Questions and Answers About InterSystems Acquisition of MSM

June 18, 1998

InterSystems has acquired the MSM software product from Micronetics Design Corporation. This document provides answers to some of the questions that you may have about this acquisition.

Why did InterSystems acquire MSM?

In two words: critical mass. The addition of MSM and key Micronetics staff will add to our critical mass and enhance our capacity to compete worldwide.

When we acquired DSM from Digital Equipment Corporation in 1994, we explained that the acquisition gave InterSystems "the critical mass to extend its lead in enterprise client/server technology and to compete more effectively in the worldwide database market." Further, we pointed out that "with a single marketing and sales organization, we optimize our distribution costs and make greater resources available for research and development. And, with a larger pool of developers, we have much greater opportunities to carry out true research projects — to put the 'R' back in 'R & D'."

That's exactly what happened. Over the last three years, in the largest R & D effort in InterSystems' history, we have built the new Caché post-relational database. With its unique combination of multidimensional object database, object application server, and object-enhanced SQL technologies, Caché is ideally suited for today's complex TP applications.

Last autumn, we launched Caché in our largest-ever marketing effort, winning the Software Marketing Journal's Best New Product Launch award against much larger competitors. In fact, our first year promotion efforts for Caché will exceed the cumulative promotion efforts for M by all vendors since M technology's inception. None of this would have been possible without our prior acquisitions.

Now, we are scaling up our sales capacity. We've proven that we can beat Oracle, Sybase and Microsoft in head-to-head database competition, even when forced to compete on purely relational database grounds. (As an example, we recently replaced Sybase — running an SQL application written for Oracle and Sybase — at a 1,400-user installation. We did this by demonstrating dramatically better performance and scalability, even though we were using Caché strictly as a relational database accessed via ODBC.)

What is the future of MSM?

InterSystems will continue to sell and support MSM. Our development efforts for MSM will be focused on tactical enhancements — just as they are for DSM, DTM, and ISM. In parallel, our strategic development efforts for Caché will be extended to embrace MSM, making it easy for MSM customers, if they wish, to migrate to Caché.

How does the acquisition of MSM fit into InterSystems strategic plans?

InterSystems' focus is on high performance database systems for complex transaction processing applications with rapid application development. Our strategy is to:

• Build advanced technology that our clients can easily adopt, in order to ensure that new and existing customers can effectively develop and deploy world class applications
• Create broad acceptance of Caché among industry analysts, press, and end users, in order to increase the acceptance of Caché-based applications
• Sell Caché to new accounts, in order to increase the number of developers building new applications with our technology

The acquisition of MSM is consistent with this strategy and, by adding to our critical mass, it will accelerate all of these activities.

Isn't choice of vendors key to the benefits of M technology? Doesn't this acquisition reduce choice?

Competition, and the choice it yields for customers, plays a vital role in promoting technology evolution and in keeping prices in line with value. For many years, this worked extremely well in the M community, as InterSystems, Digital, Micronetics and other M technology vendors competed intensely, viewing each other as their main competitors.

However, this intense competition, combined with a strong language standard specification, came with a price. Differentiation was focused almost solely on price and performance, with an expectation that major functionality improvements would have to await specification and ratification of the standards body — a notoriously slow process. In the meantime, the rest of the database world was not standing still and the M vendors' duplicate development and sales efforts left little resource to promote and sell the technology outside its existing circle of customers.

Over the last five years the market has changed dramatically. The competition is even more intense, but with a broader range of vendors. Customers and prospects no longer ask, "why should I use your M implementation, instead of someone else's?" Rather, they ask, "why should I use Caché instead of Sybase or Oracle or Microsoft's SQL Server?" As they answer this question, traditional M customers face a wider, not narrower, range of choices. And, in this intensely competitive world, we believe it is essential for M to have the focused development and marketing effort that a single dedicated company can achieve.

Will this transaction impact InterSystems' market position?

Yes, InterSystems projects that the MSM acquisition will increase both immediate and long-term revenue and growth rates, helping us to become even more efficient and to reach critical mass, particularly in key international markets. InterSystems has been consistently profitable over the twenty years of its existence, it will be profitable again this year, and it remains financially strong.

Our business has been accelerating since the release of Caché, with first quarter license growth two-and-one-half times the database market average, dramatically outpacing the results of Oracle, Sybase and Informix. Even without the MSM acquisition, we are on track for substantial growth over the next year — growth in our core business that is equal in size to the total revenues of Micronetics.

This growth will enable us to invest even more in the development, support and promotion of Caché.

Does this acquisition indicate that InterSystems will continue to acquire other products and companies?

InterSystems has no immediate plans to make any other acquisitions. Our focus is on integrating the MSM products, customers and staff into InterSystems as quickly and smoothly as possible. Once this is complete, we will review potential acquisitions as we always have: by examining whether they enhance our strategic position and our vision of high performance database with rapid application development.

Is Caché M?

While evolutionary software development is the norm, all technologies need a periodic revolution if they are to remain vital. Caché is InterSystems most recent revolution and our key strategic direction.

In building Caché, we set out to create a natural evolutionary path for M users, but also to leapfrog relational databases and deliver a product that is appealing for brand new customers with no M experience. The result is a system with familiar M elements and the ability to run M programs unchanged, but with a much richer range of technologies.

The question "Is Caché M?" is analogous to "Are today's computers the same as those of ten years ago?" In the sense that both generations of computers have CPUs, disks and other familiar components, one might say "yes". But in terms of what they can do and how they do it, they are worlds apart.

Is InterSystems committed to enhancing the M language?

InterSystems is committed to aggressively enhancing Caché to meet the evolving needs of complex transaction processing applications. This includes extending the global module —our core multi-dimensional database technology — to support even larger database sizes and user counts, and enhancing our programming language technology, to add advanced object capabilities. We're also adding dramatic new language capabilities — procedures with local variable encapsulation, block structured flow control commands, and freedom to add white space and split lines, to name just a few — all in a fully upward compatible fashion.

What does this mean for the M Technology Association?

MTA is a user-focused organization — not a vendor-focused one — so this acquisition should have little or no direct impact on it. Whether MTA is successful (and we hope it is) depends on how well it satisfies users' needs and expectations.

InterSystems continues to participate in MTA activities, including the June conference in Boston.

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