as try-and-buys anywhere, so no one is really out there trying to steal a $200,000 application -- they wouldn't know what to do with it once they stole it.

The issue is, what efficiencies do they get through electronic distribution, and there's isn't a lot of efficiency if it's going to take you a day to download a four gigabyte file. Today we do that in about 2 1/2 hours, which is faster than having someone open up two 20 packs [of CDs] and download those to one server in Chicago then get on a plane and do that in New York and so on.

TMF: Almost all of your business then is done online or by phone.

Jackson: One hundred percent, yes.

TMF: Does that mean that you don't usually meet your clients face to face? Without the personal interaction, does that make it more difficult to instill the same brand loyalty that maybe your competitors might have?

Jackson: Yeah, it's different from a Net model for us because we actually do have a 40-man sales force around the world, and those people are all coupled with engineers in the field, so a big part of our business is our pre-sale capability, or the knowledge capability in terms of helping people get to the decision on what technologies to use.

"Our customers are Boeing and Nike and Charles Schwab and Qualcomm and Citicorp and DaimlerChrysler."
Our customers are Boeing and Nike and Charles Schwab and Qualcomm and Citicorp and DaimlerChrysler -- these are large end-users. Now, we get face-to-face with them because we want to be their ESD [electronic software distribution] standard, meaning if they're going to use electronic software distribution as their method to move software within their organization we have to sell that as a service directly to them. It isn't something that just happens virtual by them hitting a banner ad and coming to our site.

So we make a lot of investments. We make more investments in terms of putting personnel out in the world to support that face-to-face question than we do in let's say doing consumer branding. So you're not going to hear a lot of radio ads about Intraware or television ads because we're really not going after the consumer market. But we do have to spend the money to ensure those face-to-face relations. That was a very good question.

TMF: Do you have any plans to broaden your reach to consumers at some point?

Jackson: None. I think it's very difficult to support consumers as part of your business. I think you have to be very dedicated to it because I think it absorbs a lot of energy. On top of that, consumers are very price-sensitive, and they're really looking for a different type of product. They're looking for anything from game software to edutainment to things like Tiger Woods Golf '99 or looking for ratings on software. They're looking for an economic purchase that sort of fits the criteria for them. So that is a consumer-branded model. I see that type of service happening by an Amazon in a big way. Certainly you've got players like Beyond.com and Cyberian Outpost in that market.

Finally I'd like to say that the big issue for moving software electronically is the technology, and if you're in the consumer-business area, you're really dealing with the customer on the bandwidth challenge on the other end. For us, all our customers generally have a T-3 [line] or greater, so we're moving large files, PeopleSoft-size files to customers around the world, and they're able to accept it in the sort of speed they need to. Consumers, on the other hand, and we're seeing a lot of movement in cable direct access, but they still don't have the bandwidth to really download something that's in excess of maybe 10 megabytes.

TMF: How many registered members do you have? What are you doing to attract new members and customers?

Jackson: A lot of our growth now is happening organically. If you go to Informix and hit their store, we really manage their store. All their sku's are managed very well on our site for them, and we do all of the try-and-buys, evaluations, downloads, freeware programs, quotations for them and transactions for the business commerce for them, so we get a lot of people coming to our site to start that process, and in order to do so, we get them to register.

A high proportion of that organic growth also comes from people who use our product, Radarscope and Compariscope. These are two research decision-making tools that help people sort out who's who in business application, who's who in Java, and things like that. So when you're trying to figure out what manufacturers you want to evaluate and what's the going rate for these types, you can go to our decision tool products, and they help you quickly sort for what you're looking for and help you make a decision.

"We're in discussions [to partner] with [Cisco] today."
The organic growth also has happened through word-of-mouth over the last six months, but prior to that we had a very large budget for marketing, whether it was direct campaigning or in a lot of the trade publications today on top of doing banner ads -- putting ourselves, our Knowledge Center on Netscape and things like that. So the traffic sort of happens by trying to get to that sweet spot of those IT [information technology] professionals and finding out the places they go to to try to get their attention.

TMF: How much of your business comes from overseas, and what are you doing to grow that?

Jackson: A lot. Fifty percent of our members. We announced I think a month ago that we won over 100,000 members, and that's growing at an unbelievable rate. It took us a long time to get to 50,000 members, it took us a couple of months to get to 100,000, and now it's really growing rapidly. But 50% of those members actually come from outside North America, and 25% of the whole group come out of Western Europe.

These people are very hungry for information. They're treated like the bastard stepchild, if you will, in terms of getting informational flow or more importantly their availability to products. They have all different sorts of barriers in terms of channels that sit out there. When they can come to our website, evaluate all of these technologies directly online, it's a great access for Asia and Western Europe. So more than 50% of our membership comes out of there.

TMF: Who do you see as your biggest competitors? The more traditional software vendors?

Jackson: I really think it probably comes from another agnostic third-party major network player. We certainly don't see Cisco (Nasdaq: CSCO) getting into this business yet, but Cisco is the type of company that could adopt an interim model. They'd have to go spend a few hundred million dollars building out the model. But for Cisco, they have access to all these customers that are using their routers, and for them to suddenly get into the software-management business makes a lot of sense for them. I think it diversifies their business a little bit, but in a positive way and gives them another source of revenue.

So from a standpoint of Cisco deciding to get into it, they could get away with it because they're sort of in everybody already. It's not going to be a Microsoft or an Oracle or an AOL or one of these other guys because for the most part they are limited to their own technologies; it isn't diverse, so you are only going to get a fraction of what you need from them.

TMF: Well, could you see yourself actually partnering with Cisco?

Jackson: We're in discussions with them today.

TMF: Oh, that's great. What do you think are the most common praise and complaints that you get about your service?

Jackson: The thing that keeps me awake at night in terms of complaints is that there's a huge demand from our customer base to have Microsoft products on our site. That's obviously a huge piece of the business-to-business area. I think it's the breadth of products, the critical mass. Today we have the critical mass of all the new technologies in the intra business or Internet or extranet or e-business area; [we have] greater evaluation for that, so anybody who's doing website technology gets a lot from us. But when you start to expand that and say: "Look, I need my [Microsoft] NT supported, I need to add my Lotus licenses from IBM, and all of these other things, we love your service how can we expand that? One of the challenges we have in-house is that we want to make sure that we are meeting all of our customers' needs in terms of brands.

The praise is that the service is exactly what it's described to be. There isn't a lot of holes in it, and so it sort of gives you a big head because you come in and you get lots and lots of praise about what we spent literally $30 million building, which is a way for people to manage these software assets that have never been managed before.

Everybody's out there doing the evaluation on the software, and instead of everybody doing it, we've just done it, and we continue to update so we have a lab full of over a dozen technicians who just take software apart for a living and break it apart and tell you what exactly it is and what it does and what the differentiations are between the different software products. One might work well for one and maybe not so well for another.

"We're getting to the point where we are a critical part of the way software is going to move in the 21st Century."
So getting that quick analysis has been a huge cost saving on top of the fact that most of these guys go out and hire a Cambridge [Technologies], a KPMG, and Anderson [Consulting] and say, "Help me make the decisions," and we've wiped that decision-making process out. We've done it, and we back it up with "We'll also deliver it and make sure it works right for you," instead of just saying, "Here's the decision. Good luck."

TMF: Where do you see the company 12 to 18 months from now?

Jackson: Well, we're experiencing rapid growth. Quarter-over-quarter we're seeing 20% to 30% growth, and that continues to be strong. I see us with all of the manufacturers that are manufacturers that our customers want us to have. I see us expanding with a lot more revenue coming from outside North America. I see us being a major network for every medium to large end-user in the world. I think everybody will use us in some capacity. So I think we're getting to the point where we are a critical part of the way software is going to move in the 21st Century.

TMF: Is there anything else you'd like to add?

Jackson: No, I appreciate you even having an interest about it.

TMF: Well, thank you so much for your time.

Jackson: My pleasure.

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