Search Meltdown at the Digital Studio 54
October 8, 2008
After a whirlwind series of meetings outside the U.S. I picked up information about growing problems in the enterprise search sector. Not surprisingly, my newsreader offered a trigger for this Web log post. Navigate to Dot.Life, one of the bewildering array of Web logs from the BBC, here. Rory Cellan-Jones, whom I have never met, wrote “Technology – The Party Really Is Over” on October 8, 2008. For me the most interesting point was this comment:
And, almost unnoticed, technology companies have been sucked into this vortex of gloom…. Autonomy, which specializes in search technology for big businesses, has recently entered the FTSE 100. But over the last week its shares have been tumbling as rapidly as the index as a whole. They started above £10, and last time I looked they were around £7.60. This despite a trading update in which the chief executive said Autonomy expected its third quarter results to be “significantly ahead of expectations”. The market has decided that the big enterprises which are Autonomy’s customers will be trimming their spending too.
Let’s step away from Autonomy and think about the mood at the Enterprise Search Summit held a fortnight ago in San Jose, California. Here are several “economic” observations that provide some color for my observations about what’s coming in search, content processing, and text mining:
- I learned of several executive shake ups. These have not been announced, but when heads roll at a major conference, I sense that sales performance may be triggering the game of musical chairs. As I visited vendor stands, I had to ask, “Didn’t you work at X?” Old faces in new booths were common enough for me to notice. (I was jet lagged and bored, so it took some effort to light up my radar.)
- I heard that one vendor pulled out at the last minute, deciding that waiting for prospects to walk by booth was less effective than making direct sales calls or working the email marketing system. I wondered why there were several yawning gaps amidst the exhibitors. Priorities or cash may have been the deciding factor.
- My hallway conversations with PR folks left me with a sense that this is not a good time to be in the buzz business. Several PR wizards told me that their clients wanted to get coverage on the hot Web logs. Too bad this Web log — Beyond Search — has only two or three readers. Corporate honchos and honchettes want their firm’s solutions on the major news aggregation sites and showing up on StumbleUpon.com and other trend makers. One person told me, “Web PR is tough.”
- Talk about Mercado and SurfRay suggested that both firms were trying to dog paddle in rough seas. The Mercado news, which I reported on this Web log, if true, may be ominous. SurfRay is best known for its Mondosoft SharePoint solution, and the financial reports from Denmark just arrived. Those documents may shed some light on that firm’s health, but two people asked me what I knew about the company.
Is the party really over? No, I don’t think so. There will be some severe dislocations and realignments. But in the search and closely related markets, the task of selling a complex system mean long sales cycles. With cash drying up, the sluggish sales and executive churn are symptoms of a disease that has been infecting silently for a long time. The good news is that once the system adapts, new opportunities will poke their noses from behind the CFOs’ locked doors.
Investment firms with money in search and content processing firms will demand more from their stable of search stallions. I think more focus will be brought to the sales process. A good example will be search firms who deliver solutions that work with a minimum of the three to six month set up period. Units with specific problems will license solutions from firms who can deliver a system that works, not a bunch of jargon about intelligent system, latent semantic indexing, and automatic taxonomy generation in real time.
The financial downturn will motivate customers to demand results and more for whatever the customer pays a vendor. The vendors will be working in a world “red in tooth and claw”. I for one will be delighted to cull down the list of 350 to 400 vendors who assert that their firm offers “enterprise search”. I don’t know what enterprise search means, and if some vendors are finding customers unwilling to write checks for their systems, I submit respectfully that the customers on a budget want to buy something that delivers a pay off, can be explained to its users, and solves a specific problem.
For these firms — what I call the vendors to watch in the Gilbane study — the party may just be beginning for a select few. For those who make the cut, the old world of Studio 54 will keep on trucking.
Stephen Arnold, October 8, 2008
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3 Responses to “Search Meltdown at the Digital Studio 54”
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Stephen,
Here’s more confirmation on your post on Mercado. http://www.startupisrael.com/mercado-shutting-down
Cheers/Dave
Good post – seems there’s been all sorts of feedback to Rory’s piece.
The problem to my mind is that many of the most interesting developments, particularly web-based ones, are free for users, so the business model is flaky to say the least. Much of their success either revolves around advertising (and only a handful of companies like Google, Facebook and Yahoo can shout from the rooftops as getting this right) or being bought out at some point.
Time to think about business model changes?
The Red Rocket,
Thanks for taking the time to post here. Keep adding your observations.
Stephen Arnold, October 9,. 2008