Customer Service Company and Product Update
Strong Growth Continues in 2Q2008
By Mitchell I. Kramer, September 25, 2008

NETTING IT OUT

In 2Q2008, the growth spurt for knowledge management (KM)-based customer service that began in 2Q2007 continued for the fifth consecutive quarter. Suppliers acquired new customers and did additional business with existing customers at a high level. Companies in a wide range of industry segments are buying KM-based customer service products and services to improve the cross-channel customer experience that they deliver, making it easier for their customers to perform self-service activities and for their agents to deliver answers and solutions more efficiently and effectively and improving retention and cost to serve in tough economic times.

Good customer growth translates to good financial performance, and financial performance was good for all but a couple of the customer service suppliers that we cover. empolis, InQuira, RightNow, and Talisma are the financial performance stars of this quarter.

Product activity had been slow for two quarters but picked up a little in 2Q2008. Like clockwork, RightNow introduced its regular, quarterly release. IntelliResponse, a new SaaS supplier on our roster, introduced a new version, one of the three it introduces every year. Also, Talisma made two significant product announcements. We expect some major announcements in 4Q2008.

A merger and acquisition was the big news in company activity. On August 4, Salesforce.com acquired InStranet. We now have a billion dollar player in KM-based customer service!

Continuing Growth in 2Q2008

2Q2008 was a good quarter for knowledge management (KM)-based customer service. The software industry typically rebounds to a good second quarter after a seasonably slow first quarter. In customer service software, there was no first quarter seasonal slowdown. The second quarter rebound was more a continuation of strong growth, growth that began in 2Q2007, five quarters ago.

Alas, 2Q2008 wasn’t a good quarter for all of our companies. Astute Solutions, new to our coverage this quarter, has had a quiet 1H2008 resulting from a 1Q2008 restructuring and repositioning of its sales force. KANA had a quiet 2Q2008, too. This firm was down a bit following three quarters of very good performance. KANA is ramping up to introduce a new generation of customer service software, a new generation it’s developing jointly with IBM. eGain’s 2Q2008, its 4QFY2008, was down across the board—slow customer growth, no product activity, and a big drop in financial performance. We have no rationale to offer for eGain, only concern.

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Growth in an Uncertain Economy

KM-based customer service continues to thrive in these tough economic times, and, by the large number of open job positions that KM-based customer service suppliers are trying to fill, these suppliers seem to think that growth will continue.

Delivering excellent customer service is critical in tough economic times. Customer retention is key. You’ve got to make every effort to keep the customers that you have so that they buy from you when they’re comfortable spending again. Many of those efforts should be customer service efforts.

Also, when revenue is down due to lower customer spending, reducing costs can maintain/maximize profitability. An investment in KM-based customer service software can lower your cost to serve. KM-based customer service software can make it easier for your customers to self-serve, getting answers to their questions and solutions to problems that they’re having with your products without the help (and time and cost) of your agents. KM-based customer service software can make your agents more effective and more efficient. They can find answers and deliver solutions easier and faster, and those answers and solutions are more consistent from agent to agent.

This Report

With this report, we continue our fourth year of our quarterly updates on the products and companies in customer service. These updates focus on factors that are important in the evaluation, comparison, and selection of customer service products. More specifically, we examine these factors in our quarterly updates:

• Customer acquisition and customers growth

• Product activity

• Company activity including hiring

• Company financial performance

In our evaluations of quarterly performance, we want to see continuing customer growth, ongoing improvements in products, steady company viability, and good financial performance. We don’t want to change our evaluations based on a quarter’s news, but we do want to raise a red flag when that news deviates from a positive, multi-quarter trend, or to wave a green flag when that news is particularly good. When significant product and company events occur, we identify and highlight those that could have an impact on customer service products and technologies, suppliers, and the market landscape.

The report currently includes our assessment of the quarterly performance of these 10 customer service suppliers and products:

• Astute Solutions RealDialog

• eGain Service

• empolis:Service Lifecycle Suite

• InQuira 8

• InStranet Contact Centers In-Line

• IntelliResponse V5.7

• KANA Service Solutions

• KNOVA Application Suite

• RightNow Service

• Talisma Customer Interaction Management Suite

This quarter, we welcome Astute Solutions and IntelliResponse. Now, let’s take a look at 1Q2008 performance for each of our ten suppliers individually.

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ASTUTE SOLUTIONS

Welcome Astute Solutions

We add Astute Solutions and its RealDialog KM-based customer service offering to our coverage this quarter. Astute Solutions is a privately held, Columbus, OH-based software supplier that was founded in 1995. Its March 2006 acquisition of LiveWire Logic, which developed RealDialog, brought Astute Solutions into the KM-based customer service space.

Astute Solutions had a quiet 2Q2008, as it completed an overhaul of its sales approach, hiring a new Sales VP, hiring new sales people, and changing its approach to territories and account management. As a consequence, its customer growth and, therefore, its financial performance were at lower levels than in previous periods. In addition, there was no significant product or company activity in the quarter.

Customers

During 2Q2008, Astute acquired three new customers and did additional business with three existing customers. On a base of 105 customers, touching six in a quarter is decent customer growth. In terms of deployment, one of the new customers chose Astute’s hosted option. The others chose or continued with on-premise deployments.

Products

Astute Solutions has two suites of customer service software products that are offered for on-premise and hosted deployment: ePowerCenter and RealDialog. ePowerCenter is a “customer interaction and relationship management solution” that provides a wide range of assisted-service capabilities for contact center, field, and store channels. Built on .NET technologies, these capabilities include case/incident management, issue referral and tracking, order entry, compliance recording, and performance management and tracking. ePowerCenter also includes telephony management. RealDialog is a knowledge management-based customer service offering for Web self-service and contact center assisted-service. Our coverage of Astute Solutions will focus on RealDialog.

RealDialog is based on the assets of LiveWire Logic, a Research Triangle Park, NC software supplier that Astute Solutions acquired in March 2006. LiveWire developed computational linguistics technology that “understands” the intent and meaning of customer questions. Customers or agents enter their questions in a search query box. Using natural language analyses and computational linguistics, RealDialog processes the queries and retrieves results that best satisfy them from its knowledgebase, from data sources, and from Web resources. At first look, we found it to be similar to IntelliResponse. Both products deliver a single, best answer to customers’ or agents’ questions. RealDialog can also engage users in conversations to clarify their intent when the answer is insufficient or inappropriate. It’s a useful product that can help answer customers’ questions on a range of topics across many phases of the customer lifecycle. It’s not just for break/fix questions.

Astute Solutions made no product announcements during 2Q2008. Going forward into 3Q2008, on August 19, the firm announced ePowerCenter 7.0, a major new version of its customer interaction and relationship management solution. In addition, Astute Solutions expects to announce RealDialog 3.0 within the next six months.

Company

Astute Solutions is a privately held software supplier based in Columbus, OH that was founded in 1995 by Joseph Sanda, its current President and CEO. Astute Solutions describes itself as a provider of inbound consumer interaction solutions. The firm develops, markets, sells, and supports its ePowerCenter and RealDialog for B2C companies in the Global 1000.

Astute Solutions made no major company announcements in 2Q2008, and none, so far, in 3Q2008. However, Astute Solutions did tell us that it has been quite busy, internally, with a restructuring of sales. Key activities in this restructuring:

• Hiring a new Sales VP, Nick Nicholson

• Hired new sales representatives

• Moved from geographical sales territories to vertically-focused territories

• Implemented a solutions-focused sales methodology

• Implemented a new account management strategy

• Refocused prospecting efforts

As a result, during 2008, Astute Solutions’ focus has been on restructuring and repositioning, not on marketing and selling. Astute Solutions feels that these activities have held back its performance so far 2008. How could they not?

However, heading into the last four months of the year, Astute Solutions says that its sales pipeline is filling rapidly and that RealDialog accounts for many of those opportunities. That makes sense to us. The entire KM-based customer service market is having a good year. Astute Solutions and RealDialog can share in the growth.

Careers

The employment section of Astute’s Web site lists six openings, four in consulting, one in engineering, and one in marketing. Astute has 60 employees. So it’s trying to grow its staff by 10 percent.

This report continues...