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Interactive Intelligence’s early bet on cloud paying off

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Greg Andrews

Digital marketer ExactTarget Inc. garners all the headlines for its meteoric rise and blockbuster, $2.5 billion sale this year to Salesforce.com. But another Indianapolis software company—Interactive Intelligence Group Inc.—also has been building immense wealth lately, albeit more quietly.

Interactive Intelligence, a maker of call center software, has seen its stock price rocket from about $20 to $62 over the last 25 months. The runup has swelled the company’s market value from $400 million to $1.3 billion.

“It feels good,” said Don Brown, Interactive’s founder and CEO. “It means investors have confidence in our direction.”
 

Brown Brown

It’s been a wild ride for Interactive, which went public in 1999, just before the technology bubble burst. The stock surged past $50, then plummeted below $2 before again gaining ground. Shares have gone almost straight up since dipping in November 2011.

Brown is an even-keel guy who’s been known to caution employees about getting too down when the stock is in the cellar or too full of themselves when the stock is soaring. But he hasn’t delivered that message of temperance lately because he sees the robust stock price as built upon a solid foundation of innovation that made Interactive the leader in the call center software industry.

“Over the years, I have felt things that felt more like bubbles,” said Brown, 57. “This time, we really have been growing very rapidly. We have been winning a lot of large deals over major competitors. So it all feels in line with reality.”

The boom times have been a bonanza for Interactive employees who qualify for stock options and restricted stock. The surge also has given the city’s economy a lift. About 1,200 of the company’s 2,000 workers are in Indianapolis, including 250 hired over the past year. Interactive expects to add a similar number here in 2014 and is looking at constructing an additional building at its northwest-side headquarters.

The prosperous times stem from a bold decision the company made five years ago to take call center computing to the cloud. It sounds like a no-brainer now, given the popularity today of using remote servers to store, manage and process data. But back then, not everyone saw the trend as taking hold, especially for call center applications.

“To do it with real-time communications, the quality of voice is critical. The sensitivity of data is paramount. It was a lot less obvious customers were going to embrace that paradigm,” Brown said. “We felt it would happen, but we did not know what the pace would be.”

The strategy meant that investors who stuck with Interactive had to endure painful, break-even quarters as the company plowed millions into R&D and shifted away from reaping big, up-front payments when it landed customers. While a conventional, $1 million customer would pay the full amount at the outset, a cloud customer might spread payments over five years.

By any measure, the bet paid off. Interactive now “is positioned as the leading technology player in the contact center software market for both on-premise and cloud solutions,” Wedbush Securities wrote.

Analysts say the company’s cloud offerings top those of rivals, which include much larger companies, such as San Jose, Calif.-based Cisco Systems Inc.

In the third quarter, Interactive’s cloud orders rose 75 percent, accounting for nearly half of orders. Analysts estimate the company will post $305 million in 2013 revenue, up from $238 million last year.

Interactive now has the scale to lure clients that once saw it as too small and unstable to do business with, said Brown, who spoke to IBJ by phone between customer meetings in Amsterdam. He said that a day earlier he had had lunch with the chief information officer of one of Europe’s 20 largest companies—access that once would have seemed unthinkable.

Interactive’s profits remain meager—just $1.6 million in the third quarter—as the company continues to invest in growth. Raymond James figures Interactive will be “in an investment phase for the cloud likely until at least 2016-2017, and thus profitability will be depressed.”

That’s an eternity in the public-company realm, where executives usually fixate on hitting quarterly earnings targets. But Brown—who co-founded the city’s first public software firm, Software Artistry Inc., before launching Interactive—isn’t your typical CEO. He got Interactive off the ground without venture capital, giving him freedom to run the company his way.

“We don’t have any large institution out there rattling the cages and saying, ‘You have to make money now.’ So we pretty much called the shots and were pretty above board about what we were doing and why.”•

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