Banyan Systems Inc.

120 Flanders Road
P.O. Box 5013
Westborough, Massachusetts 01581-5013
U.S.A.
(508) 898-1000
Fax: (508) 898-1755
Web site: http://www.banyan.com

Public Company
Incorporated: 1983
Employees: 410
Sales: $74.3 million (1997)
Stock Exchanges: NASDAQ
Ticker Symbol: BNYN
SICs: 7372 Prepackaged Software; 7379 Computer Related Services, Not Elsewhere Classified

Banyan Systems Inc. designs, develops, and markets standards-based computer-network directory and messaging products. In the late 1990s it was describing itself as the premier provider of enterprise directory products and services, enabling organizations to integrate diverse computing resources into unified, global networks. The company estimated that it had about 7,000 customers in 1997, with about seven million users worldwide. After a decade of success with its VINES network software package, Banyan lost market share to Windows-supported software and saw its revenues fall by half in three years. The company expected to be profitable again in 1998, however, and it was expanding its service arm.

Private Company: 1983–92

Banyan Systems was founded in 1983 by David Mahoney, a Data General Corp. manager involved in building computer software that focused on communications problems, and two associates, Lawrence Floryan and Anand Jagannathan. The three men sublet the office in Westborough, Massachusetts, where Jonathan Sachs had recently developed the Lotus 1-2-3 electronic spreadsheet. Within 40 days after leaving Data General, Mahoney had secured $2.5 million in financing from Grey-lock Management Corp. and Chatham Venture Corp. (The company was named for the tropical tree that drops vines which then grow their own roots; VINES was the name of Banyan’s first product.)

In October 1984 Banyan Systems began shipping its “virtual networking system” (VINES) to link IBM and IBM-compatible personal computers. The software-driven system enabled office workers to retrieve information stored in any of the linked PCs, without having to know exactly where such information lay and without having to leam new instructions. A 32-bit computer called a network server directed the electronic traffic. The system also included StreetTalk, software that allowed users to issue computer commands in plain English and to use shared computer peripherals such as printers and datastorage devices. Besides the network server, the only hardware needed was a circuit board placed in the PC. The VINES system, which retailed for $17,000, could also be connected to other office networks.

One of Banyan Systems’ first customers was Continental Grain Co., which in 1985 bought VINES to wire together 800 PCs. Most companies, however, eschewed the UNIX-based system and purchased simpler, DOS-based networking products. Banyan, according to one critic in a 1991 Forbes article, did a terrible job of marketing, relying on word of mouth, while IBM, Novell Inc., and Microsoft Corp. spent millions of dollars publicizing their own networks. In 1990 Banyan abandoned further development of its network server and said it would lay off about 40 of its 550 employees.

Even with its problems, however, Banyan Systems had sales of $80 million and net income of $3.8 million in 1989. This grew to $98.2 million and $4.7 million, respectively, in 1990, and by the end of the year the VINES system was being supported by more than 40 hardware platforms. Because this system could seamlessly attach PCs to minicomputers and mainframes of differing makes across a wide area, Banyan was well-positioned to profit in the coming era of bigger, more complex networks. By contrast, its name-brand competitors had been selling systems suitable only for smaller, local area networks.

In 1991 Banyan Systems introduced a VINES version for computers running IBM’s OS/2 operating system. These computers were also able to use StreetTalk software, the company’s global naming service that allowed a user anywhere on a VINES network to communicate directly with other computers without having to know their location or specify access routes to them. VINES allowed users to find and communicate with each other in seconds, a technically sophisticated feature that Novell’s rival NetWare lacked.

Banyan Systems enjoyed its fifth successive profitable year in 1991. Software sales now outpaced hardware sales by two to one (compared to 50-50 in 1990), and the company held 7.5 percent of the $1.2-billion market for network software. While this represented only one-eighth of Novell’s share of the market, Banyan, according to Mahoney, had a share of the market equal to Novell’s for large networks of 300 to 600 personal computers. Also in 1991, the Marine Corps used VINES during the Persian Gulf War to link 350 PCs in the region, transmitting almost immediately the equivalent of 300 pages of orders that until recently had taken hours to deliver electronically.

Transition from VINES to ENS: 1992–96

Banyan Systems went public in August 1992, raising $28 million by selling common stock at $10.50 a share. The following month the company announced its Enterprise Network Services (ENS) server and software, aimed at integrating previously incompatible computer networks into a single, manageable, global, enterprise-wide network. The company became a supplier as well as a competitor of Novell by offering ENS for NetWare so that this local area network operating system could become much more powerful, linking an entire corporation’s computers, including minicomputers and mainframe systems as well as PCs. ENS for NetWare retailed initially for $3,995, plus an additional amount based on the number of users, from $295 for five users to $3,495 for 250 users.

Banyan Systems reported record revenues of $113.5 million and record net income of $8.2 million in 1992. The following year it raised these figures to $127.8 million and $13 million, respectively. Some of the revenue came from fees paid by the vendors of the more than 400 hardware platforms and more than 3,000 software packages certified by the company as “VINES-compliant.” In February 1994 Banyan purchased Beyond Inc., a producer of sophisticated offerings for electronic mail, for $17.5 million in cash. Beyond’s key product was BeyondMail, considered one of the best electronic-mail programs for managing work flow.

Although seemingly healthy, Banyan Systems was entering a more challenging era in 1994 because recent versions of Novell’s NetWare and Microsoft’s new Windows NT operating system included far greater capability for managing large networks of computers and peripherals. While Banyan’s revenues set a new record of $150.1 million in 1994, net income dropped to $5 million. In February 1995 the company conceded the network operating-system market to Novell and Microsoft and officially recast itself as a network-services provider, centered around key components of its ENS: StreetTalk; Intelligent Messaging, a message transport engine; Distributed Enterprise Management Architecture, a network-management suite; and security and system-administrad on tools. However, revenues slipped to $129.7 million for the year, and the company lost $21.4 million. In November 1996 Mahoney resigned as chairman, president, and chief executive of Banyan.

Banyan Systems retained a number of assets, based on the technical superiority and power of VINES. VINES required only about one-third the number of network administrators as competing products in late 1995, and its users almost unanimously hailed the StreetTalk, intelligent-messaging, and security capabilities. A Banyan executive, citing the superiority of StreetTalk to other directories, suggested in 1996 that, rather than migrating to the Windows NT platform, its customers should use Windows NT as an operating system within a Banyan VINES network. This advice found little favor, however, among customers who feared the company and its products would simply disappear; as one systems administrator put it, ‘’We liked VINES, but we didn’t want to be the last dopes using the product.”

Banyan Systems in the Late 1990s

Banyan Systems’ revenues dropped to $105.4 million and its losses to $27 million in 1996, despite laying off about a quarter of its work force. William Ferry, the new president and chief executive officer hired in February 1997, cut the number of employees by another 22 percent. By mid-year, the majority of the company’s software revenues were coming from sales of StreetTalk for Windows NT, which was introduced in September 1996 as the first corporate-wide directory system for Windows NT.

Company Perspectives:

Banyan Systems is a pioneer and leader in providing proven standards-based directory and messaging products for enterprise networks. Coupled with professional and support services, these unique offerings provide solutions to help people communicate simply and easily across enterprise networks, intranets and the Internet.

A promising new product at Banyan was Switchboard, a White and Yellow pages directory for the Internet, which it introduced in February 1996 and made available free on a Web site. Switchboard enabled Internet users to locate individuals or businesses nationwide from a database of more than 100 million listings. This site also provided free e-mail, free Web pages, and a directory of Web sites. Banyan also introduced, in 1997, Intranet Connect, Intranet-service software to access network files, printers, and e-mail using a standard Web browser, and Intranet Protect, a Web-server software solution enabling organizations to easily protect and share intranet information over their enterprise network. Still, revenues plunged to $74.3 million in 1997. The net loss of $16.9 million included a pretax charge of $8 million to provide for severance costs. Banyan’s stock, as high as $26.50 a share in 1993, fell below $2 a share in the spring of 1997.

These figures concealed some good news. The last half of 1997 was profitable, and the company’s service business grew. Switchboard was among the top 25 destinations in 1997 for both home and business users and the tenth most visited Web site by home users in January 1998. VINES still had 3,000 customers, with seven million users, and one study estimated that it would cost up to 15 times more per user to switch to NT machines than to integrate new NT servers into VINES. Banyan ended the year with $11 million in the bank and a new $15-million credit line. Moreover, in March 1998 HarbourVest Partners LLC, a Boston venture-capital firm, bought a 13 percent stake in the company for $10 million. Banyan made money in the first quarter of 1998, its third consecutive quarter of profit. Furthermore, as of September 1997 the company had no long term debt and hence, virtually no interest expenses.

Banyan Systems’ products in 1997 fell into two major categories: network operating system products and intranet products. The former were integrating mainframes, minicomputers, workgroup networks, and personal computers into a unified computing environment and were based on enterprise directory services such as StreetTalk and Intelligent Messaging (for both Windows NT and VINES). All of the company’s enterprise directory services were integrated with the StreetTalk directory, including messaging, management, security, local and wide area communications, and host connectivity. Banyan’s intranet products, Intranet Connect and Intranet Product, enabled its customers to utilize Internet standards to allow people to contact other people and information in a reliable and secure manner over the Intranet. All these products were fully integrated with Year 2000 solutions by mid-1998.

Banyan Systems was also offering upgrade and subscription programs for enhanced versions of StreetTalk and other product offerings and was selling and supporting several network application programs that were integrated with its enterprise network services. It was actively encouraging independent software vendors, system integrators, and system vendors to develop and market application software for use with StreetTalk, VINES, and BeyondMail and provide developers with development tools to assist them in producing programs integrated with Banyan’s enterprise networking program. To aid these companies in marketing their products to Banyan’s customer base, the company was publishing an application directory that included more than 5,000 software programs running in Banyan environments.

Banyan Systems was maintaining technical-response centers in Westborough, Tokyo, Sydney, and Crawley, England, and it was also engaged in consulting and professional services. Of its 1997 revenues, software accounted for 78 percent and services for 21 percent. International sales, made by distributors in 75 countries, accounted for 29 percent of the total. Banyan had about 50 sales and support offices in major cities in the United States, Canada, Great Britain, France, Germany, the Netherlands, Australia, Malaysia, and Japan.

In February 1997 Banyan Systems announced a new user-based pricing program providing greater flexibility of platform deployment and a simplified purchasing process, with user-based licensing as an alternative to the company’s server-based licensing. This was intended to provide customers with the flexibility to choose the pricing model that best suited the needs of their particular computing environment. In 1998 Banyan products were installed in nearly half of all Fortune 1000 companies.

Principal Subsidiaries

Banyan Enterprise Networks (South Africa); Banyan Securities Corp.; Banyan Systems (Deutschland); Banyan Systems do Brasil Ltda.; Banyan Systems (France) S.A.R.L.; Banyan Systems (Holland) B.V.; Banyan Systems (Korea) Co., Ltd.; Banyan Systems S.A. de C.V. (Mexico); Banyan Systems (Taiwan), Inc.; Banyan Systems (UK) Ltd.; Banyan Systems Asia-Pacific Inc.; Banyan Systems Asia Pacific Ltd. (Hong Kong); Banyan Systems International Inc.; Beyond Inc.; Coordi-nate.com Inc.; Nihon Banyan Systems K.K. (Japan); Switchboard Inc.