Onyx Software Corporation

3180 139th Avenue Southeast, Suite 500
Bellevue, Washington 98005-4091
U.S.A.
Telephone: (425) 451-8060
Toll Free: (888) 275-6699
Fax: (425) 451-8277
Web site: http://www.onyx.com

Public Company
Incorporated: 1994
Employees: 450
Sales: $69.4 million (2002)
Stock Exchanges: NASDAQ
Ticker Symbol: ONXS
NAIC: 511210 Software Publishers

Onyx Software Corporation has pioneered the development of customer relationship management (CRM) software in the second half of the 1990s. Its software solutions have enabled companies to manage and access customer information to improve customer service and support as well as sales and marketing efforts. As electronic commerce has become more important, Onyx has shifted its software to Web-based solutions. The company grew rapidly until faced with the slowdown in information technology (IT) investment that began in 2001, when it was forced to lay off a substantial part of its workforce.

Focused on Customer Management Software: 1994-96

Onyx Software Corporation was founded in 1994 by three former Microsoft Corp. employees: Brent Frei, Brian Janssen, and Todd Stevenson. At Microsoft they worked on internal customer management solutions, which gave them the idea to form their own software company devoted to customer management. Each contributed $50,000 in start-up capital to form the company, which began operations from Frei’s home in the nearby town of Issaquah. Frei was Onyx’s president and CEO, Janssen its executive vice-president, and Stevenson the chief technical officer.

Onyx introduced its first software product at the beginning of 1995. Initially called EnCompass, the software enabled companies to manage all customer information from a single application by creating a single database for all customer-related data. The software was considered a pioneering development in centralized customer management, a field that later developed into customer relationship management (CRM). EnCompass was able to handle several customer-related functions, including sales, technical support, customer service, and marketing.

EnCompass was created by using Microsoft development tools, and it was designed to run on a Microsoft SQL Server using Windows NT, with clients using Windows 3.x. The software cost $30,000 for a ten-user license. At the time EnCompass was released, Onyx had ten employees—seven of whom were former Microsoft employees.

With the release of version 2.0 in mid-1995, EnCompass was rebranded Customer Center. The new version added quality assurance tools that made customer-related information available to engineering and product development staff. The tools captured information such as product change requests and incorporated them into the product development cycle. In addition, customers were notified when the changes were made. Customer Center 2.0 also added database drivers that made it possible to link it to other SQL Server-based business software.

Onyx grew quickly over the next 18 months. Sales revenue jumped from $2.1 million in 1995 to $9.8 million in 1996. The company gained 65 customers in 1996 for a total of 100 customers. Most of Onyx’s customers were medium-sized businesses that had adopted Microsoft’s Windows NT operating system. Onyx obtained venture capital financing from Foundation Capital of Menlo Park, California, and grew to 110 employees by the beginning of 1997.

Updated Product Offerings: 1997-98

The overall market for customer relationship management (CRM) software was forecast to grow dramatically, from $738 million in 1996 to $2.2 billion in 2000, according to the Gartner Group. As a result, several larger competitors had moved into the field, such as Siebel Systems, Inc. The company’s biggest challenge, though, was to find qualified employees as it continued to grow. For 1997 Onyx reported revenue of $19.4 million, nearly double that of 1996, and a net loss of $2.54 million.

Toward the end of 1997 Onyx introduced Onyx Channel Connect, a Web-based application that helped value-added resellers (VARs) of software. By using Channel Connect, VARs could access a software manufacturer’s Customer Center database via the Internet to find and report information on sales leads and other sales opportunities. Software companies could use the data from VARs to improve their sales forecasting.

In mid-1998 Onyx introduced version 4.0 of Customer Center. Among the new features of Customer Center 4.0 was computer-telephony integration (CTI), which allowed Customer Center 4.0 to integrate with any CTI-enabled phone switch for improved customer service. Onyx formed partnerships with three CTI companies—WhiteCap, Interactive Intelligence, and Apropos Technology—to facilitate integration with PBXs and automatic call distributors for applications such as call transfers, outbound dialing, and importing customer information onto a service representative’s computer screen.

Customer Center 4.0 also offered increased functionality for mobile users through unattended updates. Sync Assistant allowed mobile users to set a time for their portable computer to dial the home server and receive automatic updates of new customer leads and product information as well as e-mail and virus scans.

PC Week magazine noted that while Customer Center cost significantly less than other sales force automation (SFA) applications, a typical installation with 100 concurrent users cost about $450,000, including support costs of about $10,000 per week and a $52,000 annual maintenance fee.

Later in 1998 Onyx acquired EnCyc Inc., a marketing software developer whose main product was the EnCyc Marketing Encyclopedia, which linked marketing database data with productivity tools, Web-based content delivery, and remote access. Onyx also partnered with Trilogy to bundle its Selling Chain sales configuration software with Customer Center for sale to complex markets such as computer systems and airplanes. In addition, Onyx announced that it was bringing out specialized sales and customer-service software suites for financial and healthcare markets. The company planned to introduce similar modules for other specialized fields in 1999.

Going Public and Shifting to Web-Based Solutions: 1999-2000

Onyx went public on February 11, 1999, offering 13 million shares at $13 per share. On the first day of trading the stock opened at $22.75 and closed at $23.625. The company received venture capital backing from Foundation Capital Management and Technology Crossover Management II, both of which were represented on Onyx’s board of directors.

In its offering statements the company described itself as a provider of enterprise relationship management (ERM) software solutions that automated key functions to help companies acquire, manage, and retain customers, partners, and other relationships. For 1998 Onyx’s revenue jumped to $35.11 million, but its losses widened to $6.98 million, causing concern among some analysts who noted that most software companies were profitable. At the time it went public Onyx had about 300 customers in financial services, high technology, telecommunications, and other fields.

Over the next two years Onyx began shifting to Web-based solutions. In April 1999 the company released Insight 3.0 and Email Agent, two core products in its newly designated e-Service product family, which also included Web Wizards. Insight 3.0 was a knowledge management tool that provided users with the option of customer self-service. It allowed customers, employees, and partners to access information via the Internet at any time. Email Agent automatically responded to customer e-mails 24 hours a day. Web Wizards let customers create, view, and update product service incidents over the Web, thus allowing an organization to provide 24-hour customer service.

In the second half of 1999 Onyx completed beta testing and began shipping the Onyx Enterprise Portal. It was designed to help online businesses better serve their virtual customers by placing functions such as customer support, help desks, and sales force automation within a Web-enabled, server-delivered portal framework. The Onyx Enterprise Portal shipped with a range of integrated Internet content from third-party providers to give users access to account and market profiles, stock quotes, maps, weather, news, and other content. The Enterprise Portal also made it possible to customize content and applications for different departments and individuals. This new approach helped Onyx gain several new customers, including the Seattle Seahawks and Cincinnati Bell Telephone, among others. Pricing for the Enterprise Portal began at $65,000 for ten users. In a related development, Onyx acquired Versametrix Corp., an Internet technology developer for corporate portals, in September.

Meanwhile, Onyx was developing a reputation as a great company to work for and one that was able to attract top talent. It was named one of the “Best Companies to Work for” in Washington by Simpson Hay ward Inc., and it topped the list of the Washington Technology Fast 50 as the fastest growing technology company in the state. For 1999 Onyx reported an increase in revenue to $60.6 million. Its workforce grew to about 400 employees.

Company Perspectives:

Onyx Software Corp. is a global supplier of customer relationship management (CRM) enterprise applications that power a company’s entire business world, connecting sales, marketing and service organizations with customers, prospects and partners. Through an innovative mix of Internet technology, strategic services and customer commitment, Onyx helps companies create the seamless, branded customer experience they need to forge competitive advantage and build real business value.

In the first half of 2000 Onyx enhanced its suite of Web-enabled CRM software with the release of the Onyx Customer Portal and the Onyx Partner Portal, as well as version 2.0 of the Onyx Employee Portal. These portals enabled customers, partners, and employees to access customer-related data through a Web browser interface in a single, customizable location. They were part of Onyx’s Front Office 2000 suite of applications.

The Onyx Customer Portal let customers place orders, request information, update their personal data, and initiate and track service requests through the same interface. The Onyx Partner Portal facilitated collaborative selling and the sharing of leads among an organization’s partners. The Onyx Employee Portal included CRM tools that let users access and manage account information, track sales opportunities, create customer-service queues, and analyze customer data.

In the second half of 2000 Onyx expanded its presence in international markets. In Brazil the company signed up three distributors to begin selling its software in Spanish, English, and Portuguese. In Japan Onyx teamed with Softbank Investment and Prime Systems Corp. to form Onyx Japan, which was majority-owned and controlled by Onyx. Onyx had first established a presence in the Pacific Rim in 1997 with a full-service operation in Singapore and Australia. The company entered the Hong Kong and Malaysian markets in 1999.

Onyx also announced an initiative to provide its CRM software through hosted application service providers (ASPs). The company began recruiting ASPs and formed its first ASP alliance with Allegis Corp. For 2000 Onyx’s revenue grew to more than $100 million, and its workforce stood at about 670 employees.

Forming Alliances: 2001-02

Onyx gained specialized consulting capabilities with the acquisition of RevenueLab in January 2001. RevenueLab was a consulting firm that developed revenue acceleration programs for sales and marketing and provided sales-strategy services. Its customer list included several large enterprises, including EDS, John Hancock, Michelin, Microsoft, and Wells Fargo. Following the acquisition Onyx announced a partnership with Microsoft to join forces to sell CRM packages. The partnership initially targeted large financial services companies by offering a package that included Onyx’s Investment Management Edition, Microsoft’s. Net enterprise servers, and consulting services from RevenueLab. Around this time Onyx improved its financial position with a secondary stock offering. The company sold 2.5 million shares at $13.50 per share, raising more than $31 million.

Onyx continued to form alliances that added new features to its CRM solutions. It announced a partnership with Cognos Inc. that added Cognos’s business-intelligence tools to Onyx’s software applications. The tools analyzed customer data and helped develop forecasts. An alliance with MindArrow Systems Inc. added the capability to send multimedia eBrochures to customers from within Onyx’s e-business portals. The eBrochures were compressed files that included video, audio, graphics, and interactive hyperlinks that could be distributed by e-mail or be downloaded from a Web page. Other companies joining the Onyx partner program in the first half of 2001 included Metrix Inc., whose products addressed the needs of companies with onsite field service and repair centers, and Incentive Systems, Inc., which provided incentive management solutions.

In May Onyx added e-Service to its Enterprise 2001 CRM portal suite. E-Service included three new tools—Email Assistance, Web Assistance, and Chat—that could be incorporated into the company’s overall CRM solution. Email Assistance was an automated e-mail response tool that prioritized incoming messages and returned an automated response. Web Assistance was an intelligent online self-service tool that guided customers through their questions, provided automated responses, and upgraded the responses to e-mail or live interaction as needed. Chat enabled companies to deliver information instantly to Web site visitors.

The technology behind e-Service was the result of a partnership with Firepond Inc. A separate partnership with AvantGo Inc. resulted in a real-time, mobile CRM solution for large, field-based sales and service teams, giving them wireless access to customer information.

Even as Onyx was adding new features to its CRM solutions, the company was experiencing the effects of a slowdown in information technology (IT) spending. In April the company laid off 116 employees, or about 17 percent of its workforce. Its first quarter revenue of $28 million was well short of analysts’ forecasts of $39 million, and the company’s stock price dropped from a 52-week high of $32 to about $6 per share. For the second quarter the company reported revenue of $28.9 million and a net loss of $13.7 million. With third quarter revenue dropping to around $20 million, Onyx announced that it would cut an additional 25 percent of its workforce, or about 150 employees. The base pay of its remaining 460 employees was adjusted to reflect incentive-based compensation tied to the company’s profitability. Onyx also scaled back on its office space and put a six-story, 172,000-square-foot building on the sublease market, which resulted in the company paying about $580,000 a month for unused office space.

Key Dates:

1994:

Onyx Software is founded by former Microsoft employees.

1995:

Onyx introduces its first customer management software, EnCompass, which is renamed Customer Center later in the year.

1998:

Customer Center 4.0 is introduced.

1999:

Onyx becomes a public company.

2000:

Onyx makes the transition to offering Web-based customer relationship management (CRM) solutions.

2001:

Onyx forms numerous alliances with third-party providers to enhance its CRM solutions.

2002:

Onyx becomes a recognized provider of CRM solutions for large enterprises.

For 2001 Onyx reported revenue of $97.2 million, with a net loss of $95.5 million. Included in the company’s net loss was $51.8 million in severance, excess facilities, and impairments of fixed assets charged, as well as $15.4 million in amortization and stock compensation expenses. In January 2002 Onyx improved its cash position by completing a secondary stock offering that raised about $20.5 million. At the end of the first quarter Onyx had increased its cash balances to $33.6 million, compared to $15.9 million at the end of 2001.

Meanwhile, Onyx continued to release new versions of its portal-based CRM solutions. Version 3.0 of its Employee Portal was released in the third quarter of 2001, followed by version 3.0 of its Partner Portal in the first quarter of 2002. In mid-2002 Onyx released Onyx Enterprise CRM 4.0, the firm’s flagship CRM suite. Version 4.0 was built entirely on standards-based Internet technologies and was completely Web-based.

Faced with a prolonged decline in domestic IT spending, Onyx continued to expand in Asian markets, where IT investment was projected to increase over the next five years. Onyx entered the growing market for CRM in China in September by signing a master reseller agreement with North 22 Solutions Ltd. Another partnership with Asia Bell Company Ltd. gave the company distribution in Thailand. As the third quarter of 2002 drew to a close, Onyx was ranked 195th on Software Magazine’s Software 500 list and 30th on the Washington State Technology Fast 50 list of fast-growing technology companies. The company also achieved recognition as a provider of CRM solutions for large enterprises.

Principal Competitors

Broadvision, Inc.; E.piphany Inc.; Kana Communications, Inc.; Oracle Corporation; PeopleSoft, Inc.; Pivotal Corporation; SAP AG (Germany); Siebel Systems, Inc.

Further Reading

“Another Microsoft Grad to Hit IPO Trail,” IPO Reporter, December 21, 1998.

Baker, M. Sharon, “Onyx Lays Financial Groundwork for Growth,” Puget Sound Business Journal, December 1, 2000, p. 9.

——, “Staffing a Challenge for Fast-Growing Onyx,” Puget Sound Business Journal, February 7, 1997, p. 12.

Berst, Jesse, “Customer-centric Firm Creates New Growth Area,” PC Week, January 23, 1995, p. 100.

Bishop, Todd, “High-Tech Is on the Hook,” Puget Sound Business Journal, September 28, 2001, p. 1.

——, “No Move for Onyx?,” Puget Sound Business Journal, September 14, 2001, p. 48.

“Business Sense,” PC Week, September 28, 1998, p. 20.

Callaghan, Dennis, “E.piphany, Onyx Expand CRM Packages,” eWeek, May 21, 2001, p. 30.

——, “Microsoft, Onyx Link for CRM Push,” eWeek, February 5, 2001, p. 28.

——, “More Consolidation in CRM Space,” eWeek, January 22, 2001, p. 18.

Drucker, David, “Onyx Adds Web CRM Tools,” InternetWeek, April 10, 2000, p. 19.

Frei, Brent, “Taking the Pain Out of Growing,” Nation’s Business, December 1998, p. 8.

Gannon, Michael, “Onyx Software Corp.,” Venture Capital Journal, April 1, 1999.

Glascock, Stuart, “Onyx Tool Helps VARs, Vendors Close the Loop,” Computer Reseller News, July 21, 1997, p. 95.

Greenberg, Ilan, “Onyx, Scopus Unveil Customer Service Apps,” Info-World, March 20, 1995, p. 29.

Hatlestadt, Luc, “Onyx Customer Center Focuses on Quality Assurance,” InfoWorld, June 12, 1995, p. 29.

“Heard on the Street,” Customer Interface, February 2001, p. 18.

“Hot Market, Top Talent Propel Onyx Software Revenues Skyward,” Puget Sound Business Journal, September 24, 1999, p. 2A.

Howie, Amber, “Open-Door Policy,” Computer Reseller News, June 12, 2000, p. 86.

Karpinski, Richard, “Onyx Portal Approach Personalizes CRM,” InternetWeek, September 6, 1999, p. 58.

——, “Portal Opens for Customer Mgm’t,” InternetWeek, June 28, 1999, p. 15.

Meisner, Jeff, “Onyx Racks up Revenues, Expands Internationally,” Puget Sound Business Journal, June 29, 2001, p. 66.

“Metrix Partners with Onyx Software,” Canadian Corporate News, March 29, 2001.

“Microsoft, Onyx Partner on CRM Package,” TechWeb, January 31, 2001.

“Onyx and Microsoft Push Vertical CRM Limit,” Intelligent Enterprise, March 27, 2001, p. 64.

“Onyx Eyes Brazil Market,” Puget Sound Business Journal, June 23, 2000, p. 12.

“Onyx Goes Back to Stock Market,” Puget Sound Business Journal, February 9, 2001, p. 3.

“Onyx Moves with Incentive,” Customer Interaction Solutions, May 2001, p. 32.

“Onyx Software, Softbank Investment, and Prime Systems to Create Onyx Japan,” Japan Telecom, September 2000, p. 10.

“Onyx, Trilogy to Partner, Not Merge,” InfoWorld, October 12, 1998, p. 57.

“Onyx Warns of Further Cuts,” Puget Sound Business Journal, August 24, 2001, p. 14.

Park, Clayton, “A Discipline Learned at Microsoft,” Puget Sound Business Journal, June 27, 1997, p. 35.

“Sales Suite Gains Telephony,” InfoWorld, July 20, 1998, p. 67.

“Spring Brings a Gallimaufry of Call Center Products,” Call Center Solutions, April 1999, p. 24.

Sweat, Jeff, “Onyx Gives Employees Easier Access to Customer Data,” InformationWeek, May 22, 2000, p. 34.

Whiting, Rick, “Customers Come into Focus with Combination Software,” InformationWeek, February 12, 2001, p. 30.

—David P. Bianco