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.

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.

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*