Island Pacific Rediscovers i/OS Roots with Retail Apps
Published: February 2, 2010
by Alex Woodie
It's a story that has played itself out at many i/OS shops over the years: Following an acquisition, new management steps in and executes a Windows strategy, to the detriment of the i/OS side of the house and, ultimately, the business itself. Luckily for Island Pacific, a developer of ERP software for retailers, this old story has a new twist: a second acquisition by more enlightened management pulls the i/OS business from the shadows and allows the company to flourish in the sun once again.
Island Pacific was founded by Paul Mickelsen in 1978, the same year that IBM launched the S/38 (codename "Pacific" incidentally) and introduced a powerful new programming language, RPG III. Over the next 22 years, the Irvine, California, company built a successful business by developing and selling RPG-based merchandise management systems that ran on IBM midrange boxes, first the S/38, then the S/36, and finally the AS/400 and its successors.
Retailers like Pacific Sunwear--Island Pacific's largest customer, which grew from a handful of stores to more than 1,400 locations--were happy with the stability and scalability of the merchandising software, and the company grew. Every fall, Mickelsen would shut down operations and fly his staff out to a tropical locale for an all-expenses-paid week of fun in the sun. Times were good.
But after 2000, things started to change for Island Pacific, as they did for so many. Mickelsen retired and new managers took over the company. In 2004, CEO Harvey Braun presided over the acquisition of Retail Technologies International (RTI), a competitor to Island Pacific. Before that, Island Pacific bought Page Digital, which developed Unix software.
Island Pacific lost site of its i/OS roots following those acquisitions, says Richard Gaetano, the company's chief operating officer and a longtime Island Pacific employee. "We like to call those the 'dark years,'" Gaetano says in an interview with IT Jungle. "Our management team did not have a good vision, and we suffered for it."
Those decisions included going public to raise money for new development, and buying companies that developed software that didn't run on the IBM i platform, Gaetono says. "Then it becomes, you buy a company and that company's management team takes over for the next year," Gaetano says. "There was no consistency in message or direction."
Following the RTI acquisition, the company embarked upon a wholesale change in how it developed and sold software. Basically the company wanted to push Windows-based retail systems to smaller customers through distribution channels, "which is absolutely against everything that Island Pacific fundamentally ever did," Gaetano says. "We focused on the IBM i platform. We focused on direct sales to our customers, who were typically mid-tier retailers."
There is also the small matter of the alleged securities fraud perpetrated by Braun, Barry Schechter, the principal behind RTI and a major Island Pacific shareholder, and Ran H. Furman, the CFO at the time. According to the Securities and Exchange Commission, the three were responsible for a scheme to artificially inflate revenues during the first half of 2004, immediately following the acquisition by Island Pacific. Instead of a major quarterly loss, Island Pacific (which then traded on the American Stock Exchange; it is now privately held) reported a small profit. The SEC filed its civil complaint against the three in September 2008. Schechter, Braun, and Island Pacific settled with the SEC out of court without admitting wrongdoing; Furman expressed his intention to fight the charges (see www.sec.gov/litigation/litreleases/2008/lr20703.htm).
In 2007, prior to the SEC allegations, RetailPro (as the company was then called) decided to sell the Island Pacific assets to 3Q Holdings, an Australian software company. That turned out to be a salvation for the Island Pacific product and its employees.
"That was the best thing to ever happen to this group, because we were quickly able to get back on track," Gaetano says. "There was basically a thumb over us prior to the sale of the organization. But now that we have new owners, they've allowed us to do what we want to do. While all these management issues were going on, the organization here at Island Pacific was developing software and adding new technology, so we were able to get out the gate pretty quickly."
Following the acquisition by 3Q, Island Pacific was free to pursue more partnership agreements--it already had a longtime agreement with Help/Systems for the Advanced Systems Concepts business intelligence tools--and generate interest through marketing. It also no longer felt ashamed to call itself an i/OS software developer, or embarrassed to recommend a System i platform to prospective customers.
"When it comes to our core strength and customer base, there is no better machine for retail [than the System i server]. This is as purpose-built for retail as you get," Gaetano says. "From a system perspective, you're seldom down. You have a very durable machine, with built-in security. The way the system is built, the intelligence behind the platform is amazing, and it's been that way for years."
While the folks at Island Pacific are unapologetic System i bigots, they are also business pragmatists. Some of the software they develop that sits around the core merchandising system doesn't run on the System i. When chasing new customers--and particularly the smaller retailers--Island Pacific sometimes leads with the Windows-based solutions, with the hopes of selling them an i/OS-based system down the road.
"We do realize the change in the climate, in the marketplace," Gaetano says. "You've got a ton of smaller customers trying to break through and get into certain applications that will allow them to grow. And those customers are traditionally using smaller off-the-shelf Windows systems. That's their familiarity. So you throw in the notion of an iSeries, their heads start spinning."
For instance, the company positions its planning solution on Windows because that's where the most competition is. "It gets our foot in the door," Gaetano says. "Once we have established some of these products with a new customer, then we can back in with the core merchandising piece. It adds the stability they were looking for, and that's when we push the System i."
Island Pacific has also been pursuing an enterprise service bus (ESB) strategy. The company's ESB product leverages an open-source ESB framework from Mulesoft, and serves as an "API hub" that connects the core i/OS-based merchandising components with the company's other products, including the Windows-based Planning product and Direct, a new multi-channel retail management system, which was developed with Visual LANSA and runs only on i/OS. The Island Pacific ESB was recently certified for IBM's Retail Integration Framework.
The same technology pragmatism that says the System i server is ideal for the needs of retailers also leads Island Pacific toward other technologies. "We've never been a company that chased technology for technology's sake," Gaetano says. "We firmly believe there's an appropriate tech for everything you do. But you can't drag your customers through it. You got to put it out there, and give them an opportunity to play and get used to it."
The company's customers and competitors should also get used to the idea that, after a forgettable period during which it was a division of RetailPro, Island Pacific is back doing what it does best.
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