NETTING IT OUT

This report recaps results at the privately-held companies on our search vendor watch list. A separate report recaps results for the publicly-traded search technology vendors we cover.

Customer appetite for search technology remains strong. Our clients continue to seek help with findability, site search, intranet and portal search, and content management.

The vendors covered in our last recap report did spectacularly well during 1H2007 During the second half, the vendors covered in this report had a roughly equivalent performance in terms of customer acquisition and product release activity. So the second half was another great half, completing a terrific year for search vendors.

Eight companies, roughly half, reported revenue growth of 50 percent or greater, and three had revenue growth of 100 percent or more, year over year. Roughly 770 new enterprise customers have been acquired by the 17 privately-held companies on our watch list, almost equivalent to the 738 acquired by the 15 companies we reviewed for first half.

Fourteen vendors made search product announcements; three presented new versions and four presented new products. This is an observation rather than a value judgment: customers don’t want to deploy new releases even annually, let alone every half-year.

Two thirds have job postings on their sites. Of the companies we have covered for more than a year, all report larger staffs as compared to year-end 2006.

Our privately-held list has grown as newcomers to the market have become notable players, and as our focus, and theirs, has broadened. This half we have added Avail Intelligence, Empolis, Exalead, Q-Go, and Temis. All are European companies establishing broader markets, including the U.S. The U.S. is an extremely difficult market for European companies. In our experience, non-US firms are unable to believe the importance—and expense—of U.S. marketing efforts. In their own markets, word-of-mouth and excellence of execution count for a very great deal. In the U.S., these are merely nice-to-haves in a marketing toolkit. These companies’ challenge will be to overcome their incredulity at the large sums and effort required to succeed in the U.S.

Of the vendors on our watch list, Celebros will be adapting to the most significant change in the executive suite. Seven of the companies have new executives for sales, marketing and/or alliances. Their challenge will be to maintain momentum in the aftermath of these changes and the aftermath of the reasons for these changes.

SEARCH: SECOND-HALF CALENDAR YEAR 2007

A Current Snapshot for Privately-Held Companies

We’ve compiled a review of second-half activity from 17 of the privately-held search vendors on our watch list. Our review includes customer wins as reported by each of the vendors, product announcements, structural changes, and financial results where available. None of the revenue results presented in this report have third-party verification. An upcoming report will cover the publicly-held companies on our search watch list.

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

We’ve expanded our watch list, adding Avail Intelligence, Empolis, Exalead, Q-Go, and Temis.

Metacarta, Surfray (Mondosoft’s new owner) and X1 missed our deadline. It’s unfortunate that our recap coincides with a very busy period for search vendors, with a half dozen of the top conferences stacked into the first three months of the year. Recommind, which, by the way, had a good half, declined to participate, citing a change in policy on releasing data. We hope the four vendors can rejoin us at the half year.

Mitch Kramer contributed the commentary on Consona and InQuira in this report.

Our expanded watch list of privately-held companies supplying the leading search technologies, and a summary of 2H 2007 results, is presented in Table A.

Summary of Privately-Held Company Results for 2H 2007
(Please see the formatted PDF for the table at: http://dx.doi.org/10.1571/ta03-27-08cc .)
Table A. This table summarizes the results for 17 vendors on our private company watch list.

Trend: Site Search & Navigation Connects with Search Engine Optimization and Marketing

Search should be a top marketing tool. But we have for some time observed that search is at least four or five marketing tools: paid placement, search ads, search engine optimization, site search, and site-search-triggered merchandising. It’s pretty difficult for marketers to optimize investments across these differently reported, differently controlled arenas. To our delight, search vendors who target ecommerce sites have significantly strengthened the search-driven marketing capabilities of their solutions over the past year. At the very best, site search uses popularity information aggregated from retail networks and ratings from sites like BazaarVoice PowerReviews; dynamically generates landing pages that are optimized to search terms used on the site; recommend search engine ads based on site search terms and product margins; optimize URLs and Web pages for search engine spiders; automatically select products to offer based on site and individual behavioral data; support multivariate testing; and report revenue and conversion performance of ads, promotions, search terms and navigation paths. Search vendors investing in this direction include Avail Intelligence, Celebros, Endeca, Fredhopper, Mercado, and SLI Systems.

Trend: Customer Growth Moderates

Customer acquisition accelerated in the first half of 2007 for the privately-held companies covered in this report, with three companies reporting growth in excess of 150 percent. Customer growth during the second half was almost flat. Only two, Coveo and Endeca, had significantly greater customer acquisition during second half, roughly a third greater. Nine companies had the same or very nearly the same acquisition numbers, with three slightly up, and four slightly down. We have no comparative first half numbers for the remaining six.

Trend: Product Activity

Vendors, in aggregate, were roughly as productive of new releases during the second half as the first half. During the first half, three companies released new versions: Avail Intelligence eMarketing Suite V. G7, InQuira 8, and Mercado 4. These companies left their customers space to digest the new technology, holding back on any significant releases during the second half. During the second half, three companies released new versions: Empolis released e:IAS 6, Coveo released Coveo Enterprise Search V 5.0, and Q-Go released Q-Go V.5. Point releases were delivered by Consona, Creative Virtual, Exalead, Fredhopper, and Temis; SLI Systems also released new functionality (but not packaged as a release). New products came from Mark Logic, Endeca, ISYS, and Nearby Now. A key investment area is search marketing, with focus by Fredhopper, Endeca, Celebros, Celebros, and Avail Intelligence.

Trends: Hiring Binge Moderates

After the first half, the companies on our list had 228 job openings posted on their Web sites. These listings are cumulatively significant. In four cases, the hiring requisitions were more than 20 percent of the existing staff. Today, that number stands at 153. Headcount over all seems to have increased by only 80 for the half.

After the first half’s hiring binge, we wondered if the effort and turmoil caused by the hiring would impact execution for vendors. Customer acquisition was pretty good, and, for the most part, development schedules stayed on track. Development content, of course, is impossible to track. We only found three instances of schedule moves, all rather minor: Fredhopper’s V 6.1 moved from 4Q2007 to April 2008, InQuira’s retail banking specialization did not ship in late 2007, and ISYS V9 did not ship during the “winter” of 2007-2008, but has moved to 2Q2008.

Trend: International Expansion

International expansion continues. Germany and the UK are still hot. The U.S. is hotter: Avail Intelligence, Q-Go, Celebros, Exalead, and Empolis are intensifying their focus on the U.S. market.

AVAIL INTELLIGENCE

Our Take

Avail Intelligence is new to our list. It was founded in 2001 and is headquartered in Malmö, Sweden. The company delivers ecommerce marketing and merchandising as hosted services, based on search and behavioral analysis. Its main markets have been Scandinavia, the UK, Germany, and France; it is now looking at the U.S. market. The Avail eMarketing suite contains Navigation Predictor, Social Search Optimizer, Landing Page Optimizer, Customer Interaction Broker, and Collaborative Searcher. Avail Intelligence collects revenues based on performance and claims a track record of improving revenue per visitor by 30 percent by injecting merchandizing in more interactions and generating better offers.

2007 was a great year for Avail Intelligence, with a major release of its flagship product in the first half and 300 percent revenue growth. Avail Intelligence had a mixed second half, with strong customer acquisition but no product activity. Avail Intelligence’s challenge in 2008 will be to maintain growth and customer satisfaction with their slim organization, while tackling the U.S. market.

Customers

Avail Intelligence added 10 new customers during the second half, including UK customers GAME, Woolworths, DVD.co.uk; France customers Becquet, ChateauOnline, 1855, ARBF; and Nordic region customers Comwir, Bestseller, and Haléns. These new customers are in Avail Intelligence’s target markets. This half’s acquisitions bring Avail Intelligence’s customer base to more than 60.

Avail Intelligence also established an OEM deal with Finnish company Ineo Group. Ineo Group will incorporate eMarketing Suite into its ecommerce platform.

Products

The last major release for Avail Intelligence was eMarketing Suite Version G7 in April 2007. The second half saw only minor releases. The next major release, G8, is planned for June 2008. It will include a new multi-language administration interface, enhanced performance, and a new message handling system.