Economy and Banking & Finance and Government and Economic Development and Technology

Interactive poised to make incentives pay: Communications software-maker to add 637 jobs

May 7, 2007

Interactive Intelligence Inc. has come full circle.

On May 2, Marion County's Metropolitan Development Commission was slated to review a 10-year property tax abatement for the communications software maker. If the incentive is approved, Interactive Intelligence plans to use it to hire 637 people at an average of $32.50 per hour.

According to its filings with the city, the company also will build a $15 million, 154,000-square-foot building next door to its current headquarters near Interstate 465 and West 71st Street. And it will purchase $14.8 million worth of computer research and development equipment.

Though ambitious, the economic development deal promises far less than another one Interactive Intelligence brokered in November 2000.

Back then, the company said it would add 2,485 jobs by the end of 2006. In exchange, the city and state awarded it incentives worth $61 million-mainly a 10-year property tax abatement from the city and approval to claim Economic Development for a Growing Economy, or EDGE, tax credits from the state.

At the time, Interactive Intelligence had a head count of 188. Today, its work force clocks in at 333. That's a substantial increase, but far short of the company's lofty late-1990s goals.

Fortunately for taxpayers, the government incentives were self-correcting, noted Jeb Conrad, executive director of Indianapolis economic development for the Indy Partnership. When its fortunes slid, Interactive Intelligence could only claim tax credits for jobs it had actually added or facilities it had really built.

Economic development officials understand that Interactive Intelligence suffered several years of radical belt tightening when the dot-com bubble burst. Now that the company has regained its footing, they're eager to offer a helping hand, and a fresh start date for tax abatements.

"They kind of took their foot off the gas and retooled a bit," Conrad said. "But 600-plus high-wage technology jobs are always worth getting excited about."

Conrad said Indy Partnership kept in touch with Interactive Intelligence throughout the years of its recovery. By early 2004, he said, the firm was starting to turn things around.

Interactive Intelligence's financial statements bear Conrad out. The company lost a total of $22.7 million between the time of its incentive announcement in late 2000 and the fourth quarter of 2004, its last in the red. Since then, the company has reported 13 consecutive quarters in the black and total cumulative earnings of $15.1 million.

Company officials declined to comment for this story, citing the Securities and Exchange Commission's mandatory quiet period surrounding its first-quarter 2007 earnings announcement, which took place May 1.

The company had record revenue of

. million during the quarter and profit of $1.7 million.

Conrad said the company and its consultant, Ginovus LLC, approached economic development officials last summer to begin talks about renewing its abatement deal. Intensive negotiations began in January and the city issued a commitment letter in February.

"It was basically an extension of what they had previously discussed and committed to," Conrad said. "You couldn't ask for a project that would be more exciting."

There are lots of reasons Interactive Intelligence is doing well these days, said Drew Kraus, an analyst with Stanford, Conn.-based technology research firm Gartner Inc. But the core of its success stems from its ground-up approach to communications software.

Unlike its larger competitors, which built their systems in pieces and acquisitions, Interactive Intelligence's unified messaging system was conceived from the start as an integrated whole. That makes applications, such as automatic telephone call routing or speech-enabled commands, much more smooth and user-friendly.

The approach also makes Interactive Intelligence's software easy for new buyers to adopt.

"They bring them together at the start," Kraus said. "That makes it easier for some companies to use the technology more strategically."

That's important, since Interactive Intelligence's competitors include global giants such as Cisco Systems Inc., Avaya Inc. and Nortel Networks. And in recent days, the biggest of them all-Microsoft Corp.- has been hinting it will enter the communications software market, too.

"If you bring an 800-pound gorilla in, it shakes the market up," Kraus said. "Well, there's another 800-pound gorilla shaking its cage."

To maintain its rapid growth, Kraus said, Interactive Intelligence will have to remain nimble and innovative. Fortunately for the company, the evolution of communications technology should help level the playing field. In the past, big companies held a huge advantage because they offered telephone equipment-and each was careful to guard its proprietary version, cutting out competition.

These days, Kraus said, telephony standards are emerging. As they mature, software will work on anybody's equipment. And the most attractive software will come from the company with the most-and best-unified-applications.

"I expect [Interactive Intelligence] to continue to focus on offering a well-integrated suite, a broad suite of applications," Kraus said. "I expect to see them continuing to increase the functionality of many of their existing applications... as well as some of the technologies that are good but not as fully featured."

Interactive Intelligence board member Mark Hill knows a thing or two about high-tech software firms himself. He sold his own, the banking software-maker Baker-Hill, to Experian for an undisclosed sum. These days, he's reinvesting some of his gains into new IT firms through his own local venture capital company, Collina Ventures.

Hill said Interactive Intelligence is so short of space inside its current headquarters that it has leased floors of buildings in the relatively near vicinity. He said the company is on a "growth tear," and that Interactive Intelligence's success points the way for other entrepreneurial high-tech firms.

It shows that perseverance pays off, he said. And that successful IT firms don't have to move to the coasts.

"It's interesting that we have this little gem of a company here in Indianapolis with some of the top engineering talent in the world," Hill said. "The best way to look forward is to look at their past. They're having success. That's exciting and indicative of exciting things to come."
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