Autonomy: Right but for the Wrong Reasons
January 30, 2008
I try to turn a blind eye to the PR chaff wafted by software companies. An Ovum story caught my eye on January 30, 2008, as I waited for another dose of red-eye airline abuse. As I sat in Seattle’s airport, I started to think about the Ovum article “Sub-Prime Will Provide Two-Year Boost for Autonomy.” I realized that Autonomy would have a strong 2008, but I did not agree that the “sub-prime issue” would be the driver of Autonomy’s juicy 2008 revenue.
As I shivered in the empty departure hall, I replayed in my aging mind some of the conversations I had in the previous 36 hours. Let me be clear: I think Ovum does good work. As a former consultant at a blue-chip firm, I do understand the currents and eddies of maintaining client relationships, seeming “smart” on crucial issues, and surfing on big, intellectual waves.
I think Autonomy is a very good information platform. But as readers of this Web log know, I think search and content processing is a tough business, so everyone can and should improve. So, I’m okay with Autonomy IDOL and its various moving parts.
Autonomy’s Reasoning for a Great 2008
What I want to do is quote a snippet of the Ovum essay. Please, read the original. I cannot do justice to the Ovum wordsmithing. Here’s a portion that I found interesting, almost like a melody that keeps rattling around my mind when I’m trying to relax:
“After declaring record earnings for the quarter and the year, Mike Lynch CEO of Cambridge, UK-based Autonomy said in addition to a good pipeline for 2008 he is expecting a positive bounce resulting from the US sub-prime debacle through banks adopting Autonomy’s technology.”
Then a few sentences further on in the Ovum essay, I read:
“When describing the year ahead Lynch highlighted that the fall-out of the sub-prime issue in the US is that banks were having to secure and analyse very large amounts of disparate information in a very short timescale, exactly where Autonomy positions its Meaning Based Computing message, and reflected in the recently announced $70m deal … with a global bank. To illustrate how significant the demand being seen by Autonomy was, [Sir Michael] Lynch stated that the cycle time for that deal was two months, and that the company was in the first instance moving people across to support the sales and deployment activity, and it would be supporting its partners to undertake the work in the near future.”
I think I follow this line of reasoning, but it doesn’t strike to the heart of what may well be Autonomy’s best revenue-generating year in the firm’s history. Let me tell you what I think I heard, and you judge what’s more important: financial crises or the information you are about to read.
Alternate Reasoning for a Great 2008
In my chit-chats — all off the record and without attribution — in Seattle I picked up two pieces of what may be reliable information. I urge you to verify my information before concluding that I know what I am talking about. I invite you to provide corrections, additions, or emendations to these points. I had not heard these two ideas expressed before, and I find them thought provoking. I find looking at events from different viewpoints helpful. Here are the two pieces of information. Proceed at your own risk.
First point: the Microsoft deal was done by the firm’s Office group’s senior leadership. That unit concluded that it needed to take a bold step. The Fast Search & Transfer acquisition made sense because it delivered revenue (~$150 – $200 million), 2,000 customers, lots of technology, and smart people. The deal was pushed forward in the period between Thanksgiving and the New Year. When the news broke, some inside Microsoft were surprised. I thought I heard something along the lines: “What? We own Fast Search & Transfer”.
Second point: When other units of Microsoft started pooling their knowledge of Fast Search & Transfer, there was concern that the guts of Fast Search did not share Microsoft’s DNA or the Microsoft “agenda”. Fast Search has a SharePoint adaptor, but the rest of the technology looked like Amazon, Google, or Yahoo “stuff”. I thought I heard: “That is going to be an interesting integration chore for the Office group.”
When I hear to word interesting, my ears quiver just like my dog Tyson’s when he hears me open the treat jar. Interesting can mean good things or bad things, but rarely dull things. I have some experience with Microsoft frameworks and some with Fast Search’s ESP (Enterprise Search Platform). Integrating these two frameworks is not something I could do. I’m too old and slug-like for super-wizardary.
Back to 2008
How do these two unsubstantiated pieces of information relate to Autonomy?
What I think is that think Autonomy will win in those head-to-head competitions where Autonomy must sell against Fast Search & Transfer (maybe Micro-Fast?). I think that in large account face-offs, procurement teams will not know how the merger will play out. Uncertainty about the future may tip the scales in favor of Autonomy. The company is stable, not at this moment being acquired, and has oodles of mostly happy customers. Its has name recognition. The Microsoft – Fast team can only offer assurances that everything will be okay. In my view, Autonomy can go beyond okay and will, therefore, win most deals.
But many search procurements involve three or more vendors. In those situations, Autonomy will win some and lose some. So their win rate won’t be much different from what it was in 2007, which as I understand the financial reports, continued to nose upwards. With or without the Microsoft – Fast deal, Autonomy has been charging forward.
Financial factors seem tangentially significant, but Autonomy’s golden goose 2008 is going to be attributable to the Microsoft – Fast merger.
The Microsoft – Fast Options (Hypothetical, Speculative, Thought Exercise)
Let’s assume that I am right and consider as a thought experiment what Microsoft can do to win sales from Autonomy and keep Fast Search’s revenues on the trail to financial health. Here are three possible scenarios that seem insightful to me in the Seattle airport at 12:15 am Pacific time. I invite you to weigh in. Attorneys, consultants, and share churners can climb too. This is an essay, an attempt, not much more than my opinion based on the aforementioned, unsubstantiated chit-chat. Okay? Now the options to consider:
- Microsoft – Fast leaves the two platforms separate. Microsoft provides management expertise, leadership, and marketing horsepower and goes flat out to wrest business from Autonomy in its key accounts. Microsoft ignores Autonomy’s response (price cutting, PR chaff, etc.,) and uses Microsoft billions to neuter Autonomy, Virage, and any other search technology Autonomy offers.
- Microsoft – Fast hunkers down, integrates the two platforms. Using its reseller and Certified Partner network, Microsoft – Fast combines a better search solution plus slick technology plus high-powered marketing. Although Microsoft concedes some battles, when the company hits the street with its offering, it executes a Netscape-type (think free or really low license fees) strategy and becomes the dominant player in the behind-the-firewall search market.
- Microsoft – Fast does the integration work well. Instead of fighting Autonomy, Microsoft uses a variation of its customer relationship management strategy. Free trials and low cost introductory rates are used to get existing Microsoft-centric customers to remain loyal to Microsoft. Applied globally for a year or more, Autonomy may be slowly deprived of oxygen. Autonomy loses its agility, becomes weaker, and fades into a distant second place behind the Microsoft super-platform.
As I think about these hypothetical scenarios, I see a win for Microsoft in any of these paths. If the company were to mix and match strategies — for example, all-out assault and long-term oxygen deprivation — Autonomy would have its cash reserves depleted. The end game, of course, is that another super-platform steps forward to acquire Autonomy. Then two super-platforms would fight for the behind-the-firewall search customers.
Who are candidate super-platforms at a time when the US economy is teetering toward a recession? Here’s my shortlist, and may I ask, “Who are your candidates in this high-stakes poker game?
- Oracle. This company already inked a deal with Google to hawk the Google Search Appliance. Oracle bought Triple Hop, but so far has not been able to leverage that technology. Mr. Ellison is a buyer, and I hear that Oracle has looked closely at Autonomy in the past.
- SAP. This company has the TREX search system. A shiny new search system is on the horizon. Buying Autonomy brings several thousand customers, revenue, and engineers. Microsoft tried to buy SAP, and SAP fought back. Maybe this is the next step for SAP?
- An investment bank — maybe Carlyle Group, an outstanding outfit. Carlyle could work a deal to convert Autonomy into several companies and start selling various units off to the higher bidder. There’s real money in buy outs and break ups.
- IBM. IBM has more search solutions than any other vendor I track. Buying Autonomy brings customers and revenue. IBM then implements one of the Microsoft options and goes after Microsoft. IBM still remembers the great business relationship IBM enjoyed with Microsoft in the DOS and OS/2 era.
Note that none of these hypotheticals is greatly influenced by the sub-prime tempest. The stakes are now sufficiently high in behind-the-firewall search to make secondary forces — well — secondary. I don’t want to disagree with Ovum, but I think my analysis may add some useful “color” as the financial analysts like to say, to their look at Autonomy.
Stephen Arnold, January 31, 2008