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SAS chief: Hot on fraud detection, cool on cloud computing

The CEO Interview Series: Dr. Jim Goodnight, CEO, SAS

By , Network World
November 12, 2009 02:37 PM ET

Network World - Was there ever a year when corporate America -- particularly Wall Street -- needed more insight and intelligence about how to navigate stormy economic waters than 2009? Dr. Jim Goodnight co-founded (along with John Sall and other North Carolina State University colleagues) SAS in 1976 and has led the $2.8B company to a leadership position in the business intelligence (BI) and analytics market. At a recent media event, Goodnight spoke with IDG Enterprise Chief Content Officer John Gallant about how businesses did -- and didn't -- take advantage of BI during the downturn and how the economy has changed the playing field in the BI market. Goodnight also talked about why he's not overly enthusiastic about the potential for BI in the cloud computing environment and why the perception lingers that BI has failed to deliver for IT and business.

Read other interviews from this series.

The financial industry is a big market segment for SAS. What lessons do you think were learned in the financial industry as a result of the downturn?

I think beyond any doubt that the people who were doing risk computations or relying on the ratings provided by Moody's and other folks on some of this junk stuff that they were calling Triple A never really got down inside of those vehicles to see exactly what was in there. They just lumped them all as part of the Triple A paper. And it wasn't until a few of them started going bad that they began to realize, well, our risk is a lot bigger than we thought it was because we have been misclassifying the risk on these particular types of paper. I would have loved to see them get out of some of the derivative stuff that they're doing -- especially these exotic derivatives that nobody quite understands exactly how they work. I would love to see banks back into the traditional role of being a depository for the nation's families.

So the information was there but people were making the wrong decisions?

The information was there -- they just didn't dig deep enough. There was a recent article about how Wall Street lied to their computers. I didn't read the article. I didn't need to. As soon as I saw the headline I said: 'I know exactly what that's about.' That was the biggest problem we had with Wall Street; they were using the wrong ratings on all of the instruments they had.

How has the past year changed the market for SAS? What kinds of new opportunities have opened up and what have you seen in different market segments?

We're seeing a lot of interest this year in fraud detection. We've got probably 10 applications that we're already working on and another 10 or 20 in the pipeline. In times like this banks and insurance companies have got to try to make sure every dime we spend is properly spent. In a down economy when people really need the money, more and more people turn to fraud. That's been the biggest thing we've seen and that's across a lot of industries: insurance, healthcare, welfare fraud, tax fraud. It's just a huge, growing area for us.

You mentioned in a presentation two segments that are growing at a nice clip -- retail and government. What kinds of applications are you seeing in those markets?

In the government, we're seeing more and more use of technology, especially in the agencies that are going after terrorists and trying to find the bad guys, as well as for logistics in the military. In retail, it's the whole optimization process -- site optimization, pack optimization. Many chains order the same pack of, let's say, sweaters and every store gets the same thing. We've been able to point out to them in so many cases that there are a lot of variations in the population where the stores are located. This particular store might have a history of running out of smalls and this one over here may have a problem of always too many smalls at the end of the season and they go on clearance. If you can balance that and get just the right sizes going to each store the customer is going to be happier, because when they go in there they're more likely going to find the right size, and the merchant is going to be happy because at the end of the year, he's not having to put all this stuff on sale that was mis-sized really for that particular store.

[Chief Marketing Officer] Jim Davis made a comment during a presentation that there are too many companies in the business intelligence market. So, how do you differentiate yourself from the pack?

It's our depth of analytics and our deep involvement in the banking space, from credit card fraud to risk computations -- credit risks, market risks, operational risks. We continue to pour a lot of money into risk. I've been working on some risk computational projects myself to try to speed up risk computations, especially when it comes to stress testing.

When you think about some of the bigger competitors -- the IBMs, the Oracles, the SAPs -- how has the market changed in the past year? How has the competitive dynamic changed because of the economy?

The biggest change is that we're not seeing Cognos as much as we used to. We're seeing a little bit more competition from Oracle now in the pharma space.

SAS CEO unfazed by IBM analytics challenge  

They're really pushing life sciences in some of their acquisitions. But, remember, we compete with 200 or more different companies in the anti-money laundering, in the fraud stuff and the risk stuff. We won't see any of these [players] in that space. Just because some big companies bought some of our smaller competitors hasn't really changed the landscape for us that much.

Speaking of buyouts, your company acquired IDeaS, which provides revenue management via the software-as-a-service approach. Can you describe SAS's overall cloud strategy?

First of all, I don't see anything greatly new and wonderful and different about cloud computing. It was timesharing way back in '60. It's not a whole lot different. I certainly have issues asking a bank to send us all their data and we're going to put it up on a cloud. They're going to say, 'What about security? How will I know who else is up there in that cloud?' I don't know, it's just a cloud. I think that from a security standpoint the use of clouds is a few years away before they can have the kind of security that people feel good about.

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