Online Community Platform Company and Product Update
Good Results from 2H 2008, but Slowing Down
By Matthew D. Lees, Vice President, Analyst, March 12, 2009

NETTING IT OUT

This is our second update of companies and products in the online community and social networking space. We’ve added three companies to our watch list, with Blogtronix, Pluck, and Powered now joining Awareness, HiveLive, Jive Software, Leverage Software, Lithium Technologies, LiveWorld, Mzinga, Small World Labs, Telligent, and Webcrossing. For each company, we look at how they fared during the second half of 2008 with regard to customer acquisition; changes to products, services, and pricing; new partnerships; financial results; and organizational changes. (Also included are newsworthy events from the first few months of 2009.)

Results for the second half of 2008 were mixed. For most companies, customer acquisition increased, although largely at a slower rate than during the first half of the year. A few companies, however, posted record earnings. About half the companies reduced headcount in reaction to the current economic downturn, although none drastically; some companies actually continued staffing up aggressively. And there was little outside investment in 2H 2008, where the first half of the year saw a collective $51 million raised by 10 companies through private financing.

For the most part, companies kept busy on the continued technical development of their community platforms and social media applications. New service offerings were introduced, and new strategic partnerships were formed. These are the types of activities we expect during rough economic times, as companies focus on their core competencies and look to increase revenue and reach through new services and channels.

ONLINE COMMUNITY PLATFORMS: SECOND HALF CALENDAR YEAR 2008

Watch List

It remains no easy task to decide which companies and products to include, and which not to. The admittedly informal considerations we look for are companies and products that (1) do—or can—support large-scale online customer communities, and (2) have a track record of doing so.

Even with their similarities, the companies we cover here are not a homogeneous group. For sure, there is some overlap in their target markets, growth strategies, partner collaboration, R&D philosophy, pricing models, service offerings, and so on. But differences abound in each of these areas as well, as the pages below uncover.

The same is true of the platforms themselves. While they all provide more or less similar core components for enabling customer communities and social networks (e.g., forums, blogs, search, profile management, administrative tools, widgets and APIs, etc.), their technology architectures and feature sets vary, as do the built-in workflows (e.g., for moderation) and the degrees of access and control they give clients (e.g., for customization). Most are provided on-demand, while others are designed for on-premises use. And some integrate out-of-the-box with third-party applications, while others require custom work to do so.

In a less rigorous way, we do look at many other vendors and platforms that support online communities and social networks that are not covered in this report. These include wikis (e.g., Atlassian, Socialtext, Wetpaint), collaboration-based applications (e.g., IBM Lotus Connections, Igloo Software, Microsoft SharePoint), social networking systems (e.g., Ning and CollectiveX Groupsites) and others. We may include some of these companies and products in future updates, and we look to your perspective on which of these—or other—companies are of interest.

The companies discussed in this report are:

1. Awareness (www.awarenessnetworks.com)

2. Blogtronix (www.blogtronix.com) – NEW

3. HiveLive (www.hivelive.com)

4. Jive Software (www.jivesoftware.com)

5. Leverage Software (www.leveragesoftware.com)

6. Lithium Technologies (www.lithium.com)

7. LiveWorld (www.liveworld.com)

8. Mzinga (www.mzinga.com)

9. Pluck (www.pluck.com) – NEW

10. Powered (www.powered.com) – NEW

11. Small World Labs (www.smallworldlabs.com)

12. Telligent (www.telligent.com)

13. Webcrossing (www.webcrossing.com)

Summary of Community Platform Company Results for 2H 2008

Download the PDF to see the table.

Table A. This table summarizes key second-half 2008 results of the 13 companies on our watch list.

Trends

Here we present a few of the key trends across companies on our watch list.

1. ECONOMIC DOWNTURN. It will be no surprise that the current recession is having an impact on the companies in our watch list. While the first half of 2008 was a strong one all around, with nearly all of the companies in our watch list seeing growth in sales, new customer accounts, and/or size, the realities of the tough economic climate started to hit during the second half of the year. For most of these companies, while 2H 2008 saw positive financial results, they weren’t as strong as those from the first half of the year.

And things could have been worse. The industry has been helped by the continued increase in awareness and adoption of social media from sites and networks such as Facebook, LinkedIn, and Twitter. This has reduced—though certainly not eliminated—the amount of time and effort in the sales cycle to educate prospective customers on the benefits of supporting a customer community. The challenge seems to be less about whether a company should run a customer community or a social media program, but how best to do this (including which are the best platform and company to work with).

But the bad news is there. About half the companies on our watch list reduced the size of their workforce during the second half of 2008 or in early 2009. (Note that some of this was due to attrition and not rounds of layoffs.) Unfortunately, we expect to see more of this as 2009 progresses.

2. REVENUE FROM SERVICE OFFERINGS. Not only did six companies (nearly half of our watch list of 13) add or enhance service offerings during the second half of 2008, but for five of them, the ratio of revenue from platform licensing to that from services changed from the first half of the year to the second. For example, in the first half of 2008, Leverage Software’s revenue split was approximately 80 percent platform licensing and 20 percent services. In the second half of the year, that shifted to a more well-rounded and healthily diversified 70/30 ratio.

In each of these four cases, 2H 2008 saw services taking a larger percentage of overall revenues. What this tells us is that, as more businesses seem to be recognizing the need for (and value of) strategic and tactical services to go along with their use of community technology, community platform providers are responding by making sure their clients come to them for their service needs.

We don’t have an actual optimal split in mind, as there are many variables involved here. Some companies, such as LiveWorld and Powered, see a greater revenue percentage from service than they do for software licensing. But companies that don’t provide the range of services demanded by customers, aren’t able to convey the value proposition for these services, or don’t price them right will be leaving potential revenue on the table.

4. DEMAND FOR ON-DEMAND. Several of the companies on our watch list, notably Blogtronix, Jive, and Telligent, have brought their products to market primarily as on-premises, licensed software applications. Basically, you license their software—as well as other supporting applications, such as a database—and run them on your own servers. The other companies all provide their platforms primarily as on-demand systems, where they handle all licensing and hosting (server hardware, server software, administration, bandwidth, redundancy, security, etc.).

While these three companies have hosted their platform for some clients, they have been, to different degrees, making their hosted offerings more visible and attractive. Some corporations certainly do prefer, usually for reasons relating to data security and/or customization, to manage their community platforms in house; more, however, do not. The number of businesses that fall into the former category seems to be decreasing, as SaaS/on-demand systems become more secure and more cost effective. While Blogtronix, Jive, and Telligent will likely continue to provide their platforms as on-premises solutions for the foreseeable future, they are also wise to provide on-demand options as well, even though it may not be their preference.

5. PARTNERING WITH INTERACTIVE AGENCIES. Several companies on our watch list, particularly those that focus on consumer brands, have been working for many years with and through interactive agencies. In 2008, not only did these companies increase their number of interactive partners, but more companies got into the act, creating new relationships with interactive, advertising, and PR agencies.

In theory, such partnerships are ideal for extending reach, enhancing service offerings, and getting a seat at the table where high-level strategies are discussed and decided. But it takes experience and expertise to navigate the waters of agency-client relationships. Choosing the right partner and having (and dedicating) the right internal resources are crucial. We’ll look to see how these new partnerships develop through 2009.

AWARENESS

Our Take

Awareness had a good second half of 2008. The company, with offices in Waltham, MA, and Burlington, ON, landed 10 new customer accounts, added a new strategic partner (PR agency), and filled two key executive positions (vice presidents of Engineering and Marketing). Its average deal size increased by over 15 percent since the first half of the year, not a bad result under any economic circumstances, let alone a tightening financial market.

From a product perspective, we are intrigued by the Best Practice Community (BPC) offering Awareness launched in January 2009. The company identified eight common use cases for online communities and designed eight corresponding community configurations built on the components in its social media platform. Customers can choose the “pre-packaged” community that best meets their needs, apply its own graphical branding, and quickly deploy its new community. There is some potential here, at least in theory, and we will provide an update in our 1H 20009 report on how the market responds to this new offering.

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