Autonomy: Not Just Deals, Super Deals
July 3, 2008
BusinessWeekly, the voice of Europe’s innovation capital, the east of England, reported on July 2, 2008:
Cambridge enterprise search company Autonomy has scooped two deals in the US in the last week worth over $85 million (£43m) and a top analyst is forecasting massive growth through 2009 on the back of a string of ‘super deals.’
Keep in mind that Autonomy has an annual revenue in the neighborhood of $300 million US, so this reported financial coup is roughly equivalent to more than 10 percent of the company’s annual turnover. You can read the full story here.
Adding to the good news is the fact that Morgan Stanley has given Autonomy an “overweight” rating. To the average investor, “overweight” means too many buckets of Kentucky Fried Chicken. To the financial community, the word means “buy”.
In May 2007, a UK investment outfit took a less optimistic view of Autonomy. But with these new deals, Autonomy appears to be back on a growth track, but I find it curious how two MBA-stuffed institutions can arrive at different views of a public-traded company.
Earlier this week, Autonomy’s founder and chief operating officer, Sir Michael Lynch authored an essay in the prestigious Financial Times. I commented on this story here, but I think the link to the full text has probably expired. Traditional prestigious media are protective of their essays from company presidents.
From my grubby nest in rural Kentucky overlooking the polluted Ohio River, the “voice of Europe’s innovation capital” and the prestigious Financial Times seem to be providing rostra for Sir Michael Lynch. The feature story also includes an interesting view of the market for search and content processing; specifically:
Three pure players – Autonomy, FAST/Microsoft and Endeca – operate in the high-end market and three majors operate in the medium-to-low end market (IBM, Microsoft and Google).
This segmentation does not match the analyses I included in the first three editions of Enterprise Search Report which I wrote and my new study Beyond Search, published in April 2008 by the Gilbane Group. My take on the market is that the companies identified as “pure players” find themselves under increasing competitive pressure from very large superplatforms who are now moving down market and bundling search with higher value solutions. From the bottom, these “pure players” are finding a number of competitors with newer technology and more aggressive pricing challenging from below. The result is that “pure players” have been forced to take drastic action to grow or survive. The Fast Search & Transfer deal with Microsoft and the subsequent questioning of Fast Search’s actual 2007 revenues is one example of financial over reach taking a toll. Fast Search, if my sources are accurate, lost $122 million or so in FY2007. Endeca which has moved past $100 million in revenues passed on an initial public offering and accepted investments from Intel and SAP’s venture arm. So, the “pure players” are not really Switzerland. Autonomy is now the sole occupant of the “pure play” space. Obviously Morgan Stanley thinks my analysis is the quacking of an addled goose. Time and the quarterly reports will tell, I suppose.
Congratulations to Autonomy because, according to Morgan Stanley, the company will benefit from “the Swiss effect.” Like other financial verbal fol-de-rol, the investment banks sees Autonomy’s independence as a benefit. The bank does not mention that there are several hundred other search, content processing, and text analytics companies living in this notional Switzerland. Nor does the bank put “the Swiss effect” into hard economic terms. Also, Switzerland did not have to deal with pesky “free” options in search such as Lucene or FLAX.
So, the there are sunny days ahead for Autonomy shareholders in the opinion of BusinessWeekly.co.uk and the Financial Times.
Stephen Arnold, July 3, 2008
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