Mike Lynch is in San Francisco, in his office high in a gleaming tower in the
heart of the city, overlooking a sweeping view of the bay and its bridges -
and he is trying not to sound too optimistic.
Perhaps he is wary of the past, the rollercoaster that Autonomy, his software
company, has ridden since he founded it in 1996, the heady days of the
dotcom boom, in which he was hailed as Britain's first software billionaire,
and the subsequent bust, in which the shares lost 95 per cent of their
value.
Perhaps he is wary of the present, the recession that is hammering away at
demand for so many businesses in so many sectors.
But Dr Lynch can't help himself. Autonomy's technology, which enables
organisations to search data across phone calls, e-mails and video, is
riding a wave of demand that has enabled the company to report results that
have outperformed its peers by some distance.
In the last quarter's results, announced a couple of weeks ago, Autonomy
comfortably beat analysts' expectations to record a 23 per cent rise in
revenue of $129.8million (£86million) for the three months to March 31 and
an 87 per cent rise in pre-tax profit of $58.2million.
Shares in the Cambridge-based group have outperformed others in the Dow Jones
STOXX Technology Index .SX8P by 60 per cent in the past 12 months and the
company now has a market capitalisation of about £3.5billion.
According to Dr Lynch, Autonomy is leading a revolution in the information
technology industry. After 40 years of computers being able to understand
only structured information that could be found in the rows and columns of a
database, computers armed with Autonomy's software can understand
human-style information, such as phone conversations.
That means, Dr Lynch argues, that Autonomy now has the world's most advanced
search engine for businesses, which can help companies to reveal the value
in the masses of e-mails, phone calls and videos that form the majority of
ways in which staff communicate with each other.
“At Autonomy, we would argue that it is the biggest change in the history of
the IT industry. This is about the information itself coming back to the
form that it is in the real world,” he says. “The reason I come to work is
that this change that's driving the business is a very big one and so far we
have been managing to execute to own that change.”
In fact, Autonomy has profited from the turmoil in the markets as the upheaval
and the introduction of new regulations and higher compliance levels have
forced companies to look for ways to organise and retrieve their data more
effectively - which has led many to Autonomy.
As Dr Lynch says: “Sorting out the mess generates work.” The company has won
orders this year from clients including Toyota, Bank of America and Lockheed
Martin. In the fourth quarter of last year, the company signed up JPMorgan,
Citigroup, Société Générale, Lloyds TSB and Deutsche Bank as customers.
Dr Lynch believes that the potential for growth is huge: “The security guard
looking at a monitor, the person in a call centre answering a phone, the
compliance officer in the back looking at an e-mail - unstructured
information is everywhere. This is a completely generic piece of technology.”
Gartner, the research company, says that 80 per cent of the information held
by companies is in an unstructured state. One of the problems for Dr Lynch
is translating what the software he has created actually does to make this
information useful.
The answer is that the software understands the “meaning” of the data by a
sophisticated process of analysis, driven by high-powered computing, of the
patterns and relationships between words, contexts and concepts. It is built
upon the statistical principles established by Thomas Bayes, an 18th-century
mathematician.
At its heart lies Dr Lynch's academic work at Cambridge University where he
did a PhD in mathematical computing and research on adaptive pattern
recognition.
Asked to provide a real world example of what Autonomy's algorithms can do, he
replies: “You have got a serial murderer striking over a period of years all
over the country and you get hundreds and hundreds of statements from
potential witnesses.
The difficulty is it is very hard for one person to read all the stuff and
keep it in their mind. What the computer with Autonomy's software can do is
read it all and can analyse it for patterns. When a connection pops up, it
can alert an investigator and say: ‘Do you realise that in these statements
people keep mentioning possibly the same person, a person with a dog?'
“The reason why that's difficult to do for an ordinary computer is that some
people might talk about a teenager with a puppy, another witness statement
might talk about a man with a labrador - a normal computer can't relate
those things, whereas this meaning-based technology can read all the stuff,
make connections, like a real investigator.”
The company has 140 patents protecting its technology and for Dr Lynch the
next business phase is to consolidate the lead that the business has in the
field.
Half the company's revenue comes from selling Autonomy's technology to other
companies, including top names such as Oracle, Symantec and Adobe, to
include in their software products.
The sign-up rate for this increased by 300 per cent 18 months ago and more of
those products will be working their way into businesses this year. The
group's deferred revenue - from deals already signed but not yet on the
books - increased to $163.7million (£107million) at March 31, from
$99.2million at December 31. Dr Lynch's aim is to create a powerful network
effect, turning potential competitors into customers and making Autonomy's
enterprise software the only game in town.
“Autonomy has now got 60 of the world's largest companies standardising with
us. We are looking to shut out competition and create a very defensible
position.”
Another field of growing importance is Autonomy's role as a host of companies'
databases. More than 20 Wall Street banks and many City institutions send
millions of e-mails and other messages every day to Autonomy's archives,
held remotely on computer servers. The archive is instantly searchable by
staff and, crucially, by regulators, who may want to trace patterns for
fraud or insider investigations.
The dealings of Jérôme Kerviel, rogue trader at Société Générale, were tracked
using Autonomy's technology. The company's third revenue stream is selling
licences for its software products - a part of the business that has taken a
hit in the downturn but is still growing at about 40 per cent year on year.
Dr Lynch is in San Francisco to oversee the integration of Interwoven, the
American content management specialist, bought for $775million in January to
increase the company's access to the lucrative legal and compliance
industry. Interwoven already runs on 100,000 corporate websites. “In the
downturn that's when you move forward and take market share.”
Dr Lynch agrees that he is more upbeat today than he has been for some time.
How bad the economy will get is becoming clearer, he says, and renewed
certainty gives him cause for optimism.
“Whilst we have a bullish outlook in the long term, we have to make sure that
expectation does not run away in the short term,” he adds. It is not a bad
problem to have.
CV
Born: 1965
Education: Christ's College, Cambridge. Studied engineering, obtained a
PhD in mathematical computing and gained a research fellowship in adaptive
pattern recognition
Career: He founded Neurodynamics, a neural network computing company,
in 1991. In 1996 he founded Autonomy, the UK's largest software company by
market capitalisation. He is a non-executive director of the BBC
Awards: He has been the CBI's Entrepreneur of the Year, the European
Business Leaders Awards' Innovator of the Year (for pioneering new
approaches to search and information processing technology) and Management
Today's Entrepreneur of the Year 2009. He holds the Institute of Electrical
Engineers' medal for outstanding achievement. He is a fellow of the Royal
Academy of Engineering. He won an IEE Award for Outstanding Achievement and
was awarded an OBE for Services to Enterprise
Q&A
Who is your mentor?
People at Autonomy would say its Mr Doggy, a glove puppet in my office who
tells me what to do, but in reality its John McMonigall, an ex-partner of
Apax, from whom I learnt business, and Dr Peter Rayner, my PhD supervisor, a
modest but brilliant man.
Does money motivate you?
Technology people are more motivated by the voyage of discovery and a desire
to change the world. Money certainly matters and is important to allow you
freedom to back the next idea. We all remember early days when we could not
get funding for our ideas.
What was the most important event in your working life?
I attended a meeting in New York with a leading fund manager. My chaperone
from the investment bank was a woman. Much to my surprise, she chatted with
the manager all through my meeting. Right then it was clear she was special
... and I married her.
Who do you most admire?
An 18th-century country vicar called Thomas Bayes. He set out to use
mathematics to prove the existence of God. He failed, but Bayes' theorem,
the work he created, has turned out to be fundamental. It can be used to
link the objective world of science with the subjective perceptions by which
we live, to uncover the concept of meaning. I expect he will turn out to be
to the new century what Einstein was to the last.
What gadget must you have?
An obscenely large disk drive … we pass this way but once … so let's record
it.
