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Banyan reinventing itself as Net services firm

The network software company climbs out of that industry to dive into the lucrative business-to-business market.

Banyan Systems may have finally found a profitable new identity.

After exiting the brutally competitive network software business altogether, the company is quickly morphing into a Net services firm.

In the first of what the company says will be many acquisitions of Net services firms, Banyan said yesterday it will buy ePresence, a privately held company that specializes in Web design, development and computer systems integration. Banyan will pay $14 million in stock and cash for the firm.

Banyan has been struggling to find its niche since the mid-1990s, turning a profit for the first time in four years in 1998 and finally succumbing last year to fierce competition from richer, more successful network software rivals Microsoft and Novell.

"We were a successful software company that got beat up in the marketplace by the other players," said Scott Silk, a senior marketing vice president at Banyan.

In its new space, Banyan will face a new crop of competition from established services players such as IBM Global Services, EDS and Computer Sciences, among the growing group of start-ups targeting the financial services and telecom markets.

E-services is not an unlikely route for Westboro, Mass.-based Banyan, which always had a services arm to compliment its core software business. Focusing on e-services could help drive the company's rebound, analysts said. Banyan's stock--which was as low as $7 a share in September--has nearly tripled since, and closed today at $18.94. Banyan executives point to the stock rebound as evidence that the Street finally understands the company's plan for transformation.

Adding Red Bank, New Jersey-based ePresence to the mix is only the first step as the company pushes to grow its services practice. Banyan, like many other firms, is hoping to ride the cash stream pouring into services firms' coffers from companies transforming their businesses for the Internet. When it reports its results for 1999, Banyon is expected to have derived $80 million in revenues, half of which came from e-services, the company said. The company added they expect e-services to grow by 50 percent per year.

Meta Group Net services analyst Stan Lepeak said he has doubts about Banyan's strategy to grow its services practice through acquisitions because he predicts employees will bolt after a Banyan buy.

"I would think it would be insulting to be bought by an over-the-hill products company like that," he said. "The key people won't find it too appealing. It will be hard to keep the talent (after these acquisitions)."

While Banyan's strengths as a services company may lie in its technology capabilities and worldwide reach, the company faces an uphill climb in marketing itself as a Net play when its established roots are as a software maker, said International Data Corp. analyst Pooneh Fooladi.

"They're going to need to clearly articulate what they do in this space," she said. "They already have an established name and they will have a hard time building (an Internet name) like a Scient or Viant."

That said, Fooladi noted there's a lot of room for Banyan to find a lucrative home in Net services, a market IDC expects to grow to $78.6 billion in 2003 from about $11 billion last year.

Fooladi added that Banyan's global presence could help them in Europe, where demand for services is outstripping supply and growing at a faster rate than in the United States.

The company, for now, is limiting its work to two main sectors: brick-and-mortar financial and telecommunications firms, where Banyan's directory experience should prove to be key, according to Silk.

As a software player, Banyan is best known for its StreetTalk directory and its Vines operating system, which served as an alternative to Novell's NetWare and Windows NT. Banyan's technical depth positions the company to customize applications for its customers and provide the integration that design companies can't, Silk said.

To compliment its existing offerings, Banyan is perusing the market to acquire companies focused on front-end design and strategy. This week's acquisition brings Banyan's services group to 320 employees.

Susan Scrupski-Miranda, head of services consultancy IT Services Advisory, said Banyan may find many services customers in the network engineering ranks, where the company has made its name. But it will face hurdles building its Web design, strategy and branding skills.

"Their (networking) strength is also their weakness as well," she said.