CUSTOMERS.COM® RESEARCH FROM THE PATRICIA SEYBOLD GROUP
SEARCH PRODUCT AND COMPANY UPDATE
Part 2, Public Companies: Terrific 2007
By Susan E. Aldrich, June 19, 2008 NETTING IT OUT This report recaps results at the publicly-traded companies on our search
vendor watch list. Part 1 recapped results for the privately-held search technology
vendors we cover.
At the end of 2006, we had predicted a strong year for 2007, a prediction that
proved true. Customer appetite for search technology remains strong. Our
clients continue to seek help with findability and content management. Not
surprisingly, overall, the vendors covered in this report did quite well
in 2007. Roughly 8,300 new customers have been acquired by the publicly-traded
companies on our watch list. The search market overall did quite well in
2007, with customer acquisition continuing to grow at better than 30 percent
last year across all the vendors on our watch list. There has been significant structural change. In January 2008, Microsoft announced
its intention to acquire FAST. WebSideStory has been acquired by Omniture.
KNOVA is no longer on our public company list, having been acquired by Consona,
a private company. Autonomy, IBM, Google, and Oracle have been busy with
acquisitions as well, although not of other search vendors on our list. We also predicted significant activity in search applications related to business
intelligence, analytics, search merchandising, and increased automation of
search management and tuning. This prediction proved somewhat true, in that enhancements and products in
each of these areas appeared from at least one of the vendors reported on
here. We missed the boat, though, on the big investments to come in the area
of integration, most notably at Oracle.
SEARCH: CALENDAR YEAR 2007
A Current Snapshot for Public Companies We’ve compiled a review of calendar year
2007 from seven publicly-traded search vendors on our watch list, including
customer wins, product announcements,
structural changes, and financial results. We included FAST, in its final
year as an independent software company. We did not include WebSideStory
as its
management team was occupied with strategic planning during our data gathering
period. Our current understanding is that Omniture intends to continue to
invest in what is now called Omniture Search, continuing to develop, market,
sell,
and support its 470+ customers. We prefer to do these analyses every six months, but were unable to schedule
the mid-2007 report. This report, then, recaps the entire year. Our recent
report recapped 2H2007 for 17 privately-held companies on our search watch
list.1 Our next report will
combine publicly-traded and privately-held companies. This snapshot focuses on trends and key events. For trends, we look for continuing
improvements in the products. We want to see growth in their customer bases
and OEM networks. For key events, we identify those occurrences that could
have a significant impact on search technologies, applications, and the market
landscape. For example, an acquisition is a key event, as are new players
and services emerging into the market. Mitchell Kramer contributes the commentary on ATG in this report.
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Recap of Suppliers and Products
Our watch list of publicly-traded companies supplying the leading search technologies,
and a summary of calendar year 2007 results, is presented in Table A.
Summary of Publicly-Traded Company Results for 2007
Download
the PDF to see the table.
Table A. This table summarizes the results for the seven vendors on our public
company watch list.
Trend: Growth Continues, but Slows
Customer acquisition was strong in 2006 for the publicly-traded companies covered
in this report, to roughly double the rate of growth in 2005. Over all, for
the companies on our watch list, both private and public, growth is much
slower but still north of 30 percent for 2007. Among publicly-traded companies,
Google in particular accelerated its customer acquisition.
We assume that growth in acquisition has slowed because
some vendors decline to provide data on customer acquisition. Cynically,
we suspect that if the
news was great, we’d be hearing about it. When the news is not so
great, corporate policy always precludes answering our questions.
Trend: Solution Selling
With the exception of ATG, the vendors in this report have
a general-purpose tool kit for search. In the past two years, customers
have increasingly demanded
solutions rather than tools. This shift, part of the normal maturation
of any technology market, has challenged each of the companies on our watch
list. They have responded in different ways. FAST developed search applications,
but never learned how to sell and install search applications. EasyAsk
became
part of a development platform and is really an OEM toolkit. This is also
the fate of Oracle Secure Enterprise Search, which does not seem to have
any application- or IT-centered sales force. Google has thrived in the
environment by offering the cheapest tools with the biggest brand. IBM
achieves its respectable
revenue by offering search as part of its solutions to individual customers’ problems.
Autonomy has been successful by buying new customers along with each acquisition
and then cross-selling its portfolio. In contrast, the privately-held companies
we watch, mostly much smaller companies, are very strong in packaging, offering,
and implementing solutions. These smaller companies have shown a much stronger
growth rate and, with the exception of Google, and Autonomy’s growth
by acquisition, have garnered a larger number of new customers as a result.
Of course, the number of new customers doesn’t tell the whole story:
a new IBM account might well be worth 100 times or 200 times the value
of a new Google account.
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Trend: Acquisitions
Every company in this report has been acquiring other companies to expand product
lines. Of course, the biggest news for this group is the acquisition of FAST
by Microsoft. We expect continuing acquisition activity in 2008. There are
myriad companies in search, retrieval, and information management, and none
of the vendors we cover can offer a complete solution to search, navigation
and findability. In a challenging economic year, acquisitions can be much
easier to negotiate.
ATG
Our Take
ATG seems to be on a roll. Customer value and financial performance have improved
significantly. The firm has created a nice mix of perpetual and subscription
licensing, making financial performance more predictable. New products, acquisitions,
and partnerships enhance the core ATG Commerce offering. 2007 was a great
year, and 2008 looks to be even better.
Customers
In 2007, ATG acquired 34 ATG ecommerce and customer service customers and
187 eStara customers. ATG acquired eStara only a year ago. The eStara base
has
been a nice addition. eStara is a natural cross-sell for all of ATG’s
other offerings, and, stretching a bit, those offerings could be an up-sell
for eStara customers that need ecommerce capabilities.
eStara’s offerings are a lot easier to sell than ATG’s offerings.
They’re add-on features of your Web-based customer experience. As a result,
the number and the rate of new customer acquisitions are much higher for eStara
than they are for ATG. However, while ATG’s numbers may seem small relative
to eStara’s numbers, remember that ATG’s ecommerce offerings are
mature products (we’ve been evaluating them for 10 years!) that require
you to make a significant implementation effort and that are being sold into
a mature market. That makes new customer growth for ATG Commerce very impressive.
It also demonstrates the appeal and benefits of SaaS. You can purchase and
implement an on-demand ecommerce system so much more efficiently and effectively
than you can an in-house system through perpetual licensing.
Looking more closely at ATG’s year over year ecommerce and customer service
customer growth, the 34 new customers acquired in 2007 is down significantly
from the 50 acquired in 2006 and the 68 acquired in 2005. To be fair, ATG focused
on ecommerce in 2007, while it sold both ecommerce and customer service in
2005 and 2006. For example, of the 68 customers acquired in 2005, 37 were for
ecommerce and 31 were for customer service. Follow us now. ATG began to de-emphasize
customer service in the second half of 2006. Therefore, we’d estimate
that it acquired half as many customer service customers in 2006 as it did
in 2005—let’s say 13 to 16 instead of 30 to 32. That would mean
that they acquired about 35 ecommerce customers in 2006. So ATG growth in
new ecommerce customers has been flat for the last three years: 34 in 2007,
35
in 2006, and 37 in 2005.
That’s really no surprise. Ecommerce growth industry-wide has been
slow for the past several years. That ATG has been able to maintain even
steady
new customer growth in a down market is quite an accomplishment. Even better,
ATG has been increasing the average sales price (ASP) of its new customer
deals. In 2007, ASP was $418,000, up from $224,000 in 2006. Each deal generated
87
percent more revenue in 2006 than in 2005. So, while the number of new customers
has been steady, the revenue generated from new customers has been growing
significantly. As the ecommerce market improves, and it really is improving,
ATG is positioned for customer growth and revenue growth.
*ENDNOTE*
1) See “Search
Product and Company Update: Part 1, Privately Held Companies: Strong Second
Half
Finishes a Strong 2007,” by Susan Aldrich, March 27,
2008.
*ENDNOTE*
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