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TECHNOLOGY 2000
Home Grown & Hard Wired
Success of local 'dot.coms' brings Connecticut technology to the world
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Business New Haven
9/6/1999
By: BNH
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A recent report by the Washington, D.C. think tank Progressive Policy Institute ranked Connecticut fifth nationally on state performance in the "new economy." The report considered diverse economic indicators, from the number of dot.com addresses registered in the state to the share of high-tech employees in the workforce.
Are the findings accurate? Is Connecticut wired and ready to perform technically in the new millennium?
"Technology is alive and well in Connecticut," says Peter Godfrey, CEO of MicroWarehouse. "Fairfield County has quite a few Internet-based businesses, including Priceline, which was one of the year's biggest IPOs."
Indeed, says Godfrey, Connecticut should consider branding its high-tech ascendance. "We should come up with a new name - something like 'Silicon Sound.'"
The Internet has been a natural addition to MicroWarehouse, which has sold computer hardware and software through catalogues for a number of years. In 1997, it sold $49 million of product via the Web. That rose to $187 million in 1998. The global company employs 555 people in its Norwalk headquarters.
Where do these people come from? "We're growing some ourselves through a partnership with schools such as Norwalk Community Tech," says Godfrey.
Due to increased demands for IT talent by local businesses, Norwalk Community-Technical College and Housatonic Community-Technical College recently partnered with the University of Connecticut/Stamford to establish the Connecticut Information Technology Institute. CITI offers certificates, degrees and non-credit courses in information technology. This includes, for example, a bachelor's degree in business information technology and another in technical writing and communications.
Bob Allen, president and COO of Modem Media Poppe Tyson, says that a number of people working at his company in Norwalk are making the commute from New York into Connecticut because they like the opportunities available and prevailing culture. The state also offers companies such as Modem Media several advantages, he adds.
In the Internet business, "You can open your business anywhere," Allen says. "Our office is in close proximity to major business centers and has access to terrific educational institutions and their excellent talent pool. We also have a great quality of life."
Established in 1987, Modem Media was one of the first companies to specialize in electronic commerce. Years before the World Wide Web, it developed the architecture and managed e-commerce and advertising for GEnie Mall. It also developed early advertisements on Compuserve and interactive initiatives for Prodigy.
Now it helps such companies as IBM, Citibank, GE, Unilever and Sony with their e-commerce needs. The company has eight offices and 472 employees worldwide. Revenues for the second quarter rose to $16 million, a 53-percent hike over the second quarter of 1998 and a 30-percent increase over the first quarter of 1999.
The Internet is for young entrepreneurs, as well as for seasoned professionals, such as John Hawkins, who want to take advantage of this hot opportunity. Based in Westport, Hawkins just introduced familytime.com, a different take on online e-commerce.
Instead of selling product at his site, he is giving it away. Anyone who registers receives six applications of free software that save time and money for the homemaker. Included are a menu planner and an automated shopping list. Customers also receive promotional advertising offers via the Web.
Hawkins is used to setting trends. When he established Mecca Software in 1981, he introduced the first personal-finance software for the IBM PC, "Andrew Tobias: Manage Your Money." He built the business up to $20 million in sales by 1988 and then sold the company.
Although it appears that much of the dot.com business is happening in lower Fairfield County, enterprises are found closer to New Haven as well.
During the years soon after its founding in 1989, MicroPatent of East Haven sold patent information on CD-ROMs. Since the advent of the Web, the company now provides the same information and a lot more online.
"The Internet has allowed us to offer greater depth of patent and trademark information and enhanced search functionality," says Lynn Tellefsen, MicroPatent's marketing director. The company has generated 30-percent revenue growth for the past three years and expects continued increases.
In 1995, Charles Beilman of Wallingford put up the Web site cduniverse.com to see if it would fly. He had a strong programming background and had already established a business to supply inventory control computer systems to retail music stores using his RecordTrak software.
Beilman's idea has since blossomed into a publicly traded company, eUniverse, which includes a growing list of community-based sites in addition to CD Universe: Video Universe, with 40,000 video titles; Case's Ladder, a video-game competition league; Gamer's Alliance, a news network for the video gaming industry; and the Big Network, a gaming site.
Change goes hand in hand with the dot.com businesses. Many of them have had several owners in their brief histories. Auction Universe was started by a group of entrepreneurs in Wallingford in 1997 as a consumer auction service similar to eBay. The Times Mirror Co. purchased the startup and resold it to Classified Ventures in 1998. Classified Ventures comprises Times Mirror plus seven other media firms including the New York Times, Chicago Tribune and Washington Post.
Beside Auction Universe, the company owns cars.com and apartments.com. Classified Ventures also builds, hosts and maintains auction sites for newspapers across the country - 35 affiliates in the last year signed on including the Hartford Courant at ctauctions.com.
Cyberian Outpost is another fast-growing Internet company located outside of Fairfield County in the small town of Kent. "We are a real-life example of an organization that has its roots here in Connecticut and has grown into a multi-million-dollar company," says Michael Tesoro of Outpost.com's PR department.
Cyberian Outpost was founded in 1995 by Darryl Peck, who had earlier formed Inline Software, a game and utility software publishing company. Now at age 40, he is president and CEO of a firm that sells computer hardware and software and, most recently announced, consumer electronics, to more than 325,000 customers via the Web.
From 1998-99, the company grew from $22.7 million to $85.2 million in annual sales. "All this takes place from a town of 3,600," Tesoro adds.
Tesoro says the Cyberian Outpost so far has had no difficulty finding its 180 employees. People come from all over the state - and even one person from Long Island. The employees love the rural location, and many of them are actively into hiking, mountain biking and camping.
The Internet is just one piece of the larger software industry. According to a report by the Connecticut Technology Council (CTC), the number of software companies in the state grew 64 percent from 1992 to 1998. Last year, there were 1,143 software companies employing nearly 13,000 people.
These firms are clustered in an arc along the Merritt Parkway between Greenwich and Hartford. "We are part of the fastest growing industry in both growth of jobs and revenue," says Connie Galley, president and CEO of TSI Software in Wilton.
Few of these companies are as large as Hyperion Software, which has 700 employees in its Stamford office. Rather, the software companies are typically small, on average employing 11 people.
However, this by no means reflects negatively on their financial performance. An index of publicly traded software companies showed a 46.4-percent average stock price increase from 1997 to 1998, compared to a 25.9-percent increase for a national software index.
Additionally, Connecticut software companies posted nearly $1.4 billion in sales in 1997 and accounted for approximately 1.3 percent of total gross state product, while representing only 0.8 percent of total Connecticut employment.
Although the 1998-99 updated figures are still being compiled on Connecticut's software industry, "There's no reason to think that the growth - and rapid growth - of the software industry has stopped," says Steve Clement, the CTC's director of projects and government affairs.
"I equate TSI Software's growth to the California gold rush," notes Galley. "Only a few people made money finding gold. It's the companies that sold all the prospecting equipment that got rich. That's what we're doing. All companies need integrated systems in place to conduct electronic business. And we provide integration software to enable their e-business."
Explains Al Subbloie, president and CEO of Information Management Associates in Shelton and the CTC's board chairman, "The technology marketplace has grown dramatically in the last three to four years, especially since 1997." And this growth is helping the Connecticut economy.
"Since the early 1990s, we've had considerable downsizing of major corporations," Subbloie explains. "At the same time, our unemployment rate remains low. That's because technology is picking these people up. Technology is leading the growth of the state, as it is the country."
Galley's TSI Software is a prime example of the growth the state's software companies are seeing. Spun out of Dunn & Bradstreet of Wilton in 1985, TSI provides software that allows companies to conduct e-business by integrating their internal business systems with one another and with those of their customers and partners.
Two years ago the company went public, which put the firm on the fast track. At that time the company had 130 employees worldwide; today it has 550. And the second quarter of 1999 vs. 1998 showed a 133-percent growth of revenues, up to $23.6 million.
The Internet has spurred considerable growth for many software firms. Some companies, such as Scientific Computing Associates (SCA) in New Haven, have gone the next step by creating spinoffs that are Internet/intranet-based.
Founded in 1980, SCA focuses on parallel processing and distributed computing. In 1996, it established MetaServer Inc., which provides companies with the infrastructure they need to bring their business to the Web, says Beverly Thalberg, SCA's president and CEO.
"The company enables any organization to use its existing system resources to create a dynamic, interactive Web application without the need for custom programming," she explains. MetaServer accounts include PricewaterhouseCoopers, Salomon Smith Barney, Motorola and the Mashantucket Pequot Museum and Research Center.
The software industry is not without its challenges, notes Subbloie. First is the state's reputation. "Both inside and outside the state, we're not perceived as being a technical leader."
That's why Subbloie and others in the technical arena are pleased with the results of the PPI study. It gives credence to what they have been saying all along.
As in most other states, Connecticut technology companies are having difficulty attracting qualified employees. A large number of young people leave the state each year - about 50 percent of college-bound high school students. And it is recognized that once these people graduate, they are likely to take jobs closer to their alma maters than to their home state.
To keep more of its young people here, the Connecticut Economic Resource Center recently kicked off a "You Belong in CT" campaign that targets high school and college students and recent grads. The promotion includes a Web site with upcoming events, billboards, college fairs and advertisements that promote Connecticut's schools and job opportunities.
Some believe that this campaign is not enough to get necessary results. Last year, FlexiInternational Software of Shelton was named the fastest-growing enterprise software company in the U.S. by Deloitte & Touche. The company, which sells accounting software for companies replacing their legacy systems, jumped from three to 120 employees since its beginnings in 1991.
Until recently, "We've been able to find good people in an existing talent pool," says Stefan Bothe, FlexiInternational's chairman, CEO and co-founder. Now that pool is drying up. "As we get more into Internet-based financial applications, it's becoming more and more difficult to find the right people," he adds.
Finding the right people has become so difficult, in fact, that FlexiInternational will be moving its development operations for Internet-based applications to its Boston office, where the employee pickings are better.
"The state is not doing enough to promote itself to young people," Bothe says. "If you ask any college student - even one from Connecticut - to list the top ten high-tech states, our state wouldn't be on it." This perception also influences those students who decide to enroll - or not to enroll - here for college
The other challenge that the software industry faces, says Subbloie, is the need for better communications between the educational institutions and the businesses that require these schools' graduating labor pools. With things moving faster than ever, schools have to be kept up to date on changing needs and how to retool their curricula.
The Connecticut Technology Council just formed an academic subcommittee consisting of technical and software companies and a representative from each of the state's higher educational institutions to address this need.
Notwithstanding these challenges, software companies continue to grow and prosper. And Connecticut is ever a draw.
Why Connecticut? Many of the companies have been formed by Connecticut natives who find everything they want in the state and see no reason to leave. Subbloie, for example, was born and raised here, graduated from Trinity College and started his company with another Connecticut native in 1984 at Science Park in New Haven.
Now the company, which produces software to enhance call center and Internet interaction, has 350 people worldwide. Cyberian Outpost's Peck not only decided to remain in his home state, but to found his company in a quiet town on the Appalachian Trail.
Subbloie says this loyalty is one of Connecticut's advantages.
"We have a culture of longevity. People who come to this state stay here and raise their family. This is important for the job pool."
The small size of the state also is a plus, Subbloie adds. It fosters networking, which is a must in an intellectual capital industry such as software. Connecticut also offers a support network.
In addition to a strong educational base, there are accounting, law and investment banking firms that support software companies. Another advantage is a pro-technology governor and legislature that "understand that technology companies are a major growth engine for the state," Subbloie.
\cutline1\Scientific Computing Associates CEO Beverly Thalberg: Exploring software's next frontier.
\cutline2\IMA head Subbloie at his Shelton office: 'Technology is leading the growth of the state, as it is the country.'
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Seeing the Light
Quietly in Connecticut, photonics enters the technology picture
Software is only one area of technology that prospers in Connecticut. Over the past 25 years, the field of photonics has grown considerably as well. And it continues to grow, reports Anthony DeMaria, chairman and CEO of DeMaria Electro Optics Systems (DEOS) in Bloomfield. "There are at least 140 companies that deal with photonics in the state," he says - a large number considering the state's size.
According to DeMaria, many of these companies are offshoots of the optical industry located in Sturbridge, Mass., in the late '60s. Others are spinoffs from Perkin-Elmer from the late '70s and United Technologies from the late '80s to early '90s.
The companies run the gamut in size and product. Established in 1995, DEOS has annual revenues of $8 million, and climbing fast. Over three years its sales grew by 810 percent. The company makes lasers for commercial and defense applications.
DEOS recently developed a laser for the Jet Propulsion Lab of NASA. The laser will be heading into space in 2002 as part of a project to measure the upper atmosphere and its effect on the ozone layer.
Another new company, CiDRA, in Branford, develops lasers for oil exploration.
At the other end of the spectrum in size is Raytheon Optical Systems in Danbury, which employs about 580 people. With annual revenues in excess of $125 million, Raytheon is credited with building the Hubbell Space Telescope. More recently, it built the optics of the Chandra X-ray observatory launched this July. It is studying X-ray energy instead of visible light.
Regardless of the size, however, all these companies share a major challenge, says DeMaria. "There's no institute of technology such as MIT or Stanford in our state. Yale and UConn teach photonics and do photonics research, but it's not enough. We're subcritical. We're not getting the labor we need for our growing industry. Most of DEOS' technicians come from Springfield."
DeMaria says he fears that young companies will start moving out of state when they have difficulty finding the talent needed. The answer? "The state and existing companies have to recognize the importance of this industry," he says. "Nurture it. And invest in it."
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