Firm Finds its Niche in Communication Gap

For much of its nine years of existence, Software Technologies Corp. of Monrovia has been one of the most obscure technology companies in Southern California.

Even after the company’s initial public stock offering last month and a current market capitalization of close to $1.5 billion, the company still has a meager profile, even in its own industry. As does James Demetriades, the 37-year-old founder and chief executive of the company, whose stock is now worth about $600 million.

Part of the reason is the nature of the company’s product: a software program that serves as a centralized, universal translator that allows large business computer programs to communicate with one another. It performs a function so arcane and invisible that even within corporate computer departments it is still not widely known.

But the proliferation of specialized corporate software and a need to tie those programs together inside and outside a company have now put Software Technologies in the heart of the hot business-to-business e-commerce movement.

The reality is that most corporate computer systems are a hodgepodge of specialized computer programs from different companies, storing information in different formats. Software Technologies’ solution gives companies the flexibility to buy whatever computer programs they want while still allowing them to communicate with one another.

Demetriades concedes that getting Software Technologies known and increasing its market share in this time of booming e-business growth is its most immediate problem.

In the last two years, he said, there has been almost a 100% turnover in the company’s sales staff--a result of its search for just the right people to push a complex product.

Software Technologies is also facing a crop of competitors, including IBM Corp., Mercator Software Inc., New Era of Networks Inc., Vitria Technologies Inc. and Tibco Software Inc.

But after two years of losses--the first in Software Technologies’ history--Demetriades said the key pieces have fallen into place and the company is ready to march forward.

Within the last few months, some of the biggest names in technology consulting, including Andersen Consulting and EDS, have adopted Software Technologies’ products as part of their offerings to customers.

The company’s list of customers for its flagship eGate program has been steadily growing, topping 1,200 with such large companies as Hewlett-Packard Co., Fluor Corp. and Barnesandnoble.com.

The business credentials of the company have been polished with the addition to its board of directors of such established executives as Raymond Lane, president of database maker Oracle Corp.

And even in the recent grim Nasdaq decline, the company’s stock has fared reasonably well.

On its first day of trading last month, the stock rose from its offered price of $12 a share to close at $20.13.

The stock hit a low of $15.31 early this month but has been heading up since, closing Friday at $21, down $2.38.

Software Technologies “has a lot of longevity and experience behind them,” said Lauren Shu, a senior analyst for e-commerce software for GartnerGroup. “Over the last year, we’ve heard a lot from the small players, but this company is right up there with the big boys. They can play in that league.”

Demetriades is the first to admit that understanding Software Technologies’ place in the crowded and confusing market is no easy task.

He started the company in 1989 as a one-man software consulting firm specializing in designing business programs for hospitals. His expertise was in getting all the various types of software programs that hospitals used--such as those to track new patients, store X-ray files, calculate billing and monitor inventory--to talk with one another.

At the time, hospitals, like other businesses, used a variety of software programs that all spoke their own languages and stored information in their own formats. A typical hospital could have several dozen separate systems. A large manufacturing firm might have several thousand.

In many cases, the cost of buying a software system for, say, patient admitting and discharge was minor compared with the cost of actually getting the software program to talk with other programs and share its information.

The prospects were bleak because the trend was for hospitals to computerize more of their operations, not less.

One solution was to buy only programs that stored information in the same format and used the same standards to communicate with one another. Companies such as SAP, PeopleSoft and Baan rose to prominence with this strategy, offering enormous software packages that tried to cover all the major corporate functions.

Demetriades’ solution was to create a central gateway that would coordinate communication between software programs and automatically translate information into the proper form. Instead of making all the programs the same, his solution allowed companies to use whatever programs they wanted.

The key to the gateway was the development of hundreds of software “adapters” that were designed to translate information from specific programs.

Instead of constantly modifying individual programs so they could communicate with each new software package, all that was needed was a new adapter, which could be easily added to the central gateway.

The latest version of eGate allows the translation process to be spread over several machines, providing more protection from failures and bottlenecks--a key feature for corporate applications.

It took Demetriades several years of talking with computer system administrators before one hospital agreed to give him $60,000 to build the system in 1991.

The company, with just two employees, brought in $80,000 that year, then $400,000 in sales the next year and $2.3 million the year after that.

It now has 570 employees and had sales of $55 million last year, but lost $26 million as it continued to struggle to break out of the hospital market.

The company’s efforts have largely paid off, and now only about 15% of its sales are to hospitals.

Going public was the next step. But just as the company was announcing its plan, Nasdaq began its current nose dive.

Demetriades said that on the first day of a trip to meet with analysts and investors, Nasdaq dropped more than 200 points.

“Every day it kept dropping,” he said. “It was just hilarious.”

He considered abandoning the stock offering but decided the company needed to increase its profile. “I just thought that if we stayed private, no one would care about us,” he said.

Shu, of GartnerGroup, said Software Technologies is now about fifth in market share based on revenue. But she added that the field is so fragmented that the difference between the leader, IBM, with about 14% of the market, and Software Technologies, with about 5%, is not enormous.

The company’s “technology is particularly strong since it’s been hardened over time,” Shu said. “They’re now several versions into it.”

Demetriades said that although Software Technologies ranks fifth in revenue, it is at the top of the list in the number of customers.

“For me, the No. 1 priority is market share now,” he said. “We exist because the managing of information has become incredibly complicated and it is never going to go away.”

The other major competitive force faced by Software Technologies is the growing movement to make a computer language called XML the standard for e-commerce.

Software Technologies argues that in the unruly world of e-commerce, the chances of all companies adopting a single language are virtually nil. Besides, Demetriades added, Software Technologies also makes adapters to translate to and from XML.

“We are Switzerland,” he said. “We work with all of you. You’re all our friends.”