Michael Saylor is the founder, chairman and chief executive of MicroStrategy Inc., a Vienna technology company that went public last year. The company has developed software that helps businesses from Victoria's Secret to McDonald's make strategic decisions about goods and services. He recently sat down with a group of Washington Post editors and reporters to talk about how far his company has come, his vision of the future and how it will all play out on Wall Street. Here is an edited transcript of that conversation.
Q: Can you bring us up to date on where MicroStrategy is in the months since you went public?
A: Well, we went public in June 1998. We started  with about 590 people. As of today we have about 1,150 people. We've had four quarters as a public company. We thought we could [go public] at $6, that's what Goldman Sachs told us. We filed at $8 to $10. We sold the stock at $12. It opened at $16 and went all the way to $46. . . . It was at $24 yesterday and it moves around. So we've lived a public company roller coaster.
Now if you bought the stock you would conclude that the company's fortunes have waxed and waned. But if you actually observe the fundamentals of the business, we've grown about 90 percent annualized rate the last 12 months. We've beaten most expectations by a very boring 1 cent every quarter for four quarters in a row. And beaten the revenue expectations by a bit more. In essence, done exactly what we said we were going to do financially. So for those of you who think that the stock market correlates to setting and maintaining expectations in this world, I think we're a case in point that it doesn't necessarily.
That's in the public view. What's been going on behind the scenes is that we've been pretty aggressively overhauling the company in order to move us from a traditional enterprise software business model into the new electronic business marketplace. And that means a number of things. The first and obvious thing is in yesterday's world it was acceptable to sell your software to 1,000 corporate clients and have them all deploy it to 100 users each. . . . All of that economic thinking sort of got thrown out the window as of 1997 and '98 as the Web [grew].
We're the next generation of company. Our approach was, let's put out a fairly sophisticated piece of software and find a way to get much more distribution on it. And so we began to invest very heavily in Internet interfaces. . . . About 70 percent of our users and revenue comes out of the Web-based product that we sell.
The other thing we began to do was to invest heavily in personalized broadcasting software. And what we're doing right now is investing heavily in software that actually leverages broadcast into the voice domain.
Now, that's the theoretical thing that's going on. Let me backtrack and give you some practical examples of what this means. Business intelligence means extracting insight from a database to help a businessperson make a better decision. There is interactive intelligence and there's proactive intelligence. Interactive intelligence is information to make a decision when you want to know. And proactive intelligence is information to make a decision when you need to know. Most of our business up until 1998 was interactive intelligence for the businessperson.
Examples? I've got to decide which of my stores are overstocked in inventory, so I scan through all the stores and I get a report and I make inventory allocations based on that. Or I'm a fraud analyst and I want to figure out are there any fraudulent money transfers occurring. So I scan 10 million accounts, 100 million checks. I look for 14 identical checks that pass through my system from one bank to some South American bank two minutes after midnight. And that potentially indicates fraud. Now the technology to do that is a lot of very sophisticated data generation . . . scanning through . . . 500 billion pages of data.
The demand for that was nonexistent five years ago, because you couldn't store that much data, and over the past five years it got very cheap to store that kind of data. So our marketplace for doing business intelligence, scanning these large databases, boomed.
We started to ask the question, how do we get embedded into everybody's life? And the answer was: We can't wait for them to actually come and install our software and run queries. We have to make it very easy for them to use our software or to benefit from our software.
So, you scan all those bank accounts looking for fraud. When you get the 37 accounts that look fraudulent, instead of handing a piece of paper to an individual analyst, we generate a list of fraudulent accounts. Then we'd look up a pager number for each of the 37 fraudulent account holders. Then we're generate 37 text messages, then we'd generate 37 pages. And the page says, "Mr. Smith, it looks like someone's taking all the money out of our account and moving it to Switzerland. Maybe you should call us." Or even better, "Mr. Smith, your ex-secretary's moving $1 million in a French unnumbered account, unnamed account. Is this okay? Hit 1 if it's okay, hit 2 if you'd like to stop the transaction."
Now it's a very simple idea because it's not complicated to generate a page. It's complicated to generate the list of 37 people to page. We had the hard part always. What we didn't have was the commercial part. Because instead of having a piece of software worth $1,000, you've got a piece of software worth $1 a month to everybody with a bank account. So in a very simple, elegant twist, you can roll out a service which might be worth $1 a month to 10 million people. Now it's worth $10 million a month; $120 million a year. And of course that's the secret here. If we could find a way to sell insurance, in this case, proactive intelligence to the masses, then they would all be using our software without knowing it.
Q: Could you give other examples of how this proactive intelligence would work?
A: There are eight and a half million online stock portfolios in this country. How many of those people trade in options? Not very many, because most people don't understand how options work. Now I can make an argument that in fact everyone should trade in options. You have a capital gain built into your equity portfolio. If you trade away to lock in the capital gain, you incur a capital gain tax today. If you collar the position with an option hedge, then you lock in the gain but you defer the capital gain until the next fiscal year and you pay the tax in the year 2000. . . . What we can do is take your equity portfolio and then continually in the background monitor the options market and then come back to you and calculate the price of portfolio insurance and say to you if you were to make the following 13 synchronized trades, you would either hedge out this amount of risk or lock in this downside or lock in this amount of upside with no downside.
Now let's take the example of a medical network. There is no securitized network for medicine, but let's say I launch one. I set up a Web site and the deal is you sign up and register your medical history on my Web site and I just give you one thing. I give you the ability to query an anonymous file of everybody's medical history on my site. And it's keyed in to the drug you took, your age, your height, your weight, your medical condition, the doctors that treated you, right. And we have all entered into a cooperative, a collective, to share our information.
Well, that network starts to grow over time, and when you get to a million people all trading medical information, then the pressure on any individual person about to be a patient in a hospital to go join that network gets to be pretty immense. And in fact that network is powerful enough that people in the network live longer than people outside the network. Interest on money is 50 basis points, interest on medical information is an additional six months on your life.
Q: Do you imagine that you would always provide unfiltered or examined data?
A: Let me make one important distinction about our business. I think that all great companies have a mission that falls into the simple category. U.S. Steel with steel in every building, General Electric with electricity in every house and every car . . . DuPont with plastic and synthetic fibers in your clothes.
When you put steel on a building the building's twice as tall and lasts twice as long. You've added value and you get 1 percent of the value. When we say intelligence everywhere, what we mean is we want to take everything from being unintelligent to intelligence and we want 1 percent of the value added, but we're an industrial corporation hoping that companies downstream will do that [filtering].
So when you ask what do you intend to do, I just want to preface it. What we intend to do is provide the technology for a medical insurance company so that the medical insurance can go from being unintelligent to intelligent insurance.
Q: So you're simply the medium here, the assembler of the information, and you don't take any responsibility for the quality of the information that's being distributed?
A: I would say as an individual, as a citizen of the nation, I take an interest politically, and if I was sitting in front of Congress right now testifying I would say it's appropriate for the government to regulate this industry just like they regulate banks. People shouldn't have their trust abused. And, at the same time, I would also say that it would be perhaps either naive or hypocritical of me to think that we're going to be able to ensure that there's never any abuse of this information.
But ask the same question of Andrew Carnegie: Are you concerned about people building buildings that might fall down one day with your steel? Or ask the head of the Treasury: Are you concerned about bankers making bad mortgage loans to families which won't be able to pay them back? And the answer is yes, we're sort of concerned. On the other hand, the solution is a free capital market which squeezes out bad clothing designers, shuts down bad developers and runs bad banks out of business.
And the price we pay for freedom and for excellence is 5 percent of these people have to fail because they've failed to achieve that goal of excellence. And I'm sure that people are going to take on software and either execute incompetently and they'll screw it up; or they'll take our software and one in a hundred is a bad apple and they'll do something they shouldn't do with it. And that's where I would leave it to the press to shut them down, which they normally do, or to the government or to the law enforcement organization.
But I would never take the position that if there's any way that someone could abuse the technology I'm not going to create it.
Q: What fraction of Micro's strategy will be proactive intelligence two years from now?
A: Revenue? I think about 25 percent. As you can see, I'm much more excited about proactive intelligence than interactive intelligence. Interactive intelligence is sort of that cerebral thing that we all do when we're acting intelligent. Proactive, though, is like your kid just checked in the emergency room, they broke their leg. . . . I'll give you an example of other things. Take the police database in D.C. loaded into a network and then call me on the phone when there's a robbery in my neighborhood going on right now. Don't walk the dog, right now. There are police with sirens and shotguns running around in your neighborhood looking for three guys with knives. Right now.
Proactive is exciting because weather published in your paper is worth a penny, but weather delivered to you on the soccer field 10 minutes before the hailstorm hits is worth a lot. And so the value of the information is a function of the distribution medium and the intelligence of the distribution medium. It's not just the data. And this is what people miss oftentimes. If I had an oil field in Pennsylvania and I had to haul it out on the back of donkeys, there would be no Standard Oil. I needed a pipeline and I needed a railroad, and when that happened we got oil barons and oil made you rich.
Q: You've talked a lot about building and purging ignorance from the planet . . .
A: My good quotes.
Q: Implicit in this is that things might not pan out in the near term. A very impatient stock market these days has created a lot of tension among shareholders and Wall Street in general. How do you reconcile the long-term vision with the patience of Wall Street?
A: You know, to tell you the truth, there's a simple view of this world versus I think a more sophisticated view. The simplistic approach is, so you went public, you lost all your freedom. I think my more studied conclusion, though, is growing a business is about taking on new constituencies over time. You take on customer constituency partners, the press [becomes] a constituent. It's a sin to be boring to the press, right? It may not help or hurt your business one way or the other, but it's a sin to be boring. For your customer it's a sin to act like they're not first, even though it may not help your business. When you go public you take on a new constituency, which is Wall Street.
The most sophisticated businesses manage all those constituencies and they manage to keep them in balance. And so when you ask me how has this affected me, I would say it's just like Nietzsche: That which does not kill us makes us stronger. It kills some people. . . . I would say that in our particular case I think it's made us better businessmen. I think it's made me better. It's forced me to deal with more constituencies. It teaches you some things. Like integrity, for instance. In a public-company world, your word really means something. When you're private you say, I'm going to do this, and if it doesn't happen it doesn't matter. In the public world, you say you're going to do it, you have to do it. In the public world there's a difference between 11:59 and 12:01, the last day of March. There's a tangible difference.
One of them is you go to jail if the thing gets signed at 12:01. One of them is the stock is up $500 million and the other one is you've just torched the life and livelihood of a thousand families. One minute. Now are you willing to sacrifice a thousand families' livelihood for one minute? When you have to deal with that issue, it really forces you to cope with what is integrity. Would you sacrifice a thousand people's lives for one minute of integrity or would you like put the clock back?
But that's not something I had to deal with a year ago. I do have to deal with that now, every quarter. And I think it really has forced us to look deep in ourselves and say, why are we here? What do we stand for? And it teaches you character.
So I would say that when you go public it's like leaving home. It's more risk; it's more return. If you're successful there's a much bigger upside. If you show a moment's hesitation or flaw, it'll crack you right down the middle and the market will destroy you. The only reason I can sort of cope with that without going crazy is that the result of all this market pressure is excellence. The marketplace, for better or for worse, manages to extract excellent ideas.
Q: What effect does the price of your stock have on your ability to accomplish what you want to accomplish?
A: I think as long as it fluctuates within a range, it doesn't have any effect. When the stock goes to $5 a share, you have a crisis of confidence and then your employees defect. When the stock goes down, you get stripped of your resources and the resources you would need would be the people, the capital and the attention and the credibility, and all of those things disappear if my stock crashes. On the other hand if my stock soars, I get more of all those things. If it's in a range then it doesn't really much matter.
Beyond that, my belief is we can take our company and we can make it into a $10 [billion-] or $20 billion-revenue-a-year company worth hundreds of billions of dollars, like a Lucent. We can drive the stock to $1,000 or $2,000 -- and for the record, not this year. So make sure that's a long-term quote.
I mean, what did I sign up for? I signed up to change the world. If I wanted $100 million, I'd be gone. You can't spend more than $100 million unless you're being stupid. So everything after that is about actually changing the way people live.
My belief is that you roll the clock forward 10 years . . . everybody's signed up for proactive intelligence, to watch the weather, watch their bank account, watch their stocks, check out every company you didn't know about, make sure the traffic is not jammed, protect their family.
A LOOK AT . . . MicroStrategy Inc.
Business: Provides software systems that allow businesses to make decisions based on sophisticated data mining.
Chairman, chief executive, president: Michael J. Saylor
Ticker symbol: MSTR on the Nasdaq Stock Market
Local employees: 535
Web address: www.strategy.com
Source: Company reports, Bloomberg News