National Post from Toronto, Ontario, Canada • 39

NEWS FP5 FINANCIAL POST, MONDAY, OCTOBER 21, 2002 IBM to develop self-healing' IT systems PureEdge deals ease it into big leagues CLOSES $15M FINANCING BID TO CUT LABOUR COSTS Electronic forms maker adds U.S. Air Force to client base Autonomic computing is complex because it has to tie together different types of computer hardware and software from many vendors. "IBM cannot do this by itself. We need the help of the industry to develop common standards," Mr. Ganek said.

IBM is working on systems that can automatically spot problems and either fix themselves, or call for human attention if the failure could grow to critical proportions. It is also working on automating many computer maintenance and administrative tasks. The goal is to free computer experts to focus on developing innovative IT applications rather than spending their time making sure computer systems are up and running. This should also improve the reliability of computer systems. IBM's research has shown that about 40 of computer system failures are caused by human error.

Other leading computer companies, such as Hewlett-Packard, are working on similar technologies. Financial Times 1 A New unit to spend annually to improve reliability By Tom Forf.mski SAN FRANCISCO International Business Machines the world's largest computer company, will today announce a initiative to reverse the spiralling cost of running large computer centres. The Autonomic Computing unit will be headed by Alan Ganek, former vice-president of strategy at IBM Research. Autonomic computing uses software that will detect problems in computer systems and remedy them automatically, without manual intervention. Systems that can "heal" themselves without human intervention promise to be much cheaper to maintain than today's labour-intensive networks.

"The cost of running large computer centres is rapidly increasing. The growing complexity of computer systems is resulting in huge costs for companies, and it is getting worse," Mr. Ganek said. In the early 1990s, hardware costs represented about 80 of the cost of large computer centres, with the rest accounted for by labour costs. Computer hardware costs have come down significantly, but the complexity of these systems has caused labour costs to soar as armies of expensive computer experts are needed to administer and run them.

Autonomic computing, as defined by IBM, draws parallels with biological systems that are able to self-heal and automati- PKTKR RKDMAN NATIONAL POST Denis Dyack, president of Silicon Knights, a St. Catharines, software development company: "I think that video games are going to be the dominant entertainment force in this century." Nintendo opens up huge market VC business will be reborn in three years, IT chief says By Kevin Rf.stivo Canadian electronic forms maker PureEdge Solutions Inc. will announce today it has secured over $30-million thanks to a new round of financing and a large customer win. Victoria, B.C.-based PureEdge has raised a fifth round of financing worth over $15-million and secured a three-year, deal to supply the U.S. Air Force with a variety of its products and services.

"It means we can get to do some things that we haven't been able to do before now," said Brian Nutt, PureEdge's chief operating officer. "We've been running mean and lean up until now." Mr. Nutt said PureEdge will decide what to do with the injection of new capital when the company conducts its annual planning in December. PureEdge's latest round of financing, which took seven months to finalize, was led by the Business Development Bank of Canada and included several institutional investors such as Bank of Montreal Capital Corp. and RoyNat Capital Inc.

The company's U.S. Air Force contract win is just one of several major customer wins over the last month. PureEdge has also won deals with the U.S. Federal Bureau of Investigation and the Royal Canadian Mounted Police. PureEdge, which started as a research project at the University of Victoria, beat out San Jose, Adobe Systems Inc.

for the contract because of its superior technology and strong customer references in the public sector such as the U.S. Securities and Exchange Commission, Mr. Nutt said. Despite greater hesitancy on the part of venture capitalists, funding is still available to companies who can demonstrate superior technology, Mr. Nutt said.

"We feel like a nine-year overnight success story," he said jokingly. Given the hesitancy of information technology buyers, PureEdge will keep sales efforts focused on North American government departments and financial services companies, he added. Major government departments are among the few organizations looking to undertake large IT projects that include online documents, Mr. Nutt said. Financial Post krestivonationalpost.com around a previous game, Too Human, brought Silicon Knights into financial distress after eight successful years.

The problems with Too Human, which may yet be released on GameCube, led to the partnership with Nintendo. "We'd spotted Silicon Knights as being very good at what they do," says Ron Bertram, general manager of Nintendo's Canadian operations. "And you go to where the talent is which in this case just happens to be St. Catharines." Nintendo's notoriously conservative nature means that neither Mr. Dyack nor Mr.

Bertram will discuss the terms of the business arrangement between the companies. With Eternal Darkness just now being launched in Europe and Japan, Silicon Knights' recent success will mean that future releases will be more highly anticipated. "Eternal Darkness has certainly changed the gamer's perception of Silicon Knights and Nintendo," says GG8. corn's Mr. Abel.

"It is a really innovative game and people are going to expect more from them." As for Mr. Dyack, he remains content working with Nintendo, which gives him access to a huge market. If movies were one of the most influential forces of the 20th century, video games will dominate the future, he says. "I think that video games are going to be the dominant entertainment force in this century," says Mr. Dyack.

"I think we are going to create entertainment that moves people." Financial Post rthompsonnationalpost.com changed," says Mr. Dyack. "When I started people worked out of their garages." But those days are long gone, replaced by video game development companies that jealously guard their creations until they are unleashed on the public. Eternal Darkness, like most of the games created by Silicon Knights, was Mr. Dyack's invention.

The game follows the vision Mr. Dyack conceived of when Silicon Knights launched Legacy of Kain for Sony's PlayStation in the mid-1990s. In a way, Mr. Dyack plays a role in Silicon Knights similar to that of a movie director, using a cast of designers, artists and computer engineers to try to master his vision. "This is not a technology driven industry," he says, explaining the process of developing a video game.

"This is a creative driven industry." Despite Mr. Dyack's lengthy discussion about the creative elements of video entertainment, the reality is that gaming is a tough business. Approximately 5 of all games account for 95 of sales, he says. Games that take years and millions of dollars to develop can fail miserably and bankrupt their creators. Though Silicon Knights is riding a high from its success with Eternal Darkness, which has sold 20,000 copies in Canada alone, the company has faced stumbles.

A problematic business deal SILICON Continued from Page FPl But Silicon Knights' profile has changed dramatically since it created Eternal Darkness, a psychological thriller launched earlier this year to rave reviews and brisk sales. A historical adventure game where players move through time, Eternal Darkness has found a following with gamers interested in horror and realism. Throughout play, players are tricked, leading them to question what is real. Kris Abel, a video game reviewer and editor of the GG8.com gaming site, calls Eternal Darkness "quite remarkable," and "innovative." He adds the game has found a key new audience for Nintendo. "Eternal Darkness changes the perception of Nintendo as just catering to kids," Mr.

Abel says. "It has found a market with people in their 20s and with women, which is turning out to be a key new area." The road to success has been lengthy for Denis Dyack, the 36-year-old co-founder and current president of Silicon Knights. He's been actively involved in game development with Silicon Knights for a decade and started programming on an ancient Atari 520 computer. Now his company employs 65 and is involved in one of the hottest areas of technology. "The industry has really 'WE NEED THE HELP OF THE INDUSTRY TO DEVELOP COMMON STANDARDS' cally monitor and administer themselves.

IBM hopes to attract widespread support for autonomic computing from other computer companies and academia. But IBM will be one of the main beneficiaries. Its largest business, Global Services, provides IT outsourcing services running large computer centres for corporations. Self-healing systems would increase its profit margins by eliminating labour-intensive processes. TECHNOLOGY Continued from Page FPl Nortel is not the only technology industry leader giving the market mixed signals.

Yesterday, during an interview in Australia, Steve Ballmer, chief executive of Microsoft, which saw its fiscal first-quarter revenue soar, called the software maker's results, "a one-time anomaly." He added that, "we're still seeing the business as being reasonably tough, at least compared to, let's say, the good old days, reasonably tough around the globe." If the slowdown in corporate information technology spending continues, many businesses will inevitably fail, Mr. Kutnick said. "There's going to be a lot more blood in the water before this is over," he added. "There's too many technology companies." Predicting the failure of technology suppliers is not capitalizing on "irrational despair," Mr. Kutnick said.

Instead, it is the natural evolution of a maturing industry much like the multitude of railroad companies that failed in the 19th century. Dealing with fewer providers is ideal for overburdened chief information officers who need to have fewer contact points to manage complex information technology infrastructure, Mr. Kutnick said. "Companies got carried away in the last six to seven years with the technology curiosity factor," he said. Increased technology investments by small and medium-sized businesses will help pull the industry out of its current malaise, Mr.

Kutnick said. He also said the venture capital business will be "reborn" in three years as investors look to capitalize on Web services and more biotechnology firms. Financial Post krestivonationalpost.com AOL woos entrepreneurs in search for new revenue to broadband and the phasing-out of "pop up" advertisements that annoyed AOL users. So far, AOL has been unlucky in most of its efforts to target busi- Trying to capitalize on large number of business customers attract enough users. Also, the attempt to convert Time Warner employees' e-mail systems to AOL stands as one of the most embarrassing Miller large number of business customers an estimated 10 to 20 of its 35 million subscribers worldwide but has failed to capitalize by developing services aimed at them.

"They know some percentage of their subscriber base is business users, so they will try to tap into that by selling additional services," said Steven Harris, an analyst at International Data Corp. "It's a smart move, but one they could have taken a long time ago." Industry executives said the company probably would not position the AOL business version as a "premium" product. But analysts expect AOL to offer additional services aimed at the users. Financial Times TTS A SMART MOVE, BUT ONE THEY COULD HAVE TAKEN A LONG TIME AGO' 40 drop this year in advertising sales at the online unit and executives are looking to develop new sources of revenue. The small business offering, if successful, could signal a move to highly customized versions of AOL for different market segments.

The business product, which is still in development, could be released within the next two months, Internet industry sources said. Jonathan Miller, chief executive of the AOL division, is drawing up a business plan for the troubled unit that will be presented to the board in late November. He has already championed a number of changes at the company, including a new commitment By Christopher Grimks NEW YORK America Online Inc. is said to be developing a new version of its online service that will be aimed at small businesses in a desperate bid to find ways to offset sharp declines in Internet advertising revenue. The plan represents a departure for AOL, which is known only as a service used by consumers.

But parent company AOL Time Warner Inc. is forecast to see a moments since the two companies merged last year. The AOL e-mail system was not able to handle the large files that are frequently used by big media organizations and was withdrawn. Unlike those efforts, AOL's latest project appears to be aimed at very small businesses. Analysts said AOL already had a ness users.

Its Netscape unit's portal site called Netcenter, aimed at small to medium-sized businesses, has been abandoned after failing to mm r) II )'M 1 i 22SHa -T3IM 1.