Good morning Mr. Chairman and members of the Committee. My name is Doug Burgum, and it is a pleasure to appear before you on behalf of the more than 600 employees and 7,000 business Partner-employees of Great Plains Software. The Committee's consideration of "Market Power and Structural Change in the Software Industry" is of the utmost importance to the future of our industry. It is an honor to have been asked to contribute to your deliberations.
My statement has three objectives:
Great Plains Software is one of the world's leading providers of business applications for mid-sized businesses. Our products and services automate essential accounting and operational functions and provide managers with the strategic financial information they need to run their businesses. All of our products and services are sold and implemented by an extensive network of independent business Partners. In addition, many Partners develop software applications that are integrated with our products and extend the total solution to meet the enterprise-wide requirements of mid-sized businesses.
Great Plains Software is built upon a deep commitment to develop and sustain long-term relationships with our Partners and Customers. This commitment is best expressed in our Mission Statement, which has been a vital part of the company from its earliest days: "To improve the life and business success of Partners and Customers by providing superior business applications software, services and tools."
Key to fulfilling the promise of that mission statement is our focus on recruiting, nurturing and retaining the best employees possible. We foster a culture based on caring, courage, and commitment that has resulted in Great Plains Software twice being recognized as one of the "100 Best Companies to Work for in America."
Our client/server product family, Dynamics, consists of a suite of financial and distribution applications, such as general ledger, accounts payable, accounts receivable, payroll, sales order and purchase order processing. We also offer an integrated solution for field service management. Further, we provide a suite of development and customization tools used by scores of independent software developers to deliver hundreds of applications that add breadth and depth to the total solution.
Our customers are looking for solutions that are cost-effective, easy to install, customize and use, and that grow as their businesses grow. Great Plains Software understands the needs of our customers and delivers award-winning products and services to meet those needs.
Great Plains Software is proud to have its products exclusively sold, implemented and supported by experienced, knowledgeable, and highly motivated domestic and international service and distribution Partners. These Partners range from value-added resellers, or VARs (many with less than 20 employees), to nationwide system integrators (some with hundreds of employees), to the Big Four and other accounting firms.
In addition to our distribution Partners, Great Plains has its own network of independent software developers who write applications that integrate with our products. These independent developers offer solutions that extend and enhance the functionality of Great Plains products. By integrating these independently-developed solutions with our products we meet the needs of most mid-sized businesses.
Altogether, there are 7,000 Partner-employees who work with our products every day, delivering solutions to customers. In addition to assembling an outstanding team of employees, building profitable opportunities for our Partner channel is the most gratifying part of what we have accomplished at Great Plains Software.
In many cases, these independent business partners are dedicated exclusively to Great Plains Software. Just as we have built our business on technologies provided by other companies in the industry, these entrepreneurs have built their businesses on Great Plains Software. Our relationship with our Partners is close and mutually rewarding.
We support our Partners through our long-standing commitment to excellent service. Great Plains Software pioneered the delivery of highly responsive technical support in the PC Software industry. We have been recognized repeatedly as providing the best service and support in the business applications software industry as well as across broad industry categories.
Founded in Fargo, North Dakota in 1981, Great Plains Software has grown from 15 employees to more than 600 employees with an estimated $80 million in annual revenue in our current fiscal year. We have over 40,000 customers in more than 60 countries. Our global expansion has accelerated in recent years. Currently we have subsidiaries in four countries, joint ventures in two and distributors in five more.
Great Plains Software competes in the Business Applications Software industry. This industry can be divided into three broad segments: 1) the high-end enterprise segment where solutions target the largest businesses in the world, 2) the midmarket segment addressing businesses with $1 million to $250 million in revenues and 3) the small office/home office segment.
Great Plains Software competes in the midmarket segment with many companies, domestic and foreign, large and small. While Great Plains Software is a leader, the midmarket segment has been and continues to be very fragmented and competitive; no single company holds a dominant share of the market.
Our competitors range from some of the largest companies in the world to small, regional firms. In some cases we both compete and collaborate with the same company. For example, one of our hardware alliance partners has made an investment in and provides substantial marketing support for, a competing product.
Adding to this competition, companies from the high-end enterprise segment have launched efforts to enter our midmarket segment.
There are many dimensions of competition in the business applications software industry. Great Plains competes in the following areas, amongst others:
Great Plains Software, all of our competitors and the thousands of other software companies that write applications that run on various hardware architectures, use different computer operating systems and employ different databases, are referred to as Independent Software Vendors, or ISVs. The hardware, operating systems and databases used by ISVs to support their applications are called "platform technologies." Examples of hardware architectures include SPARC by Sun Microsystems, Alpha by Digital and Pentium by Intel. Operating systems include UNIX from a variety of providers, the Macintosh OS from Apple, and Windows NT from Microsoft. Database choices include Oracle, Pervasive and Microsoft SQL Server. Companies like Great Plains Software are "independent" because they are not owned or controlled by the companies that provide the platform technologies.
Each ISV is free to choose the platform technologies they deem best for their application. The criteria used to select platform technologies include the strength and appropriateness of the technology and the underlying economics from the point of view of the ISV's shareholders, partners, and customers. With the constant innovation that is the lifeblood of the information technology industry, ongoing change in platforms will continue.
One of the most important strategic decisions an ISV makes is selecting the best platform technologies. ISVs look for platforms that will meet the needs of their customers, have potential to become market standards and offer the ISV's application a large market opportunity.
Often, an ISV must make a platform decision long before it is known whether a technology will become a market standard. Furthermore, if possible, ISVs develop for more than one platform to hedge their technology investment bets. In our case, Great Plains Software started developing our graphical product in 1988 for both the Macintosh and Windows platforms. This was many years before it was clear that Windows would become today's market standard.
Not surprisingly, the technology platform companies are very keen to attract as many ISVs as possible. The more ISV applications that use their hardware, operating system or database, the more of each they will sell. Often, the competition to attract ISVs is fierce. Platform companies offer a wide variety of incentives to entice ISVs to write applications that use their technologies. While these incentives sometimes work, the best way to attract ISVs is to offer technologies that provide the highest unit volume or highest number of selling opportunities.
The relationship between ISVs and platform providers is often paradoxical; it is simultaneously a relationship of dependence and independence. The ISV and the platform provider depend upon each other to sell their respective products, but both want to remain independent of each other—free to use other platforms in the case of ISVs and free to work with other applications in the case of the platform providers. There is an underlying tension in the relationship that is healthy. Both players must continue to innovate and improve; otherwise, there are any number of companies that can and will replace them. Great Plains Software Key Technology Platforms
During the 16 years Great Plains Software has been delivering business applications, we have effectively migrated our products to new platforms on many occasions. We changed and added platforms so we could deliver greater value to customers and provide a larger market opportunity for Great Plains Software and our Partners.
The key platform technologies we have supported include:
Great Plains Software's platform choices have always been based upon market demand and customer needs. As platforms continue to evolve, our open product architecture enables us to embrace the platforms that best serve the needs of our customers.
While we currently use many technologies offered by Microsoft, there is no doubt that additional platform decisions will be made in the future. For instance, one such decision that is already upon us is the Internet and its role in business applications software solutions. Great Plains has moved very aggressively to incorporate Internet and electronic commerce technologies and functionality into our products. While the full effect is still unclear, the Internet is transforming the software industry today. This change again introduces the uncertainty of platform choice.
And while this change means investments for Great Plains it also means investments for our distribution and development Partners. Since our Partners are looking to us for platform direction, we realize that the decisions we make will effect their interest in and ability to work with our products. So as Great Plains and other ISVs continually assess the alternatives available from the providers of platform technologies, the independent software developers review the alternatives available to them from ISVs.
While ongoing technological change means ongoing challenges for companies like Great Plains, it also means ongoing improvements for Customers. A new technology becomes a market standard by doing one thing: meeting customers needs better than the alternatives. Great Plains is committed to working with technologies that better meet customer needs, regardless of which company provides those technologies.
ConclusionMr. Chairman and members of the Committee, thank you again for the opportunity to tell you about Great Plains Software, to provide you with insights into the business applications software industry, and to describe how ISVs like us work with the providers of platform technologies.
Great Plains Software is proud to be part of the American-born information technology industry, an industry that started quite literally in the garages, kitchens and dormitory rooms of this country. Part of the appeal of this industry is the freedom to succeed or fail based solely on one's own abilities. Great Plains has been able to compete in this industry free from government regulation and free from the control or influence of other companies. Companies come and go based on how well they meet customer needs; and, more often than not, the best product wins in the end.
Fourteen years ago, mortgaging farmland inherited from my father gave me the chance to quite literally "bet the farm" on a fledgling software company. The prospect of competing in an industry where one could truly control their own destiny was compelling.
Great Plains has tried to take full advantage of the freedoms and opportunities afforded us in this market. We have stayed focused on our Mission Statement and worked diligently to live up to its standard of improving the life and business success of our Partners and Customers by providing superior software, services and tools. The success we have achieved is due to our commitment to the success of our Partners and Customers and the hard work of our employees. And our continued success will be determined by how well we attract, develop and retain the talent necessary to deliver on our Mission Statement in the future.
As an independent software vendor, we take our independence seriously. We are free to choose what is best for our customers. This independence and freedom will continue to be a key part of our success.
The industry where we compete is a special one. It has served our Partners, our Customers, and our Employees well over the past 16 years.
We look forward to maintaining our independence and delivering products that meet customers' needs. Our future success or failure will be determined by that and that alone.
Thank you very much.