Networking the Emterprise: Where no LAN has gone before

An Interview with President and CEO David Mahoney of Banyan Systems, Inc.

Banyan Systems, Inc., an acknowledged pioneer and leader in enterprise network services software, was founded in 1983 in Westboro, Massachusetts. In October 1994, it established a Japanese subsidiary, Nihon Banyan Systems KK. In April 1995, Nihon Banyan Systems KK announced that it would increase its paid-in capital value to ¥400 million; Marubeni Corporation is to purchase a 20% stake in the company, while another 20% equity will be held in reserve for other Japanese strategic partners and investors.

In April, Computing Japan talked with David C. Mahoney, Banyan Systems CEO and president, about the Banyan's activities in Japan and the future of the Japanese enterprise networking market.

interviewed by Terrie Lloyd

Computing Japan: First of all, how did you get started in Japan, and why did you decide to wait so long?

David Mahoney: I've been here a number of times over the past five years, each time as part of an effort to determine where the market opportunities for Banyan would be in the Asia-Pacific area. Four or five years ago, it was clear that the networking side of the market here in Japan was purely and simply a commodity business. The small users of PCs were getting into it the same way they did in the United States, but the larger organizations didn't yet seem to be embracing networking in the same way that larger organizations were elsewhere in the world. That, coupled with the fact that we ourselves were slow to develop a strong international thrust, led us to make Japan a lower priority relative to some other areas of development.

The market has changed dramatically in the past year, though, and there is now a very rapid movement in implementing networks at the corporate or enterprise scale. We believe that the timing for Banyan could be quite good to be entering the market at this time with a proven reputation in enterprise networks and a large, very recognizable set of reference customers in the global market. Many of our worldwide customers have a significant presence in the market here.

CJ: What convinces you that the market is actually changing?

Mahoney: I see it as a result of the people we have had here doing marketing, doing selling.... We gain knowledge and understanding from those individuals as to how they see the changes taking place. But it's also borne out by the meetings I've had in the past six months with large organizations who are not only starting to realize that the enterprise networking concept is something they need to move to quickly, but who have an interest that goes all the way to investing and becoming a part of that market themselves. Four or five years ago, you didn't find that interest. There was interest in workstations, databases, servers more the minicomputer side of the business still.

Our opening was attended by about 350 people, and there was a lot of dialog with integrators, organizations, resellers, customers.... There just seems to be a newly developing awareness that there are other networking issues and concerns to be aware of as network computing starts to play a more important daily role in the running of businesses here in the Japan.

There are issues translation issues that make it difficult to do everything that you'd like to do in this market, and at the rate that you'd like to do it. Every company I know has had the same challenge: trying to be really aggressive in the market at a point in time when it makes sense.

CJ: Have you established a Japanese support group back in the States to work with the developers?

Mahoney: We're working with Motoshi Sato, president of Nihon Banyan Systems KK, who is building our organization here. What we'll probably try to do is exchange people actually have some people come from the US to be resident here for a lengthy period of time, primarily technical sales and technical support people. We'll also look to bring some people from the KK back into the US operations to be a part of support and engineering, learning more about the product side of things.

I think we'll end up taking a normal course and doing that, just like most other companies have. My own involvement has been one level removed, but I've already taken steps to determine who in our US operations, from a field perspective, might be logical candidates to come and work in this market, to help the people we hire here to become more effective, faster, in marketing, selling, and delivering into the enterprise account in Japan using our US-based experience. We'll overcome the language barrier by having them work with our Japanese employees here in the KK.

CJ: What has been the response of your potential candidates to the opportunity?

Mahoney: It's interesting. Married people these days have more of a challenge taking the step than I thought they would. We're talking to a couple of people now.

CJ: Overall, how do you view the market potential for Banyan here in Japan?

Mahoney: Based on what I've heard in discussions with our partners, and others who would be interested in being our partners here, I think there's a great opportunity. I believe our product line has a great fit in this market today. It's a market that is going to be influenced by some of the changes that Microsoft is presenting, but in a way that will put us in a very good position to add value to what Microsoft is doing, and gain an early position in a market that a lot of people are just starting to become aware of.

CJ: How about product offerings? What do you have worldwide that you're going to offer here in Japan?

Mahoney: Our Vines product a mature, proven enterprise networking product was just translated, and will be translated in future revisions. I think that has a very, very good market opportunity here. We've been very successful in government organizations, telecommunications, the financial community.... My belief is that, with the reference accounts we have coming out of the United States, as customers start to take a look at where they're going with respect to operating systems and networking, and start focusing more on messaging and management as the issues (as opposed to file sharing and printer sharing), Vines combined with ENS offerings which include our platform-independent services of directory messaging and management will fit very well into this market.

The focus will be to put strong emphasis behind the marketing of Banyan's networking capabilities and delivery, and to deliver those capabilities in the form of a Japanized version of Vines, in the 5.X version and beyond. We anticipate announcing a new version of Vines 6.0 in the near future.

CJ: This year?

Mahoney: Yes, that will be this year. The other products we think will have a very good fit in this market are our ENS family of products ENS for various UNIX platforms, which are doing very well in the United States, in areas where customers are looking to tie together multivendor environments. I think multivendor environments are going to be more common than single vendor environments for quite some time. We also have ENS for NetWare, and ENS for NT; in terms of a direction setter, this is something that will define the role that we will continue to play in complementing Microsoft, as opposed to competing with them.

CJ: What does ENS for NT do in terms of capabilities that Microsoft has not built into NT?

Mahoney: I think a better way to ask that question is, "What does ENS for NT do for the customer?" It helps the customer accomplish what they are trying to do. Banyan's whole family of products our messaging products, management, directory are packaged in the form of ENS, packaged in the form of Vines. They help the customer build a multivendor network environment that is very easy to find, share, and manage information. It's as simple as that. We supply what the customer wants.

What value do we bring? We bring the value of customers integrating multiple environments with respect to NT. NT is an evolving product; there's NTAS, there's NT BackOffice, there's Windows NT, there's Cairo.... So how is a customer to look at what Microsoft has to offer? Throw out everything else and use NT as the operating system base? I don't know anyone who is doing that, although some people may. A more logical evolution is that NT is going to become a very popular alternative for various types of applications; certainly for departmental file sharing and printer sharing, it really does stand out as something that will do that quite well.

Now, the typical customer is going to have a mix of Microsoft, various UNIX platforms, NetWare here and there, plus one or more databases and a number of different applications in that environment. The true client/server environment is going to be multivendor, and the things that are missing in that environment are the common directory, the common messaging platform, and the manageability tools things that allow an organization to say, "We have a network that has these capabilities in it," rather than, "We have a number of different operating systems that have these capabilities, but they don't work together very well." When you talk to most organizations today, that's the common cry: "I just can't use all of this stuff together very well."

CJ: There are quite a few flavors of UNIX in Japan. How have you chosen which ones to support in the short term?

Mahoney: We've focused our attention primarily on the UNIX vendors who are most visible in the global market: IBM, HP, and Sun. This is an area we have to pay more attention to here in Japan, as we have had to do in Europe. Shortly after getting into Europe, we realized that Siemens-Nixdorf was a very important open systems UNIX player, not just in Germany but in the European market. So this year at Cebit, we announced a relationship with Siemens-Nixdorf to put our ENS products on their UNIX platform.

In the developing stages of our presence here, we'll be doing exactly the same thing with UNIX vendors in this market. In each market, it is important to figure out who the dominant providers are. NEC is probably a logical candidate here, although Sun has a good presence here, as does IBM and HP. I would expect within the next year to have a better picture of what that would look like.

CJ: Who are the competitors for ENS in Japan or the States?

Mahoney: For customers leaning toward going with a single vendor approach from top to bottom, the added value that an ENS strategy could bring is limited. Where we provide services that run across multiple platforms, we're very much like the database companies. A good parallel is how Oracle and Sybase approach their business, for example, in that they provide a consistent technology across multiple platforms so the customer can focus on that technology and put other elements around it. I don't see anybody else taking the specific focus that we're taking today. Common services on top of a common UNIX is probably quite a ways down the road.

I think that Novell will be driven to provide more openness with their products over time. And I believe Microsoft, in approaching the enterprise issue, will start to look at more pieces of the technology. But we have a very strong focus: directory messaging management for the enterprise environment across a series of platforms, and then building relationships to extend the scope of that business. We have a very strong messaging business, one that is based on the logical way to define messaging, which is to build it into the network, not build it in the applications. Coupling that with the directory is a key, and so far in the industry it is a unique approach; Novell isn't doing it, Microsoft is not doing it, Lotus isn't doing it.

Our focus is very much on a subset of the market. We're not trying to compete with Novell and Microsoft, not trying to be all things to all people. We're a little bit like Sybase. If you looked at Sybase seven or eight years ago, not everybody in the world understood who Sybase was. A lot of people knew who Ashton-Tate was, a lot of people knew what dBase was, but they didn't really understand who Sybase was. People who had client/server enterprise computing knew who Sybase was, but they weren't on the front page of PC Week every week, they weren't part of some controversial discussion.

We clearly aren't trying to put ourselves into a competitive situation with Microsoft or Novell. Banyan is somewhat unique. We're not so big that we have to grow our business through broad-spectrum dominance, yet we're not so small that we're considered to be an insignificant factor in the market.

CJ: How big is Banyan?

Mahoney: In 1994, we closed the year at $150 million. There are about 900 people working for the company.

CJ: Who are some of your biggest users in Japan, and where do you see your potential market?

Mahoney: We've got a number of major users here: Marubeni, MITI, Hitachi, Compaq, Intel, Merrill Lynch. We have a number of car companies, government organizations.... Hitachi has signed up to use our product broadly; their plan is 30,000 PCs.

A lot of our US-based customers have significant operations here. But I think we need to create more, faster. Our messaging solution, I think, will be very well received in this market. It's a proven product, it's nicely translated, it has a great set of features. I think the whole extension of our products into the popular UNIX platforms is going to be something else this market will be very interested in. A lot of it, though, is going to come down to who do we partner with, who do we build relationships with, and how can they help us to really amplify our message.

CJ: You've basically decided to come in with your own investment and drive things from within your own company. What made you select that model rather than going through a Japanese partner?

Mahoney: We did some research and developed an understanding of what has worked well for other companies. The nature of our product, and the nature of the market, argues that we would not have been able to find a way to delegate the ownership of creating market presence for our products. Again, the database companies are a good parallel. If they didn't get out and create their own demand, then the rest of the market wouldn't appear. Nobody would do it for them.

We decided that is what is going to drive our business: to make the investment in people and create a presence. That led us very much to creating a strong operation here, one that had strong alliances to deal with working within the business and cultural environment. But at the same time, we needed to create an entity that we could drive as hard as we chose, to gain as much market share as we could early in this market. That's what led us to the path of a recognizable name, leaving open the opportunity for additional investments from organizations that not only can help create credibility but also can create customer awareness and help drive the business. We would expect that the 20% of the KK that is still open would be purchased by other recognizable names here.

CJ: Both Novell and Microsoft, and many other foreign companies that have started up in Japan, have made a very strong effort to become Japanese. What that generally means is that the foreign multinationals, which are probably 3% of the market, get left to fend for themselves with their problems of integrating English and Japanese products. What are your plans for dealing with foreign multinationals, and how are those companies going to be able to get bilingual support?

Mahoney: Banyan has had a very different strategy in terms of approaching customers since our inception. We've always been directly involved with our foreign multinational customers in the United States, and have taken a very active role in helping them to roll out their products. We sent people from the US to take part in the roll out of the products of some of our vendors here in Japan.

We set up, early on, distribution and support agreements here even though we didn't have a presence with groups that could provide local service and support based on working with our customers. And the way it will evolve is that we will continue to have a strong focus with multinational accounts in the US, but we will encourage their local entities to work with an entity here in Japan because of the language issue. In other countries, where there is not so much of a language issue, it will be easier for them to work through their corporate relationship with Banyan. It will be a mixture of both.

CJ: But what if they want to work through the States? For example, a lot of large accounts have worldwide pricing, and they resent it when they're forced to use a Japanese entity for their product sourcing. Quite often, they're forced to take Japanese products that they don't want; they might only want to put Japanese on their English product. And they're forced to pay a higher fee on their purchases here. Or maybe the manager is an English speaker who has trouble dealing in Japanese. Have you run into any such problems?

Mahoney: We haven't run into this to a degree that we can't deal with it; I'm not aware of a situation where this has become an issue. But it's not going to be an issue that is unique to Banyan; it's an issue that we'll all have to deal with here. It's a challenge that will come down to the local business being able to make its case to the customer, or Banyan making a decision that we need to work with the customer at the corporate level.

We intend to create a strong entity here, such that it can deal with both Japanese- and English-related support issues, and to create a strong series of partnerships here, so that customers will be most motivated to work with our local organization. Then we at the corporate level can deal with pricing and the investment cost of using our product on a global basis.

CJ: Is your localization currently done in Japan or in the US?

Mahoney: We have initiated in our home office, within the development organization, an internationalization group. The responsibility is theirs to ensure that our products are translated and available in all markets within two months after the release of the English version. That's the goal; we're not there today, but that's the goal.

To do that, we have to put a certain level of responsibility for controlling the timing and scheduling in development groups. How its implemented, and where we have the work done, will change over time. Ideally, we will have more of the work done in the markets where the language, the knowledge, and expertise is more readily available to us. Right now, we're doing a lot of it in the US with people who were brought out of the markets.

Localization really stands as one of the most significant investment challenges that emerging companies have in order to become global. I don't think anybody starts out early on, thinking about designing their product so that it is easily double-byte adaptable. It's always something that, no matter how many people run into the same problem, everybody does it the same.

CJ: Do you have any special observations about the Japanese market? Most companies seem to divide Asia into Japan and the rest of Asia.

Mahoney: I think that's only just, given the volume of business that's represented here, both in terms of Japanese companies that are becoming more global in nature and multinational companies outside of Japan with offices here. Everybody has a significant presence here. I would say that our overall view of the Asia-Pacific is that it should be 15% to 20% of our business, and that Japan should be half of it.

We're looking to build the contribution of our international business in general from where it is today. Right now, only about 20% of our total business comes from the international market we've not grown internationally the way we should have. That's primarily an implementation issue.

In the next two or three years, our target is to grow our international revenues to 50%. In terms of percentage rate of growth, Asia-Pacific is the fastest for us right now. We're starting from a small base, but it's growing faster. Within the Asia-Pacific, Japan stands to grow the fastest of any area within the company, percentage-wise.

CJ: Overall, what portion of your revenues come from ENS versus Vines?

Mahoney: Vines was only ever 40% of our business at its high point. The thing that was different about Banyan was that whatever you needed to make the enterprise work, we provided it in a very highly integrated environment with Vines. This was important to certain types of people in the market. Novell, by contrast, developed NetWare and said, "Go to everybody else to get the other pieces, and you be the integrator." We took a very different role from the beginning.

ENS is starting to become a more significant portion of that element of our revenue. But the combined Vines-ENS business will always stay at about the 35% to 40% level, although in some parts of the world, Vines will be a higher proportion of our total revenues than in the United States.

CJ: And what projects are you working on for the future?

Mahoney: We're doing quite a bit to extend the scope of the directory. Over the past 12 years, Banyan has pioneered in the whole area of network directory, the global directory. It has been a major differentiator for us, but we never charged for the directory; there's no "price" for the directory.

We've recently restructured our development organization to focus on four main areas of product development: directory, messaging, management, and what we call the "platforms business," which is the packaging and delivery of our products. We are putting a significant investment into differentiating our directory capabilities versus others that we think will emerge in the market. So we're driving toward X500 compatibility and support; we're adding more features for managing the directory itself, giving customers the ability to use the directory as a powerful tool; and we've embarked on this initiative that we call Universal Streettalk. Currently, we are working with major providers of the client/server solution to either license or give them the technology that will allow them to directory-enable their products to work in an enterprise environment. This is essentially trying to get more movement toward creating a directory orientation.

It seems to me that the Japanese market is still one in which the role that the directory plays is not quite clear. I think we can do ourselves a great deal of good by coming in and focusing on the role of the directory, and being able to deliver it better than anybody else in forms that can be used effectively in this market.

CJ: A general market question to wrap up. It's no secret that Microsoft and Novell don't like each other very much. Since you support both products, I'd like to hear some of your observations in terms of what it's like being a third-party vendor working with both companies.

Mahoney: We have a very good working relationship with Microsoft. We don't do as much with Novell, though I think we could.

The challenge right now for everybody in the industry to understand what is going to result from the competitiveness and the strategic direction of both of those companies. Is somebody going to win out? Is it going to be a mixed environment forever? They're both going all the way up the chain in terms of applications, so whose applications are going to win out? Under the current circumstances, our focus has been to make sure we support the integration and networking of Microsoft products as well as or better than anybody, including Microsoft.

CJ: What about Microsoft Japan? Are you involved with any special relationships with them?

Mahoney: In Japan, a lot of our relationships are still evolving. Ask me in three months. It's still a little bit early, but we intend to move fast.

On a global basis, I think the best strategy with regard to what's going on with Microsoft and Novell is: Don't get hit by the shrapnel! Make sure that you define a business, and make sure that you can articulate the value of that business. Don't get confused, don't let your customers get confused which is a challenge, because customers are terribly confused.

I think that we must keep customers moving ahead. The danger is that customers will get stuck in a model that says, "Well, I won't buy anything for awhile." We should all fear the possibility that customers will get so confused that they just stop buying.

We have a very strong focus: directory messaging management for the enterprise environment across a series of platforms, and then building relationships to extend the scope of that business.

Localization really stands as one of the most significant investment challenges that emerging companies have in order to become global.

We've recently restructured our development organization to focus on four main areas of product development: directory, messaging, management, and the "platforms business."

The best strategy with regard to what's going on with Microsoft and Novell is: Don't get hit by the shrapnel!