The Enterprise Search Thrill Ride
August 29, 2008
Summer’s ending, and the search engine thrill ride is accelerating. Before you fire up your personal computer and send me an email asking for juicy details, appreciate that I can only comment in a broad way, making observations at a high level. If you have an appetite for more information, you will have to dip into your piggy back and engage me to show up and discuss the state of the industry in a less chatty setting like this Web log.
Every amusement park has a thrill ride. Kids love these roller coasters, bungee jumps, and spinning barrels. Adults or people with an aversion to fear are generally content to watch. Once in a great while, a thrill ride goes wrong. The thrill seekers can be injured and once in a while killed.
Search and content processing companies are in a sense a thrill ride in way. The launch of a company is filled with anticipation. Then the company chugs along and usually gets a sale, and the process repeats itself. At the end of the ride, the company speeds along and in most cases the ride ends with the employees’ displaying big smiles. When a ride goes wrong, the employees aren’t so chipper, but the lawyers often show sly grins.
I am quite confident that the September to December 15, 2008, period will be quite exciting for me. First, the search and content processing sector of the enterprise software market is poised for change. Second, a number of companies will have to make their numbers or face the prospect of enduring the lash of venture capitalists’ whips, changing careers, or closing up for good. Third, the GOOG is beginning to move slowly forward in the enterprise sector. Even if Google’s management insists “We’re just running a beta test”, those “beta tests” will be disruptive for established search and content processing vendors. Fourth, newcomers to the North American market will make their presence felt to a greater degree than in the first six months of 2008. Newcomers often become irritants with their promise of better, faster, or cheaper. Of course, the customer may pick two of these claims, but incumbents have to waste time and money deflecting these competitive challenges. Finally, superplatforms–big enterprise software vendors–have to protect their turf. I expect significant pressure from these firms to add another variable to the search and content sector. After all, what can a company do when Microsoft bundles an incrementally improving search and retrieval system with a widely used server product like SharePoint.
Let me identify some warning signs. You will have to speculate about which specific companies each of these points refer. The clues are available in the open source information stream. Fire up your Google.com or Live.com search system and see if you can figure out which search and content processing vendors match these points.
- Executive change. One major vendor has had to go to a major client in Manhattan to explain a boardroom coup. While not an unusual event, the client is big and the stress of explaining why one of the people in the roller coaster had to be tossed out is somewhat embarrassing. The company began 2008 with bold assertions, grandiose claims, and assurances of rapid growth. What transpired was losing sales to smaller companies and customers frustrated at the time and complexity of customizing a system. Can you figure out which search and content processing vendor fits this description?
- Merging. After one of its major clients was acquired, this company was forced to find a new partner. The firm remains in business, but it has changed its headquarters’ location and revamped its product positioning. Its partner also had a financially challenged information access business. The goal is to take two smaller numbers and add them together to create a much bigger number. The notion of 1 + 1 =3 is appealing when the roller coaster has stalled, but getting this type of payoff is tough. I think it may defy the laws of financial physics. Can you identify this firm?
- Misdirecting. One search and content processing vendor shouts, “Search, search, search.” At the same time, its sales people cut deals for non search projects. The engineers add a dollop of search to the mix. The company is not really a search and content processing company in terms of its new sales, but it uses the media to differentiate from the weaker players in the search market segment. Can you identify a company that is in the misdirection business?
- Closing doors. The company is a roll up; that is, a bright, confident wizard collected a group of search and content processing companies. With zippy marketing, the company embarked on an ambitious plan to sign up resellers, get new licensing deals which return an annuity, and new sales to high profile clients. The plan worked really well on paper, but then ran into the wall of costs. Without understanding the costs of being a search and content processing vendor, the company exhausted investors’ patience and the lights were turned off. Can you identify a company that rode this search thrill ride?
- Reinventing. The fall of 2008 will be a time of considerable ingenuity in search and content processing. Vendors will be chasing new market sectors and market niches. Popular ones will be customer support (the idea is that search technology will reduce certain customer support costs), business intelligence (will someone tell me what the heck this means), and eDiscovery (legal matters can drop from the sky at any time, so the motto is “Be prepared”). This list is not complete, but you have enough information to identify a vendor in the midst of this process, which is akin to jumping from one thrill ride to another without waiting until the first ride stops before making the shift. Exciting, exciting.
- Shifting markets. This vendor specializes in content processing, not search. The company is now using the existing technology to move into a more lucrative market with needs that are focused on making Google AdWords pay off better. The technology is the same. The marketing is very different. The idea is to shift from a licensing model to a rent-the-service-when-you-need-it model. Can you identify a search and content processing vendor on this path?
Each of these shifts is a warning sign for me. Now let’s think about why I believe these six actions will enliven the next 14 weeks of 2008.
Spotlights, Waves, Magic Grids, and Other Second String MBA Methods
In a word, revenues. There are not too many publicly traded search and content processing companies. As a result, the revenues of the majority of the 350 search and content processing companies in my files are unknown. Most licensees ask powder puff questions, and the vendors respond with earnest, direct gazes. The vendors say, “Our financial health is outstanding. The investors have patience. We have a number of significant customers. Our pipeline is stuffed full of really big deals.” Some vendors will go so far as offering to provide a reference of a happy system licensee.
The reality is different. Consider these points that the polished, super confident, search wizards pounding the pavement for their brilliant analyses ignore. “Ignore” is a nice way of saying “clueless”.
- Investors want returns of 10X, even 17X their investment. If the management can’t deliver, the investors will fire the boss and get a new one. If the new one can’t generate a payoff, the investors will exit. Maybe the company will be sold like Powerset. Maybe the company will close its doors like Entopia. Maybe the company will fumble along and live on some type of life support for a period of time like Delphes. You can get more information about each of these examples elsewhere on this Web log.
- Customers are frustrated, some angry, and a few prone to litigation. Licensees are surprised at the hardware hunger of search and content processing systems. Forget zippy new chips. Some organizations don’t have the money to buy hardware at the drop of a hat. If the licensee does, and the problem occurs again, the licensee digs in his / her heels and tells the vendor, “Fix it.”
- Users are annoyed. Its easy to blow off reports of user dissatisfaction. Unfortunately user push back is becoming more of an issue as licensees face tougher financial times. Google has licensed more than 24,000 Google Search Appliances because the gizmo carries the magical name “Google”. Vendors with less magical names have to really pump up their marketing and support to win a deal. This type of over promising has its downside which leads to revenue shortfalls such as those alleged to have plagued Fast Search & Transfer prior to its rescue by Mother Microsoft.
- Sales people can’t make their numbers. Yikes, this is a bad situation. When a search and content product cannot be sold, the vendor experiencing this problem is in sticky mud. One of the tip offs I look for is sales professional churn. This key indicator does not appear in the nifty diagrams in various consultant reports. Now that I have mentioned it, I am confident the 20 somethings will add this to their analytic tool chest. Too bad it’s too late. These wacky representations of a market that is floundering have an albatross around their neck already.
So we have a recipe for excitement between now and the new year. Let’s recap: investors want a payoff, not promises. Customers want systems that work. As recently as this morning, I listened to baloney about a “one off” problem we encountered. Sorry, not acceptable. Users want systems that actually help them in their jobs. No wonder sticky notes still complement flashy online systems. At least, a user can locate a sticky note reminding him / her where a document is. The search system may not be able to perform this feat of legerdemain. Sales people can’t close a deal. There are lots of excuses, and I have heard many.
Bottomline: search and content processing is in turmoil. Agree? Disagree? Also, let’s do better than just assert, “You are wrong.” I enjoy these comments because the writer looks so darned smart. My 65 year old eyes see these unsubstantiated assertions as a lame, shallow, and indicative response to my essays and their assertions. I want to learn. Produce some facts and substantive analyses, please. I have some in my research archive and enjoy trotting them out as I did in the new IDC dataspace report about our dear pal Google.
Stephen Arnold, August 29, 2008