Search Product and Company Update – 2H 2008
Surprisingly Successful Second Half Caps Economic Challenge of 2008
By Susan E. Aldrich, Sr. VP and Sr. Consultant, Patricia Seybold Group, April 16, 2009

NETTING IT OUT

This report recaps results at the companies on our search vendor watch list. Customer appetite for search technology was fairly strong in the face of slowing world economies. Our clients continue to seek our help with findability, site search, intranet and portal search, and content management.

The vendors covered in our last recap report did quite well during 1H 2008. They have done approximately as well this half (at least those that were willing to participate in this review). They acquired and upgraded customers at roughly the same rate as in the first half of the year. Considering the world recession, this is an impressive performance.

Vendor statements about revenue growth and average deal sizes were about the same this period.

Hiring continues, but the growth spurt of the last two years has slowed. The days of 20+ percent headcount growth are gone, at least for now. Hiring now is, for the most part, for skills replacement or rebalancing, with the exception of empolis and Coveo. As of April, all but three of the vendors have jobs listed on their sites, and two of those are hiring.

Management changes picked up pace, with four companies making three or more changes in the executive ranks: Celebros, Coveo, ISYS, and Mark Logic.

One of the vendors on our list, Mercado, went into receivership in October and its assets were acquired by Omniture.

My best guess for the difficult economic year to come is that very targeted solutions will be the only successful offerings. Top on that list is ecommerce search, followed by anything that makes sales teams more effective (mobile search, CRM search) and cover-your-backside applications (governance and ediscovery). Recession is not infrastructure time, so platform bids will have a tough time.

SEARCH: SECOND-HALF CALENDAR YEAR 2008

A Current Snapshot for Search Vendors

We’ve compiled a review of second-half 2008 activity from 17 of the search vendors on our watch list. Our review includes customer wins and repeat business with existing customers as reported by each of the vendors, product announcements, structural changes, and financial results where available. Autonomy, IBM, Google, Microsoft, and Omniture are public companies, and provide audited results. None of the revenue results from the other vendors presented in this report have third-party verification. Our snapshot also highlights trends and key events. For trends, we look at continuing improvements in the products and growth in customer bases, as well as hiring. 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.

Recap of Suppliers and Products

Not all the vendors we follow are included in this report, as several companies decline the pleasure of participating. I could cynically assume they have mediocre news to report, but I don’t think that’s the case. Most who decline just don’t like to share: the scrutiny is counter to their culture.

Mitch Kramer contributed the commentary on empolis in this report.

Our watch list of companies supplying leading search technologies and solutions, and a summary of 2H 2008 results, is presented in Table A.

Summary of Company Results for 2H 2008
Please download the PDF to see the table.
© 2009 Patricia Seybold Group
Table A. This table summarizes the results for 17 vendors on our private company watch list.

Trend: World Economy Terrifies

In my last report, I said the world economy was spiraling down the toilet. Since then, it has fallen off a cliff, and I yearn for those days when it was slowly circling the drain. It is truly jaw-dropping to watch, and I wish I didn’t need to. But, however bad the economic indicators are, activity in ecommerce, ediscovery, email archiving, compliance, and risk management technology remains vigorous. This bodes well for many of the suppliers in this report, at least for 2009. Unaccountably, the American consumer is more optimistic than he’s been since September 2008, according to a March 2009 New York Times poll^[1], and we all know how important his (and especially her) mood is to world trade. It’s spring, and perhaps it just doesn’t seem plausible that April will bring the loss of another 650,000 jobs; surely, this is as bad as it gets. Do you think? Huh.

Trend: Solutions, Not Tools

Here’s my chance to be obviously wrong, and I’m seizing it. In scary times, people buy low-risk offerings that pay back in the very short run. So I’m betting that 2009 is a pretty good year for ecommerce expenditures, ediscovery, email archiving, compliance, and risk management, and a poor year for enterprise search platforms, or any enterprise bag of tools you might offer. Watch for my apology in this space, six months hence.

Trend: Customer Growth Moderates

On average, customer acquisition has been pretty flat during 2008 as compared to 2007. Four companies had the same or very nearly the same acquisition numbers, two had somewhat accelerated customer acquisition, and three gained fewer customers. We have no comparative numbers for the remaining companies.

Trend: Product Activity Unchanged

Product activity is about as usual. Four vendors released new versions (Endeca, ISYS, Mark Logic, Temis); nine had point releases (Avail, Celebros, Endeca, Fredhopper, Google, IBM, Semantra, SLI Systems and X1); three had new offerings (empolis, Endeca, Omniture); and two had no releases (Coveo, Microsoft) during the half.

Trend: Consolidation

There was one notable consolidation during the second half: Mercado disappeared, and Omniture acquired the interesting bits of it. There have been no other notable search technology acquisitions during the half. Search is a great addition to a wide range of applications, so I would expect that, if times get tougher, we’ll see a few search technologies disappear into companies selling broader solutions.

Trend: Executive Changes

Five of the companies on our list had significant changes in top management, with at least three new executives. Avail and ISYS have new CEOs, and all five—Avail, Celebros, Coveo, ISYS and Mark Logic announced new marketing and/or business development executives. When times get tough, the smart focus is on marketing and business development, and you make sure you have top talent in those jobs. It’s really too soon to comment on whether these companies succeeded in putting the right people in these jobs.

Trend: Hiring Moderates

For the past few years, hiring requisitions hovered around 20 percent of the existing staff for companies we watch. Today, that number stands at less than 10 percent. During the half, companies’ headcount grew by about 60 people, excluding Google, Microsoft, and IBM, which is by far the slowest hiring in the past three years. The majority of search companies are still hiring, but at a rate more appropriate to tuning the skills mix rather than expanding the workforce.

Trend: International Expansion

I blew this trend last half, predicting cold feet for international expansion. Not so: several European companies seem just as eager to tackle the U.S. as during the cheap-dollar days of early 2008. Avail, empolis, Fredhopper, and Exalead are my favorites for making successful U.S. bids.

AUTONOMY

Our Take: Strong Half

Continued strong OEM activity, 90 percent revenue growth, and very strong repeat business are good indicators for Autonomy. I have observed that most of the growth in Autonomy’s customer base has been through acquisition in the past several years, and 2008 was an unusual period for Autonomy: no major acquisitions and thus no significant growth in the customer base. Early 2009 ended that quiet period: Autonomy bought Interwoven, and 4,600 customers, in January. Autonomy has openings for very few positions and will be shedding at least a hundred (my guess) from the Interwoven acquisition of January 2009.

Customers

Autonomy does not provide a breakdown on new search customers, only stating that new customer deals of any type during the second half include Cingular, Statoil, GM, Bayer, Groupe Mutuel, Lockheed Martin, AT&T, HBO, Canon, Merrill Lynch, PwC, KPMG, D&T, Norsk Hydro, Thomas Cook, Hartford Insurance, Vodafone, emap, AstraZeneca, Sirius Radio, Aflac, Amtrak, Standard & Poors, Wolters Kluwer, Linklaters, the US Postal Service, JP Morgan, Citi, BBC, BAE Systems, Statoil, Société Générale, Symantec, Avaya, CNN, State of Texas, American Automobile Association, Lloyds TSB, McAfee, Bank of Thailand, Deutsche Bank, European Patent Office, Xerox, AT&T, and Clifford Chance. Four new IDOL customers were announced in press releases: FRANCE 24, Swedish Railways, Borealis, and Servicio Extremeño de Salud, a provider of public healthcare services.

Autonomy closed the year with about 17,000 customers, roughly the same number it has claimed for the past 18 months. I think it gets hard to count customers after the first 500 or so; 17,000 is Autonomy’s guess, and they probably haven’t troubled to reevaluate the number. Less likely, but plausible considering the number and tenure of the Verity customers, they are holding even, losing about as many customers each quarter as they acquire. Many of those Verity customers are on older versions, licenses are set to expire, and the re-licensing process does not result in an automatic purchase of IDOL. It generally kicks off a complete evaluation of search requirements and search vendors, and Autonomy is not necessarily the favored vendor.

Autonomy, which has about 400 OEM relationships, signed 24 new OEM deals and extensions, including Xerox, HP, Kana, Hyland Software, Tumbleweed, Symantec, Dassault, and Tridion.

Products

Autonomy’s IDOL search platform was updated during the first half, so the second half was mostly idle for IDOL releases. In September, Autonomy released IDOL integrations with SharePoint and Adobe Creative Suite 4.

This report continues...

**ENDNOTE**

1) “Outlook on Economy Is Brightening, Poll Finds,” by Adam Nagourney and Megan Thee-Brenan. Published: April 6, 2009. Americans have grown more optimistic about the economy and the direction of the country in the 11 weeks since President Obama was inaugurated, suggesting that he is enjoying some success in his critical task of rebuilding the nation’s confidence, according to the latest New York Times/CBS News poll.
http://www.nytimes.com/2009/04/07/us/politics/07poll.html?_r=2&hp.

**ENDNOTE**