Autonomy: Adjusting to a Post-Google World
June 11, 2008
Autonomy may be facing some financial challenges. This may be old news to you, but it was news to me. The May 13, 2008, report from Cazenove offered me a different view of the search business in general and search giant Autonomy in particular. Autonomy’s next financial results will be due on July 30, 2008, and those data and the Cazenove report may influence perceptions of one of the leading software companies in Europe and a leader in search, text processing, and information access systems.
For several years, I worked as a resource for one of the largest investment banks in the United States. I woke up one morning, and the bank was out of business, absorbed into an even larger bank. I have to admit that some of the fancy dancing in the global financial ballroom baffles me.
An acquaintance whom I met at an international conference sent me a report about the search giant Autonomy. The firm issuing the report–Cazenove–is one with which I was not too familiar. Furthermore, these “reports” are written to inform Harvard and INSEAD MBA masters of the universe about the inner workings of publicly-traded companies. To top it off, the reports are written in weird financial-haiku speak and stuffed with financial arcana. Even though I have provided data to banks working on such flights of fancy with folks afflicted with spreadsheet fever, I usually don’t read these documents. (Between you and me, I don’t think anyone else does either. The reports can hard to get, but if you have enough money to use Investext or a warm and fuzzy relationship with a big-name brokerage house’s institutional investors, you can get these reports.)
Imagine my surprise when I received an email with the question, “What do you think?” and a copy of the Cazenove, May 13, 2008, report about Autonomy, arguably the number one or the number two vendor of search and retrieval systems. (Fortunately I saved the PDF of the report because my computer crashed, and I lost my current email. Grrrr.)
Key Points for Me
Two points in the Cazenove write up struck me as relevant to the the information access sector which I make a lame attempt to monitor. Keep in mind that I am summarizing the Cazenove report, not offering my analysis of Autonomy.
First, the consolidation that seems to be a characteristic in the search and content processing space has left Autonomy sitting on the sidelines. The Cazenove report identifies Oracle as a likely buyer of Autonomy, but the deal would cost Oracle too much even in today’s wacky financial market. A company like Oracle would have to find a way to pump up Autonomy revenues to make the deal pay off. As I read the Cazenove report, that’s unlikely. Autonomy is having to dog paddle furiously to keep its head above water, but remember: this is my untutored view of the Cazenove MBA haiku writing.
Second, the Cazenove report sniffs into Autonomy’s use of acquisitions to create new revenue opportunities. On the surface, Autonomy has been ahead of many other search companies in identifying hot sectors and moving into them. I’ve stated a number of times that Autonomy has the best instinct for the future of search and how to leverage that instinct in its marketing at this time. Google’s marketing is a go cart to Autonomy’s F-1 race car. However, the analyst report suggests that Autonomy may have a tough time making its acquisitions pay off in a big, big way.
The net net (yes, that’s MBA speak that means conclusion) for me is that organic revenue is not too exciting, and, revenue from Autonomy’s acquisitions isn’t providing the hoped for lift (that’s MBA speak for payoff).
Cazenove rated the stock as “under perform neutral”, which I think is the equivalent of taking a step back, maybe looking for another investment opportunity altogether until Autonomy submits its next financial report.
Observations
But I don’t really care too much about any individual search and text processing company. My interest is broader, more along the lines of “What’s this mean?” to the industry. What the report triggered in my mind was questions to which I don’t have an answer:
- If organic growth is slowing for a well-known company like Autonomy is it worth reassessing the impact of open source search solutions, the price pressure applied by hungry competitors, and the search toaster approach from Google? These perturbations in traditio0nal search may be having a real and lasting impact. That’s a hypothesis worth investigating. Maybe the commoditization of search will further destabilize an already volatile sector?
- Should organic growth in search license revenue slow, will the large superplatforms like IBM, Microsoft, and Oracle accelerate their bundling of search and content processing into higher value enterprise applications? In effect, will these companies stop selling search and offer search and content processing as a tool, utility, or standard function? This begs another question: “Who buys a separate, search platform when search is baked into the broader application framework?”
- If acquisitions don’t generate top line growth quickly, then acquisition strategies will have to change. Maybe search vendors should buy a company in order to get out of search? In effect, the acquired company allows the search vendor to get out of the business of selling search and retrieval? This means buying other search vendors is not a good idea for a search vendor.
The answers to these questions reinforces my assertion that the traditional enterprise search sector is under considerable stress. If Autonomy can’t gain traction in “pure” search with its own technology and Verity’s, who can?
Google has morphed from its Google Search Appliance to a broader enterprise applications’ positioning. Sure, search is there; it’s just not the only weapon in the GOOG’s revenue arsenal. Fast Search is off the table, and for me it’s not a blue-chip player at this time. Fast Search could return to the field of play wearing a Microsoft jersey. As part of the Microsoft team, Fast Search may become a SharePoint gizmo. Endeca accepted cash infusions from Intel and SAP’s investment arm. I’m not sure what that signals.
Agree? Disagree? Use the comments section to push back or add additional information.
Stephen Arnold, June 11, 2008
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2 Responses to “Autonomy: Adjusting to a Post-Google World”
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The technology that’s used for “pure” search by most vendors hasn’t really changed since the 1970’s – it’s still based on the work of people like Stephen Robertson and the late Karen Spark-Jones. Build an inverted index, base it on a B-tree, search it and rank by relevance. There are bells and whistles, sure – but no, computers don’t really understand context or concepts (at least not until we actually have strong AI, I’m not holding my breath). So, it’s become a game of ease of integration, scalability and performance. Oh, and marketing: and Autonomy are very, very good at marketing.
[…] Autonomy. This is not a public report, but I wrote a short note about the report and its assertions here. As I understood the analysis, Autonomy has to make its business model perform at peak efficiency […]