From 1999: Y2K firm needs a new line of work – fast

Editor’s note: This story originally ran in the Observer on Dec. 5, 1999.

Robert Gruder is back in a familiar role – captain of a technology start-up – though he didn’t have to change companies to win the job.

The 41-year-old executive had nursed Charlotte-based Alydaar Software from money-losing start-up to profitability between 1994 and 1998, selling Year 2000 services to large corporations.

Now, with Jan. 1 approaching and demand for Y2K services dwindling, Gruder is in the midst of an agonizing transition. Like executives at other Y2K firms, he has to find a new line of work for his company – or watch it perish.

The reinvented company, now called Information Architects Corp., hopes to break into the competitive Web services market.

It’s like starting over again, he said, except that “we’re a start-up with infrastructure.”

With a new sales staff and newly patented technology, Gruder is trying to sell corporate customers a new kind of service, what the industry refers to as “content syndication and aggregation.”

In lay terms, that means helping companies seamlessly distribute information from multiple sources – the Web, mainframe computers, internal networks or business partners – to multiple sources – Web or intranet pages or handheld devices.

“We have gone through some growing pains, “ Gruder acknowledged. “This is very familiar to me. We did it once already.”

Layoffs, stock slide

Getting there has been painful, and the work is hardly finished.

The company’s stock, which rocketed to $32 a share two years ago, has fallen back to less than $5 this fall. Investors have shied away as they wondered what will happen after Y2K work runs out and after the company restated earnings (because of accounting errors, it said), a move that wiped out half its 1998 profit.

The earnings glitch and resulting drop in share value led to another aggravation: a series of shareholder lawsuits the company continues to fight.

Gruder has reduced his staff, which once numbered around 330, by two-thirds, in part through layoffs. “A miserable thing to go through, “ he said.

When times were better, the company planned a move into a shiny new $12 million building in Charlotte’s Southpark area, with an annual lease of $2 million. It eventually moved in, but now finds itself seeking a tenant for space it does not need.

Information Architects announced three acquisitions of networking and Internet firms in February, but with the stock trading at less than half its February value, one of those deals is off and two others have yet to close.

Meanwhile, Gruder has had to find cash to keep the company afloat. Since March, he has negotiated several financing deals worth a total of $16 million, some of which will ultimately dilute investors’ holdings, including his own. (He remains the largest shareholder, with about a 35 percent stake.)

And it remains uncertain whether the transition will be successful.

“There’s all kinds of Y2K companies right now that are trying to reinvent themselves, and people are looking at that with a lot of skepticism, “ said Kathleen Hall, an analyst with Giga Information Group in Cambridge, Mass.

Growing and shrinking

Alydaar Software enjoyed a quick ride to profitability as dozens of major corporations sought its help making their systems Y2K-ready.

Revenues grew from just $38,000 in 1996 to $27.8 million in 1998, when the company turned its first and, so far, only profit, $1.4 million. In August 1998, Alydaar was No. 3 on a list of the Top 50 fastest-growing N.C. technology companies.

But Gruder had predicted bigger things, relying on what now appear to have been overly optimistic predictions about the size of the market for Year 2000 services. Instead of hiring companies like Alydaar, some companies opted to replace systems and others did their own fixes, Gruder said.

Meanwhile, investors were pressing for a new post-Y2K strategy.

In February, the company issued a flurry of acquisition announcements. First, it planned to buy networking services firm Data Systems Network Corp. of Farmington Hills, Mich., for $17.5 million in stock.

Next, it said it would buy Tumble Interactive, a New York-based interactive design firm, and Way Communications, a New York Internet access and Web hosting firm affiliated with Tumble.

In March, the company changed its name to Information Architects and began trying to build a new business based on networking and Internet services.

Around the same time, it also acquired a promising piece of World Wide Web server technology, called Metaphoria, from a New Jersey software developer named Leon Shklar.

Except for Metaphoria, none of those acquisitions has materialized. Information Architects’ stock price fell so low by this fall that the Data Systems Network acquisition, which Gruder once consider a good deal, no longer made sense. In September, he canceled the deal.

The Tumble Interactive and Way deals have also languished, though company officials insist the Tumble deal is not dead yet.

But the company’s biggest hope appears to lie in Metaphoria.

New directions

Along with the Web server technology, Information Architects gained an important asset in Shklar, an experienced developer who also represents the company on the World Wide Web Consortium, or WC3, a global standards-making body.

Shklar has written widely about how to smooth the exchange of information over the Web. He now leads development efforts for Information Architects from a new 12-person software development center in Hoboken, N.J.

The company won a patent for Metaphoria in July. The software can help companies achieve two goals:

▪ Syndication, or sharing content with other Web sites or between businesses, which can format the information as they want while leaving it on the originating server. Women.com, a New York-based service, uses Metaphoria to share its content with Lycos, Excite and other Internet sites. Visitors to those sites see women.com’s information, but in a form that matches the design of the site they’re visiting. That allows women.com to draw Web traffic, even if the users don’t visit its site directly.

▪ Aggregation, or collecting data from various sources - mainframe computers or networks, for example - and formatting it automatically on a Web or intranet page. A large New York investment bank that Information Architects officials will not name is said to be using the system to automatically format analysts’ reports for Web and intranet pages.

Meanwhile, the company also is exploring niches such as law enforcement. In September, it announced a deal with the city of Louisville, Ohio, to install a Web-based system that lets patrol officers use laptops with wireless Internet links to check automobile registrations and court records and issue tickets.

Hall, the Giga analyst, believes the company may find intense competition in the aggregation market, which already has several older, better-known players. But she is intrigued by what she has heard so far about Metaphoria’s ability to help syndicate content.

“I think they’re in a relatively good spot with syndication, because it’s sort of a buzz word and the market is not saturated, “ she said.

Hall said Information Architects’ biggest task will be to shed its legacy as a Year 2000 firm and make itself known.

“I don’t think internally (the company’s history as a Y2K firm) is an issue for them. It’s just the perception. They need some way to get the word out and differentiate themselves, “ she said.

This story was originally published August 25, 2016 at 12:42 PM with the headline "From 1999: Y2K firm needs a new line of work – fast."