Pinpointing Terrorists at the Ticket Counter

HNC's John Mutch is out to deliver predictive software that will let airlines spot suspicious behavior and thwart deadly missions

By Arlene Weintraub

If the airlines that sold tickets to the 19 September 11 hijackers had the ability to flag them as suspicious, could the terrorists have been barred from boarding the doomed planes? The question has tormented everyone from airline executives to President Bush -- and now it has become the rallying cry for John Mutch, CEO of San Diego-based HNC Software (HNCS ). On Oct. 4, Mutch announced that HNC will develop software to cull immigration status, credit data, and other information to help airlines better identify potential terrorists before a deadly attack.

Mutch, 44, has been quick to seize new opportunities since he took over the CEO post two years ago. He originally joined HNC as marketing director in 1997. Retiring CEO Robert North, impressed by Mutch's track record as a marketing executive for Microsoft, groomed him to take over the top job. As CEO, Mutch set out to expand the market for HNC's core technology -- software that can predict customers' actions based on their traits and past behavior, and then recommend appropriate responses. HNC's flagship product, Falcon, is used by 9 of the 10 largest credit-card issuers to detect fraudulent transactions in process.

In the past two years, Mutch has gone on a buying spree and acquired several companies, allowing HNC to add new capabilities and expand its market share. One tool helps wireless carriers identify customers who have a history of not paying their phone bills. Another identifies cross-selling opportunities based on a customer's past buying habits.


  During Mutch's tenure, HNC's revenues have grown from $148 million to an expected $250 million this year. In the first nine months of 2001, HNC earned $17 million on $172 million in sales. "With the highly sophisticated analytical applications HNC already has, they can address new markets that require high volumes of data analysis," says J.P. Morgan H&Q analyst Adam Holt.

Mutch believes that developing software to help airlines identify possible terrorists is a natural extension for HNC. The product would quickly scan data on each ticket buyer -- things like credit history, age, nationality, whether they used cash or credit -- analyze the info, and produce a score of from 1 to 1,000. The higher the score, the more cause for alarm. "If there are five people getting on a flight with high scores and similar variables, the airline could decide to remove all the passengers and baggage, and then re-screen everyone," Mutch explains.

HNC is developing the product along with Houston-based PROS Revenue Management, which makes financial software for airlines and will provide much of the data the software will need to do its job. The company plans to have a product ready in six months and has run the idea past the Federal Aviation Administration. The FAA declines to comment on specific products it has reviewed, but spokesman Paul Takemoto says, "We're interested in looking at anything that might improve airline security."


  Still, this is a tough time for any software outfit to rush into new markets. Facing an uncertain economy, companies have already cut spending on computer hardware and software. The September attacks happened just before the crucial fourth quarter, when companies traditionally make large technology purchases. Lucky for Mutch, more than 65% of HNC's sales come from recurring licensing and maintenance fees -- a model that helps soften the blow of economic downturns.

HNC told Wall Street analysts it could increase revenues 25% next year, though on Oct. 17 it revised that forecast downward to 15% growth. In October, HNC cut 75 of its 1,200 workers. "With the economy constricting and [information technology] budgets shrinking, it's going to be difficult for HNC," says Holt.

Mutch, however, remains dogged -- a trait he developed as a marketing executive at Microsoft. During his tenure from 1986 to 1994, Microsoft's market capitalization grew from $300 million to $5 billion. Mutch was charged with the task of marketing Windows to large East Coast companies. Working directly with founder Bill Gates, he developed a hypercompetitive style, often going to great lengths to win accounts. "He used to stay up all night working on presentations," says former Microsoft colleague Michael Appe, now a real estate consultant in New Hampshire.


  Not surprisingly, Mutch is a natural-born competitor. Growing up in Montclair, N.J., he excelled at football and lacrosse, going on to join Cornell's lacrosse team, which won the 1976 NCAA championship. "He was always very driven, no-nonsense, and a good leader," says high school friend Robert Ott. As an adult, Mutch developed a passion for collecting sports cars, and he often drives through the California hills in his Porsche, Ferrari, Mercedes, Lexus, or BMW. Now married with two toddlers, he says his interests have mellowed. His latest passion: collecting paintings by California impressionists.

These days, Mutch has one goal: to make HNC the leader in the emerging market for products that will prevent the atrocities of September 11 from ever happening again. He's not alone. Dozens of software makers, including technology services provider Science Applications International and ImageWare Systems, which is developing screening systems based on facial-recognition technology, have announced similar efforts. American Airlines Vice-Chairman Bob Baker reports he has a stack of proposals on his desk from companies trying to help on the security front.

That doesn't faze Mutch. "Everybody believes this is the next wave," he says. "It's exciting." Even in the most uncertain economy he has ever faced, Mutch is charging ahead.

Weintraub covers technology for BusinessWeek in Los Angeles

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