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John Ticer — all clean-cut, 5 feet 7 inches of him — has some pretty large shoes to fill these days as head of Stac Software Inc., the corporate remains of a small but once-mighty force in the software industry that five years ago this June did what the United States Department of Justice has yet to do, at least officially: whip Microsoft's butt in court.
Three years ago, Ticer had never heard of the company he now tends as president and CEO — the latter title bequeathed to him just three months ago when Stac co-founder and silver-tongued front man Gary Clow stepped down from daily duties. Ticer wasn’t even aware that just two years earlier, little Carlsbad-based Stac Electronics, as it was then known, had convinced a federal jury that Microsoft had ripped off Stac's patented data-compression technology for use in its DOS software and owed Stac $120 million in damages.
That technology, which provided an affordable and easy way to double the capacity of a personal computer's hard drive without the prohibitive cost of replacing it, catapulted Stac from a little-known chip maker into a hero to millions of PC users. With a 90 percent market share, it was ripe early this decade for what many industry experts believe to be Microsoft's insatiable, predatory tendencies.
Ticer, an admitted UNIX man for most of his career, smiles and shrugs when acknowledging that five years ago he paid no attention to Stac's David and Goliath legal battle. "It wasn’t an enterprise software company," he says. "It would never cross my horizon. I never went into a computer store. The companies I talked to bought millions of dollars worth of software or hardware for large projects. So this really was a different world than I was from."
But Ticer wasn’t brought to Stac for his knowledge of the company’s history. Instead, he had made his mark as point man on IBM's acquisition of Tivoli Systems, now Big Blue's network management software unit. "I helped IBM figure out where we wanted to be in the system management business, and how we needed to change our image and positioning," he explains. When Stac came calling in 1997, Ticer seemed the perfect fit — disciplined and comfortable with navigating the choppy waters of a wholesale company make-over.
Early in an interview at Stac's Del Mar Heights headquarters, Ticer bristles at the suggestion of a wholesale change. "The technology that underlies all of our products is really based on compression," he notes. Later, after recounting the internal juggling made so far, he concedes, "I would have to agree there's been a whole boatload of change around here."
From The Start
Founded in 1983 by Clow and fellow CalTech chum Doug Whiting — regarded as Stac's patent wizard, with more than a dozen under his belt and others pending — the company evolved from a moderately successful data-compression chip maker to the pioneer of data-compression software that behaved not like a clunky utility but as part of the operating system — and therefore invisible to the user. Stac spokeswoman Valerie Motis says the company has never released official sales figures of Stacker, but industry experts estimate that as many as 3 million copies of the $100 product found their way into PCs worldwide.
Stac's emergence as an industry leader beginning in 1990 drew the attention of Bill Gates, the billionaire chairman of Microsoft. A serendipitous encounter between Clow and Gates in 1991, as Stacker forged its way toward becoming the industry standard, led to talks about licensing the technology to Microsoft for its then-latest operating system incarnation, MS-DOS 6.0. But Clow found the software giant unwilling to pay royalties for the license. Instead, the Stac chairman would later describe the offer as nothing more than a token fee for the opportunity to "bless Stacker with Microsoft's holy water" and "bask in the Microsoft orb."
After talks broke off in late 1992, the gloves came off. In March 1993, Microsoft unveiled MS-DOS 6.0, complete with built-in data compression, called DoubleSpace, that the software giant claimed it had developed on its own. With an introductory price of $50 — half the price of Stacker alone — MS-DOS 6.0 cut deeply into Stac's sales, despite Clow's efforts to portray DoubleSpace as an inferior, bug-riddled knockoff.
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Two months earlier, Stac had filed suit against the Redmond, Wash., software behemoth after obtaining an advance copy of the DOS software and determining that Microsoft had indeed infringed on Stac's data-compression patents. The following August, Microsoft countersued, claiming Stac had violated trade secrets when it reverse-engineered the DOS software to find the patent infringement. By then the impact of MS-DOS 6.0 had been widely felt at Stac, where one-fifth of the workforce was laid off and quarterly revenue tumbled nearly 50 percent to $5.7 million.
But in a February 1994 ruling that made worldwide headlines, a federal jury in Los Angeles found Microsoft guilty of infringing on two Stac patents and ordered the giant to pay $120 million in damages. Gates himself called the verdict "a pretty bad day," even though the jury would also agree that Stac owed $13.6 million to Microsoft on the trade-secret charge.
Microsoft talked about appealing, but a federal judge's earlier, financially threatening order that Microsoft stop selling software using Stac's proprietary technology and, conversely, mounting legal bills for Stac — already estimated at $9 million — brought the two bitter sides together for an unusual settlement consummated by a handshake between Clow and Gates in June of 1994. Microsoft agreed to pay Stac $43 million in royalties — $1 million monthly for 43 months — and buy a 15 percent stake in Stac at a cost of nearly $40 million more. In exchange, both companies agreed to cross-license their data-compression patents for the next five years. Microsoft also agreed to drop its trade-secret counterclaim.
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San Diego Press Club Headliner award is a visual reminder of Stac's prominence in 1994's news.
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This Victory's High Price
Years of legal wrangling had taken its toll on Stac's bottom line and business momentum. "I don’t think there was an intent to really screw Stac, but Stac was wronged regardless," says Rob Enderle, an analyst with Giga Information Group who has watched Microsoft for years. "Microsoft losing was a big deal. The settlement was trivial to Microsoft, but it was significant to Stac. In the end it worked out real well for Stac because otherwise I think they would have been out of business by now."
It’s a view held by many industry analysts — even Stac's Ticer agrees. "Oh yeah, without the settlement Stac wouldn't be here today, that’s for sure," he says. "Our market was gone. The time for a third-party compression product for DOS and then Windows was over. . . The settlement allowed the company to come back and be worth something rather than nothing."
All told, Ticer says the settlement — and another compression software licensing agreement with IBM — put roughly $100 million into Stac's coffers. About $70 million has been spent so far on acquisitions and investment into its new line of data recovery software for corporate customers — a niche chosen in large part because it is far removed from Microsoft's predominantly retail interests.
Even with $30 million remaining from the settlement, Ticer says many challenges remain. Stac's chip making subsidiary, Hi/fn, was spun off in December to develop its promising compression chips that come with built-in security measures. Bud Leedom of the San Diego Stock Report regards Hi/fn now as a promising start-up. He likes it for boasting a type of security technology that many large companies are clamoring for in the development of so-called virtual private networks, an emerging method of developing secure corporate networks using public venues such as the Internet.
Ticer says Stac shareholders fared well in the Hi/fn spin-off, which put one share of Hi/fn stock in the pockets of shareholders for every four Stac shares they held. Hi/fn's stock price, which started at roughly $17, has since more than doubled in value. Ironically, even Microsoft benefited, picking up about 9 percent of Hi/fn outstanding shares.
But that leaves Stac Software on its own and on shaky financial footing with Wall Street. With a stock price hovering under $1 (since its initial public offering in 1992, when it sold 3 million shares at $12 a pop, the stock has traded as high as nearly $16) there's really nowhere to go but up, Ticer insists.
Optimism at Stac is fueled by independent forecasts that the data-management software market will explode from worldwide revenue of $2 billion in 1997 to $4.8 billion by 2002. Ticer expects Stac to participate in that growth. Even with a reported first quarter loss of $1.9 million, the new CEO predicts profitability for Stac Software by the September end of its fiscal year. (Last year, Stac lost $5.8 million on revenue of $19.4 million.)
A Practical Lesson
The 40-year-old Ticer says he realized the value of Stac's line of Replica and ReachOut business system recovery programs about a year ago while flying back to San Diego with an important business plan on his notebook computer. "Just before we began descending, I spilled my Coke in my notebook, and it froze. I had made a lot of changes and none of them were saved."
Admittedly a bit panicked because he had not bothered to install Stac's recovery software on his notebook, his engineers still were able to reconstruct Ticer's work. "But that just brought home the vulnerability of these things and how valuable the data is that’s sitting on there," he says. "It’s different when it’s your data."
Notebooks are the fastest-growing component of the corporate computing market — and the most expensive to maintain. The average time to recover a crashed notebook is one to two days, but Stac's system is said to be able to do the job in hours. "We give you a guarantee that you can recover it 100 percent, down to the bare metal, exactly the way it was the last time you used it," Ticer says. "We understand that your system is really your life blood, and if your system is down for any reason, then you’re screwed."
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To succeed, Ticer believes that employees — down from a high of about 220 to about 120, including a crack engineering crew in Estonia which was part of the former Soviet Union — "It’s working very well," says Ticer of the Estonian venture. "It gives us an 18-hour development day." — must view Stac Software not as a company with a colorful past but as a start-up.
Hunger to succeed is the hallmark of a successful start-up, and that may be where the settlement did more harm than good. "It’s been something we’ve really struggled to overcome, that everybody in the company knows we (still) have $30 million in cash," Ticer says. "I think receiving these big checks kind of acted as something that would lull you into saying, 'You've got more time.' In this business, you don’t have time. There isn’t time to be wasted no matter what. And so we’ve really tried over the last year, more so than before, to instill a sense of urgency and a sense of focus that is more in keeping with a start-up.
"There is such a thing as an overfunded start-up, and it is possible that we fell into that camp."
Clow, meanwhile, is spending more time with his family in Rancho Santa Fe (including a new son) and at a home in Florida. He still controls about 11 percent of Stac's 23.7 million shares. Ticer knows it’s a challenge to fill the shoes of a man who once said of his battles with Microsoft: "A lot of people make the analogy that competing with Bill Gates is like playing hardball. I'd say it’s more like a knife fight."
With its two flagship software products, Ticer would like to achieve with Stac the same market-dominating position Stacker held in the early 1990s, although the experience with Microsoft is one he'd rather not replicate.
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Stac co-founder Gary Clow has cut back on his daily involvement at the Del Mar Heights-based company.
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