Why Infosys Should Buy FICO

Now Indian Software Companies need to grow up and look behind Software Services, and fight for much more lucrative Software Product side with significant focus. Infosys and Iflex have shown they can play well by building Finnacle and Flex-Cube (both are banking ERP Products) respectively.

IFlex sold itself to Oracle while Infosys has gone from strength to strength. It is already the most valuable software company in India, and among Top 10 Software Services provider globally. Its main problem to move to the next level is the lack of experience in big ticket acquisitions. But that should not be a problem; they can hire few acquisition experts and go ahead.

I see FICO (earlier Fair Isaac) as one of the best possible target for Infosys at this point of time. There can be many reasons; here are few:

1. FICO's Low Valuation due to bad market condition

As per yesterday's market close, FICO share stood at 12.72 (Mar 20th After Hours) and Market Cap at $621 Million. A company having Revenue over $800million, this valuation is too low. Source Google Finance.

2. 55 Years of History and Strong Branding in US

FICO has been in market for last 55 years, and it is the pioneer company to establish Analytics and Decision Management as an industry. Its FICO Score and Falcon are very strong brands.

3. Strong R&D Culture

Fair Isaac has very strong R&D culture, and owns many patents. This will be a great addition for company like Infosys who lacks it.

4. Financial Industry Coverage

Infosys's major focus has been Financial Industry for long; its Banking ERP, Finnacle, has been doing great for the company. But this has been limited to South Asia. Most of Europe and America is dominated by IBM and Oracle.

Infosys needs some partner to break this barrier and establish itself as global major for Banking ERP. There is no other company that suit Infy better than Fair Isaac. Fair Isaac works with more than 80% of World's Banks. Its Fraud fighting product Falcon and Credit Score FICO are used by almost all Financial players in US, and outside.

5. Complimentary Products and Services

Infosys has ERP Product and BPO Operations expertise and infrastructure; while Fair Isaac has Business Intelligence Tools and Enterprise Decision Management Product. Infosys's strength lies in low cost operations and services, and is moving up the value chain organically. Fair Isaac works in high IQ knowledge management area and is fighting to move down the value chain. Great complimentary possibilities.

6. Infosys has enough cash for buyout

If Economic Times's report is to be believed, Infosys has cash reserve of well over 12,000 Crore INR ($2.4 Billion) currently. This keeps it in comfortable position to make this buy-out, and still be cash positive.

Not to worry about financing operations for FICO; it has good revenue of over $800 million.

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Ending Note:

I see Infosys as the best suitor to make this buyout but there are other probable bidders too. These are:

1. Wipro (strong cash position; experience in acquisition)

2. TCS (strong cash position; good acquisition experience; Tata group backing a bonus)

3. Accenture (can think of major entry in Banking thro this buy-out; cash position unknown; but have strong track record of acquisitions; good revenue making only second to IBM in BPO and Software Services)

4. IBM (can buy FI any day; too big operations and might not opt for this acquisition; already strong presence in Financial Industry)

5. Amazon (strong acquisition history; interest in data mining and analytics)

6. Google (Google has been buying companies from variuous background; one of the biggest data miners today and thus could opt for FI)

Well, there could be many who join this bandwagon. If Infy prepares itself well and gets FICO, it will create a new history for Indian Software Industry.

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Please share your view as comment here. Would love to know what you think. Cheers

More:

FICO CEO Mark Greene speaks to CNBC

Decision Management conference -- InterACT 09

Fair Isaac's yearly Decision Management Conference, InterACT 09 is on its way. InterACT 09will take place in NY on March 10-13 and will showcase industry luminaries and more than 80 sessions on:

·         New risk landscape

·         Effectively managing risk

·         Predicting customer behavior

·         Turning compliance into competitive advantages

If you are a Reporting, Analytics, or Strategy Science Professional, its a must visit conference. If you want to attend the conference, I have a promo code (FMH00) for $350 off the price of attendance. To register please visitwww.online-reg.com/fairisaac/2009/interact/newyork/ or www.myinteract.com for further information.

Sadly, I wont be able to attend the conference. Am just too far in Bangalore, and too much engaged in extablishing my newly born firm, InRev.

Enjoy the conference.

Global Analytics Preparing to Take on FICO

Fair Isaac ec-CEO Larry Rosenberger is now in the board of Directors for Global Analytics, a San Diego based Analytics firm with major operations center in Chennai, India. This is however not a new news, it has already been about 6 months old.

Interesting fact is that Larry is not the first person to join Global in near past. First Fair Isaac senior fellow Ted Crooks joined Global Analytics as VP for Business Development, who was followed by Chris and Steve. All these together is giving a feeling that Krishna, CEO Global Analytics, is preparing himself with a major battle with FICO. After all he is one of the person responsible for designing and building one of FICO's most successful product, FALCON.

Krishna started Global Analytics with his Falcon Team mate, Steve Biofore and few other folks. He started the company in 2003 and have been quite successful since then. While I joined Global Analytics in 2005, I was the 33rd employee of the company. Now the company has grown to above 120, and most of these people are involved in high end analytics. This makes GA one of the leading player in Analytics.

Global Analytics is heard to be expanding to UK, and have built a Fraud product for Banks. These developments have taken place after its tremendous success in serving Decision Management Services for the Sub-Prime market in US. fair
The two development happened last year i.e. the same year when Ted and Larry were brought in. And it is heard that Krishna and his team is working really hard to take the company to the next level. So, this year and next should be interesting to see on how Global Analytics moves ahead. If it gets the right strike, it would be no wonder to see GA taking FICO head-on in the Decision Management and Analytics Space.

Blame FICO for Sub-prime crisis?

Ron Shevlin has a interesting post regarding whom to blame for the sub-prime crisis, and he analyzes if FICO is responsible and to what extent.

I have something to add on the discussion.

I. Blame the Decision not the Algorithm.

Fair Isaac sells algorithm for FICO Score but decisions are taken by the Banks. Normally Credit Scores are tested in the internal portfolio and the operating point is chosen. This process of choosing operating point depends on various business reasons of the operating bank.

i. Case 1 : New Bank and No Internal Data
This is a typical scenario when the FICO score is taken as the only decision platform. Normally any customer having FICO Score above 600 is given a loan or a credit card, with higher the score getting higher loan amount or credit balance.

ii. Case 2 : Stable Bank starting a new Portfolio
Here the Average FICO score on the several bucket of customers on some other existing portfolio is seen and a strategy is formed to fix a certain FICO cut-off for the new portfolio. If there is closely related portfolios then the customized models and the business rules on that portfolio can be used for the new one. Like, many banks use Personal Loan or Credit Card Models and business rules for the other in case of thin file customers.

iii. Case 3 : Bank has mature portfolio
When Bank has mature portfolio, there is little reliance on any Generalized Score, be it FICO, Vantage or any other scores. But still the customers are segmented on the basis of FICO score and then strategy is formed using customized solutions.
The customized solution could be:
1. Predictive Models (Risk, Revenue, Attrition, Response)
2. Business Rules based on Value Segmentation
3. Business Rules by Expert Judgment

II. Portfolio Monitoring is as important as Strategy Forming.

Now let me discuss something on the second part after the strategy formation. It is very critical to monitor the portfolio and fine-tune decision making process. It is solely on Banks discretion and Fair Isaac has no role in it.
This is done by constantly following the market movement and the portfolio shifts. Many a times operational problems within the banks lead to loss of most valued customers while the customers while the low value still remain. This creates the portfolio look bad. This is a common case and is commonly referred to as Adverse Selection. This has to be detected in the real time of Bank functioning and reported to correct the operations.
This step however does not seem to happen as the Banks have come up with bad results. In the presence of good portfolio monitoring system, it could have been reported well ahead in advance and checked.

III. Analyst vs Marketers

Now, this is again a critical thing happening in any bank. All the Business Leaders go to the Marketers to grow the Bank or a particular portfolio. They are given the power to execute their plans and are given a very tight target. Marketers do it and get applause.
Suddenly when the results start getting worse and the bad rate increases, the focus is turned to the Analysts. The analysts have no control on the past decisions but he makes sure that the future decisions is on track. But again by doing this he will be hurting the Marketers interest.

IV. Wrong Bureau Reporting

Many Banks often hide the actual information of the customers to retain their valuable customer base. They report false or rigged information.
Typical scenarios would be
i. to report the failure of payment but hide the clearance done their after.
ii. offer customer add-on cards on the common credit card while reporting multiple card issue in the bureau.
iii. report the data correctly but not on time.
iv. make unnecessary inquiries to the bureau for good customers without him asking for any service to rig the inquiry variables.
v. maintain internal negative list and not inquire the bureau for them for cost savings. The Banks then do not report his application too.

There can be plenty of such examples. Banks are obliged to certain regulations but I doubt either don't follow or find a way to rig the law. Here the Banks forget that if everyone in the market does the same they are ones who suffer.

V. Bureaus, Banks and the Analytics Companies

There are many Analytics Companies playing in Credit Scoring area apart from Fair Isaac and even the Bureaus provide such services. The space is crowded and the competition is getting intense day by day. Result is mixed.

i. Fair Isaac is believed to be squeezing the profit margin for Bureaus with the FICO score Algorithm Licensing. This is creating a scene where Bureaus are not competing against each other to better service but getting together to end the dominance of FICO score once and for all through the launch of Vantage Score. But it has minimal success, mainly because market is heavily dependent on FICO for long and there is inertial friction to change. The other reason being the bureaus not being able to compete with the Technical Depth that Fair Isaac has acquired with around 50 years of Research.

ii. Analytics Companies and Bureaus are coming together to provide solutions to certain interest groups. This is sometimes done through cross investments also, where the deal could be between Bureau, Bank and the Analytics Partner.

My take:

All these were some of the ongoing scenes of the market. Now let me come to the point of whom to blame for the Sub-prime Crisis. I would blame the whole system and the business leaders who tried hard to use Decision Management area as their pet area. They used it in a very unprofessional way and limit it as a tool to serve their interest. I would say, mostly the Analytics Results are used either to support a thought business case or discarded.

Decision Management is a completely different professional service and it has to be given that respect.

Now is the time when the company board or the CEO has to listen to what the Analysts have to say and bring them into the value chain well before crisis comes. If the company has the good Analytics Team in-house, thats great. Else its the time to start outsourcing to the Specialist Companies. The specialist companies are the companies who not only provide Analytics Services like Scores and Segmentation results, but take it forward to decision making and strategy formation space. The safe future thus either lies in Enterprise Decision Management process implementation or outsourcing Analytics Functions completely.

So no blaming FICO at all for the crisis. Bullish CEOs went on aggressive and the Bears had to make their presence felt. Sad news for the world. But certainly, it has strong message for us. Hope everyone learns it right, and overcome without letting it spill over other areas.

Fair Isaac Gears up in Asia

Fair Isaac's new CEO Mark Greene (an Ex-IBM Verteran) has made his intentions clear to go aggressive in Asia. The newly expansion plan for Asia, which includes increased physical presence in Asian geographics, is a clear indication of the aggression.


In the same line Fair Isaac is going to conduct its smarter decisions conference, InterACT, in Japan and China. The tentative dates are 6th Nov in Tokyo and 7-9 Nov in Shanghai.
The industry experts and various academicians will be presenting their papers, while any interested business groups can be a part of it. The topics that is likely to get more focus are:

• Predictive Analytics
• Fraud & Identity Theft
• Credit Scoring
• Customer Centricity
• Risk Control
• Precision Marketing
• Account Origination / Underwriting

My wishes for Fair Isaac for a successful InterACT Japan in Tokyo and InterACT Asia-Pacific in Shanghai.

Fair Isaac enters Web Analytics space

First the machine for optimizing the Search Engine Marketing and then the research on click fraud, these two events makes the entry of Fair Isaac into the Web Analytics space. Time will tell how Fair Isaac uses its knowledge outside Web Space to the world of Web. It may or may not be successful financially but one thing is sure, Fair Issac entry will bring a major change in the Web Analytics world.

Fair Isaac said it has tested the SEO machine for marketing its website myfico.com and has attained considerable success. And FI expects good return from the market with this product. Few people say, it may happen that the major search engine providers change their algorithm and this machine go obsolete anytime. But regular updates from FI can be expected, after knowing its good track record of maintaining the services in the likes of leading credit score in the United States, the FICO Score (FICO Score is used by many banks to control their credit risk for more than two decades). It will be interesting to see how much business FI makes out of it when it releases SEO Machine to the market.

Second take up is the bigger one. When FI's limited research has shown the click fraud rate to be alarmingly high (as high as 10-15%, Google and Yahoo says it is less than 1%), a huge success may be in waiting for FI. Fair Isaac has many years of experience in controlling fraud in many industries like Financial, Telecoms and Insurance, and owns the best fraud fighter FALCON (fraud detection software for Credit Cards). People at Google and Yahoo (or their fans or partners) has defended FI's claim saying FI knows fraud but not click fraud, while it could be otherwise too, Google and Yahoo know click but may not know fraud. I don't undermine this possibility too. I will just be eagerly waiting for FI to bring its complete research paper, till then just wait and watch. (News Update and Googles response)

The entry of FI into Web world may not limit to these researches. It has the analytic capability to come up with full fledge Web Analytics Enterprise solution or its like and I would not be surprised if something of this kind happens in future. As a web savvy and a analyst, I welcome the World's first Analytics Company and leader of Decision Management Industry to the Web Analytics World. May it brings a considerable change, and all the change happen for good.

Conversational machines - Is it a possibility?

There are many researches going around on Artificial Intelligence and Business Intelligence but Fair Isaac's News Bulletin ViewPoints surprised me. It talks about the research going on conversational Machines - a machine that can not only understand on what you say but also act on it, learn from past actions/conversations and predicts your future need.

Well, there is no doubt about the business success of this machine once it comes to market. The only doubt is, whether it is possible?

Dr. Robert Hecht-Nielsen, vice president in Fair Isaac’s Research & Development group is leading this team and is very optimistic of its success. He claims that through confabulation theory, Fair Isaac has developed a system for making sense of speech based on an understanding of the structure of language and the context of what is being said.

Dr. Hecht-Nielsen started doing research in this field as early as 1968. Confabulation theory is fundamentally a neuro-science which offers a comprehensive explanation of the mechanism of thought in humans and animals.

More about the product, here.

I actually started not to explain this product but to discuss how the world would be once this gets successful. It will open a new window to look at the business. There are always a lot of decision points where human involvement is required in today's business environment, especially for strategic and tactical business decision making. But I see this too is replaced by machines.

I go to a bank and apply for a loan. The credit check is done and a credit report is sent (which is automated), which is seen by a executive and processed. I may be given a loan or rejected. This can actually happen today by replacing an executive by decision optiser and letting it contact directly with the customer. But after conversational machines, it is possible to move further. It will move the ladder up replacing the managers to take not only tactical decisions but also for making strategies. This is possible because it learns from past experiences as humans do.

But a big but comes to my mind, how does this machine handle sudden change in business environment? Due to highly competitive state of the present world, this type of change comes quite often. And each of these changes may be very different from the earlier ones, thus feeding past data may not be the solution. Fair Isaac's R&D team may have the answer for this or they are exploring. I am going to wait and see, it is going to be a interesting wait this time. The product coming is really exciting.

All the best Dr. Neilson and Team.

Something about Marketing Analytics

One of my friend called me today and asked about my job profile at Fair Isaac. I said, I work as a consultant in Marketing Analytics within Fair Isaac Analytic Consulting Group. He was quick to ask me, "which major Retail Chain is your client?" My answer was simple, we have a few retail chains as our clients but currently I am doing an Insurance Company project. He was surprised!!!
I have quite a few of such experiences.

Last month I was having a discussion with one of my friend working for another analytics company. He asked me what we do in Marketing Analytics apart from building response models.

These two incidents make me think seriously. I see two myth surrounding around Marketing Anslytics space :
1. Marketing Analytics applies only to Retail Chains.
2. Marketing Analytics is all about building Response Models.

We actually do a lot more. Marketing Analytics team at Fair Isaac helps clients across different industry segments including Financial Services (Banking, Insurance), Retail, Healthcare, Telecom, Food Processing etc. The services provided are customer segmentation and profiling, Pre-Market Offer Testing, Predictive Scorecards (Response and Risk) etc. along with Strategy Consulting. For these services tools used are Model Builder for Predictive Analysis, Segmentation ART Module, ClusterBots, MarketSmart for Acquisitions, PMOT etc. [Each of these tools are proprietary Software of Fair Isaac Corporation].

The areas where Marketing Analytics help to make better business decisions can be:
1. Target Marketing
2. Cross sell decisions
3. Advertisement Selection
4. Sensitivity Analysis
5. Market Basket Analysis
6. Yield Management
7. Campaign Management
8. Marketing Mix Management
9. Brand Loyalty Metrics
10. Portfolio Management
11. Brand Positioning
...... etc.

Customer Segmentation and Profiling is one of the best bet Fair Isaac has, and is ahead of any other competitors. Most competitors still use objective segmentation and non-objective segmentation to find business relevant segments and natural segments. But Fair Isaac has gone one step ahead finding business relevant natural segments. We often call these as customer segments. A segment is a cluster of naturally similar customers having similar business dealing with the client. Thanks to ClusterBots. The segments are then profiled to make the solution less technical which is easily interpreted by business managers.

Fair Isaac's Marketing Analytics team is very experienced and has worked with many leading companies of the world in many verticals. Most of the Fortune 500 companies seek help of this team to form their marketing strategy. It helps its clients to take better tactical decisions to remain ahead of their competitors.

Want more about Fair Isaac Marketing Analytics Team. Click here.

(The writer is not the official speaker for Fair Isaac Corporation. These are just his personal views.)

ICICI Rocks Fair Isaac's Decision Management Meet

ICICI, the leading Indian Retail Bank participated in Fair Isaac's Decision Management meet, InterAct at Lisbon. There Rajiv Sabharwal from ICICI Bank explained how they used Analytics at each stage of customer management to become Market Leader. Rajiv became the star attraction in the show and got an invitation to San Francisco with another InterAct meet.

About ICICI Bank

About Fair Isaac

More on this line at James Taylor's Blog. Enjoy Reading.

ICICI's InterAct Presentation at Taylor's Blog

This is another story of growing India. Happy Reading.