From being an environmental research institute, Esri has grown into a global geospatial player today. With a mission and culture to innovate, it continues to nurture the enterprise segment, enable governments and organisations across the world.
Business Lessons in a Nursery!
My father had three acres of probably a 1,000 different types of plants. He was successful in the nursery business because he made sure that there were no weeds; every plant was watered, every plant was pruned and changed pots on time. He was very responsive towards customers. It required our attention 24X7. Running a business is like running a nursery. One has to keep an eye on everything to be successful. The nursery business is diverse; it is living, it is creative, requires marketing etc. It requires several people to work as a team and I learnt the importance of team work there. I learnt that money was very important, because my parents had no money, just as I had no money when I started. I learnt that building up capital reserves and creating a strong financial foundation was very important to run a company.
— Jack Dangermond
Forty three years after they ended, the 1960s remain the most interesting yet controversial decade of the 20th century American history. Martin Luther King Jr and the defining moments of the American Civil Rights Movement, the Vietnam War, a phenomenon called JFK — a young, charismatic President who stole the hearts of the entire nation, The Hippies Movement, the Environmental Movement… All these changes and many others had a dramatic impact on altering the nation’s future.
In June 1969, when Cleveland’s Cuyahoga River, a river fouled with industrial waste, caught fire and burned, the American environmental movement was born. The following months saw a sudden spring in the awareness of the environment, discussions on environment versus development and signing of a flurry of environmental laws. For the first time, environment was at the vanguard of a new government ethic.
The happenings spurred Jack Dangermond, a landscape architect and a student at the Harvard Lab, bring rational thinking to this space to better ground the discussions on environmental change and environmental conservation/protection. Underneath that was a broad and fundamental thought that geographyjpg could be the foundation for integrating different kinds of sciences, different kinds of ‘ologies’, and bring geospatial information together so that it could be used for decision making, be it in land use, mining, forestry, natural resources, economic development and others.
“As a student, I was attracted to what the Harvard Lab was doing in the area of spatial analytics. I was inspired to start Esri (Environmental Systems Research Institute) along with my wife Laura, as an organisation that would apply computational geography for environmental planning and geographic decision making,” recollects Dangermond, who remains the company’s CEO.
Today, Esri supports 350,000 organisations worldwide, and is gearing up to enable hundreds of thousands of others to scale up their operations and capabilities and solve complex problems. It has 3000+ employees, 10 regional offices in the USA, 80+ distributors outside of USA, 1800+ partners across the world, serves 33 vertical markets with its products and solutions and a leading player in the global geospatial industry.
The Rise and Growth of Esri
»» Established: 1969
»» HQ: Redlands, CA, USA
»» Revenues: $1.4 bn (2012)
»» Employees: 3,000+
»» Offices: 10 regional offices in the USA
»» Distributors: 80+ outside the USA
»» Partners: 1,800+ across the world
Starting off as a consulting company to make maps and do analytics using experimental software from Harvard Lab, locating new terrains, coastal zone studies, land-use planning studies, site identification involved just a few of the hundreds of projects the company did over a decade. All through the process, it kept improving its software and methods. A decade of projects and demand for a software product later, Esri began developing one, initially based on open source code but later as a COTS product. This gave birth to ARC/INFO (ArcInfo or now ArcGIS for Desktop Advanced) in 1982.
Esri’s objective was to build a first principles core platform that could be applied to many applications. “It was like SQL by CARB; it was the development of first principles library of initially vector and later raster geoprocessing functions that could be commercially made available,” says Dangermond. Esri also developed its own scripting language ARC Macro Language, AML. “People liked the horizontal philosophy because they could customise it for different applications within their own city/company/agency,” reminisces Dangermond. It was initially called a toolbox with a command line — a series of tools that people would configure through scripting languages into applications that supported vertical markets.
Technology advancements in the 1990s, including the availability of faster and cheaper computers, the beginning of electronic data publishing, opening up of commercial earth observation industry, and new data capture techniques like the GPS spurred rapid growth of the GIS industry and Esri was quick to take full advantage of it. ArcView, the company’s first desktop solution, opened up a world of possibilities to a whole new group of users. AML for desktops was modified as SML and a set of modules called Arc Objects were marketed for deploying ArcInfo based customised solutions which could work independently. During the late 1990s, Esri re-engineered ARC/INFO to develop a modular and scalable GIS platform that would work both on the desktop and across the enterprise. The result was ArcGIS. In short, five successive rounds of re-development of the core platform through the years, this horizontal technology, which largely focused on project work in the beginning, is today adopted by individuals, departments and by large enterprises alike.
From Strength to Strength
»» 350,000 organisations worldwide
»» 200 largest cities in the US
»» More than 7,000 colleges and universities
»» 2/3 of Fortune 500 companies
»» More than 1mn desktops
»» Thousands of Web and enterprise servers
With a strong focus on research and innovation, driven by a bunch of passionate and committed professionals, Esri grew from strength to strength, mostly organically. This is in contrast with technology companies acquiring for gaining financial strength and/or diversification. However, Esri has been acquiring small companies for about 20 years now, only to get its hands on interesting technology and advance its thinking or for competent people. It has integrated the acquired companies into the core of its business and in some cases set them up as independent development laboratories. At the same time, Esri has set up other independent laboratories in China, Russia, France, Australia and the USA.
Carefully managed growth and zero debt have given Esri stability that is uncommon in today’s volatile business world. After 40+ years of its founding, Esri continues to be a privately owned company, with majority shares being held by the Dangermonds. It is rooted in the philosophy that private ownership means no stockholders forcing short-term decisions at the expense of long-term objectives. And Dangermond minces no words about it: “We are in this evolving geospatial industry because of the smart people here who are interested in crafting and creating tools that actually work. In that respect, our motivations are different from a typical public company that is into this business. We do not try to make money or be a great company from financial point of view. Wall Street doesn’t matter to us. Quarterly revenues do not matter to us. What matters to us is seeing neat stuff done to our customers.”
While as a private company, it is not bound to disclose its financials, Esri is known to have weathered several difficult financial situations, including the global slowdown a few years ago when it saw its growth drop to 5.5-6%. Esri claims carefully managed growth and zero debt as its credentials and challenges to compete with all the publicly traded technology companies in geospatial domain. However, in the absence of any disclosed information about its financial standing and leadership hierarchy and succession, a section of the enterprise users are concerned about continued investments of Esri to ensure innovation into cutting edge technology in the long run.
Nurturing Vertical Markets
The uniqueness of Esri is its user-centredness. To maintain the user-connect, Esri hosts the popular International User’s Conference every year, which was first held on the Redlands campus in 1981 with 16 attendees. More recently, the User’s Conference has been held in San Diego for the past 10 years. About 15,000 users across industries attend this conference every year, representing nearly every industry sector, government organisation, and NGOs. For five days in one place, this conference provides up to 16 hours of training in Esri software, hundreds of presentations from other GIS users, and opportunities to get specific technical questions answered by Esri staff. The event also includes vendor and map displays from around the world and special interest group meetings that connect users with GIS users from other regions and industry. The abundance of user-to-user communication enriches understanding about real-life GIS experiences, solutions and tips.
As the GIS market started to mature towards late 1980s and early 1990s, there was greater need to focus on the vertical markets. Esri began developing teams to address vertical markets but quickly realised that this was not scalable. Esri’s conservative approach towards business and its reluctance to borrow from the market put a limit on its scalability. While Esri could do vertical communications and marketing, it needed partners to be able to build on top of its platform technology for different vertical markets.
Industry managers started helping customers in different domains, using the toolbox to adapt to their areas and finding business partners to develop solutions. For example, in the utilities sector, Esri’s core platform offers a rich array of capabilities that include full map authoring and production, real-time data processing for big data applications, geoservices, such as geocoding and geo-fencing and a wide array of imagery services. Esri’s LiDAR offering is particularly valuable for electric transmission operators. “In this space, we rely heavily on partners to enhance the core offerings with specific work flow oriented applications, such as pipeline integrity management, electric, gas and water design solutions, vegetation management, gas distribution integrity management compliance apps and many, many more,” informs Bill Meehan, Director-Utilities.
Similarly, Esri spent considerable effort in building a technology platform that could be configured to meet the specific in-country legal structure and cadastral needs. This means that as new capabilities are available with core ArcGIS releases, land administration organisations can take advantage of them without costly additional customisation. “The efficiencies and new capabilities that Esri brings to LAS [land administration systems] combined with the partner capabilities, ensure a successful, sustainable LAS implementation,” says Brent Jones, Global Manager, Cadastre/Land Records. Esri partners too spend considerable effort with legal policy and procedures to enable the creation of LAS, SDI, and all supporting policy infrastructure.
Esri has recently started developing vertical templates that help its business partners and also end users to configure its basic COTS platform within different domains like utilities, local govt, forestry, environment, military etc. “The idea of these solution templates is to get customers and partners up and running with no customisation and just a little configuration. Some customers have deployed production applications in days. These solution templates leverage their investment in their core GIS from Esri,” asserts Meehan.
Today, Esri serves 33 vertical markets with its products and solutions. According to Chris Cappelli, Global Sales Director, the verticals of top priority for Esri globally include government, utilities, commercial, energy and natural resources. “Another market, which is not actually a vertical market but a horizontal market for us comes with the idea of bringing location and analysis into other operational systems. It all started with the acquisition of Geoloqi and since then we have moved on to include SAP Business Objects, Cob News, MicroStrategy etc. That is a new market space and people working in this space will probably not be traditional GIS experts,” he explains.
Also, Esri orchestrated a change in its selling strategy recently to maintain competencies in the vertical markets and ensure that its employees across different operating units are hyper-focused on providing best services to the customers. “As a result, we witnessed substantial growth in four-five sectors, specifically utilities, energy, commercial, national government,” adds Cappelli.
Business Philosophy: Customer First
|“Users often say Esri is a matchmaker of sorts, connecting various organisations. I would say that is our biggest value proposition vis-à-vis our competition.”
— Chris Cappelli, Global Sales Director, Esri
A business may choose to serve its stock owners, may choose to serve its employees or it may choose to serve its customers. In the case of Esri, it chose early on to focus on continued innovation and serving of the customers.
“We are wired as an organisation that serves its customers and by serving them, we get paid and get the opportunity to use the funds to innovate and drive the technology which in turn is provided to them,” underlines Dangermond. Unlike many others in the industry, Esri is blessed with the unique opportunity of starting early on and building its capabilities. In fact, Esri finds a real sense of satisfaction in seeing great minds working at crafting architectures and engineering tools that help its customers.
And when customers vouch for the technology and the benefit accrued out of it, it is even more rewarding. The Bavarian State Forest Administration is one such case in point. It started using Esri technology in 2000 with 10 users for scientific purposes, but has scaled up its activities hence and now has 1,200 users working on the Bavarian Forest Information System (BayWIS). Christian Simbeck of Bavarian State Forest Administration acknowledges, “We are happy with the support from Esri Germany and Esri Inc. Our solution partner, INTEND of Germany and we share a very close relationship with the sales and technical staff at Esri.”
Serving the customer is an organisational culture at Esri. “You may do your best job but unless the person for whom you are doing it appreciates it, he/she is never going to pay for it and/or is never coming back to ask for more. We serve our customers for a long term,” says Cappelli, as he explains that all programmes, teams, and activities of the company are sculpted around this fundamental philosophy. “As we get bigger, it gets harder to maintain that. We try to balance as best as possible living through Jack’s mission of transforming the world with GIS.”
Customers in fact see it more as a long-term technology partner and not just as a vendor. “As long as we are sure and are comforted that Esri’s offerings and development roadmap are in line with our strategic plans, and as long as we continue to experience first class enhancements in the technological tools, stability, capabilities and company support, we will continue to regard this technology as a core to our business,” asserts Yoav Tal, Director for National Spatial Databases and Prof Yaron Felus, Chief Scientist, Survey of Israel, which has been using Esri technology for over two decades now.
About a third of Esri’s business is from enterprise licence agreements and they range from very large organisations to very small. With large enterprises, Esri believes in value-based sale and renewals, and takes pride in 100% renewal rate but with smaller organisations, it tries not to make price as a barrier.
Unique Business Model
|An Esri Story Map incorporates text, multimedia, and interactive functions to tell the JFK saga. Esri Story Maps inform, educate, entertain and inspire people about a wide variety of topics. Most Story Maps are designated for non-technical audiences|
Unlike many multinational companies which try and reach every country and every culture, Esri operates in a federated system. While it has 11 offices across US and deals with domestic customers directly, Esri chose to invest and work elsewhere in the world through a growing network of diverse and heterogeneous companies as distributors and partners, who help each other and also help local users. In 1988-89, it initiated a business partner programme (over 1,800 partners as on date), collaborating with companies/organisations that built unique and focused applications and provided custom services in different domains. Today, Esri works with Snider Electric in electricity, Telco in telecommunications etc, but for every one of those, there are half a dozen of others like IBM and SAP in the field of business intelligence.
The partner network also brings a wide range of knowledge and expertise and enables technology transfer, sale of products, serve GIS and geospatial education, training and capacity building in the countries of their operation. The beauty of this business model lies in the aspect that for product sale, distributors operate in the designated countries/regions, but for services, the whole world is their business turf. Esri doesn’t have a role to play in this and the distributors/partners are free to operate in countries where there are no conflict of interest.
Companies that work with distributors and partners often encounter the challenge of maintaining credibility, professional ethos and continuity in the translation of its vision. However in Esri’s case, vast majority of its distributors are friends with Dangermond first, bringing the same zeal and passion to the market place. “Distributors and partners are our family. We travel with them, meet customers along with them, train them and take feedback from them,” says Cappelli. The annual Esri User Conference sees partners and distributors congregate along with their users, thus giving the company an opportunity to understand their needs and take feedback on the products and services.
Also, in many cases Esri has direct investment in the distributor/partner company. For instance, Esri India is a JV between NIIT Technologies and Esri Inc, and Dangermond is on the board of directors from day one. “Before we entered into the JV, Jack had extensive discussions with Rajendra Pawar, Chairman and Co-Founder of NIIT Group,” informs Rajesh C. Mathur, Vice-Chairman of Esri India. “We found a strong match of cultures. The values that NIIT stands for, the professional outlook and the strong passion we bring to our work are very similar to the cultural ethos of Esri Inc. Therefore, it was not difficult to create a strong partnership and bonding,” Mathur says, adding that this kind of business model has helped Esri India retain its flexibility, imbibe and evolve local business practices/models with changing technology and serve the local requirements of the users.
The basic value system and the congruence built over the years of working with regular coordination has enabled Esri and its partners work with one mind. In terms of relationship, Esri sees its distributor/partner as an extension of itself and as the face of Esri in the country. Quite often, Esri personnel meet the customers along with the distributor/partner and are active participants in the business deal. The entire ecosystem of Esri acknowledges, operates and thrives on these co-dependencies and in fact is one of the reasons for Esri’s worldwide reach and success. However, this model inherently limits direct connect with users and understanding of their needs and restricts embracing of local best practices.
Also, though distributors share a long-term relationship with Esri, they have not invested much time in understanding and developing expertise in the 30-plus vertical markets the company serves. Acknowledging this as a weakness, Cappelli, however, argues that the primary objective of all the alignments is to provide a clear portfolio with rational prioritisation for each of the vertical markets. “This is an area where we are moving faster to get better. However, we cannot cater to all the 30-plus markets consistently in each of the countries/regions. There are not enough people and there is not enough domain expertise. Traditionally, we leave it to the partner company and we have seen that as we step back in major markets, we have been able to re-prioritise our people around those markets faster.”
But in an increasingly competitive market, isn’t it worried about losing the market edge to competition? “I have been with Esri for more than 20 years. Our biggest strength is that we have people in the market, who lived and breathed the market for years, and who try to transform the market through the application of our tools,” says Cappelli. “Users often say Esri is a matchmaker of sorts, connecting various organisations. I would say that is our biggest value proposition vis-à-vis our competition. I cannot and will not tell a distributor what to do but can help to influence and shape what they do. This strategy clearly differentiates us from our competitors. We have a partner conference, a distributor meeting and user conference to maintain the connect. We spend time with them at these meetings, understand their experience and challenges, and that becomes part of our global strategy,” he adds.
|ArcGIS APIs and SDKs help developers in building web and mobile applications that meet specific workflows and provide rich geographic content interaction on any device|
Initiating a second dimension to the organisation, Esri has started verticalising different divisions so that the sales, marketing, education, professional services, technology teams cut across the organisation with not simply vertical marketing but more vertical teams, often called matrix management in classic organisations. To facilitate better communication between the teams, it is creating special teams like social team, web training team, web support team etc.
On the technology front, Esri has taken a big step with ArcGIS Online. One can simply subscribe to it for an affordable price and have all the data, storage, hardware, software and is simple to use. ArcGIS online is open, one can plug it into any server that support WMS and WFS services or any raster services which are standard. It has open APIs and one can write apps based on these APIs and access and develop maps on those apps. With a completely different business model, ArcGIS Online is already seeing rapid uptake vis-a-vis the traditional software.
As part of software maintenance, Esri has started providing servers to all the desktop users. It is a strong believer of open standards. It has started building base maps with community efforts and started connecting companies like DigitalGlobe, RapidEye, SPOT into the system so that their content is available. However, Esri is very clear that it does not want to become a content company.
Very recently, Esri launched the ‘Market Place’ and it already has a couple of dozens of apps and services that people can purchase and use. The company is optimistic about this initiative as many apps are free and open source, and positions this as a good will gesture towards partners and developers.
Committed to the technology it believes has the potential to transform the world, Esri spends about 22% of its revenue on research and development. This is about 2-2.5 times more than the research-spend of most technology companies. Esri prides it could invest that much in to R&D because it “is not a public company”. It is involved in the development and engineering of tools that actually go into its portfolio and after having multiple products in its portfolio, it is moving to one product that is licensable and subscribable, usable with servers, cloud and clients, integrated as one system. It is focusing on releasing configurable templates for vertical industries. The desktop product is expected to take a huge jump next year in terms of simplicity of use and is likely to transform and make the experience more app-like and Windows-8-like.
Esri supports many global communities that are using GIS to increase spatial literacy, protect the environment, assist with disaster response, and support humanitarian affairs, with the aim of making the world a better place. Esri has long supported the widespread use of GIS in classroom and research labs around the world. It offers software at deep discounts and actively helps local, regional, and global organisations create GIS education programmes. Its GeoMentor Program, for which it partnered with National Geographic Society, inspires educators and geoprofessionals to adopt a school, class or club and enable the youth develop skills in geographic thinking. Over the years, Esri donated software to more than 15,000 non-governmental organisations doing conservation and humanitarian activities around the world, ranging from global organisations like The Nature Conservancy to local groups and clubs. “These activities have resulted in the development of a class of people who understand what to do with geographic data in a business setting. I am interested in this activity, there is lot of good in that space, particularly in conservation globally. Getting people equipped to be able to stand up and be peer-to-peer with both private sector organisations and government institutes is a better way of doing science and technology,” feels Dangermond.
In a voyage of 44 years, Esri has seen competing companies either approaching it or replicating its methods, driving it further to innovate in technology space. With a collection of smart people crafting products and solutions to real-world problems, a loyal user group and a commitment to serve them, trusted alliances with partners and distributors, carefully managed finances and a vision par excellence that breathes and believes in the power of geography to make a difference to the world, Esri stands tall in the global geospatial landscape.