More Fast Search Excitement: A View from London
October 16, 2008
The news buzzed through the Internet Librarian International Conference. Word of the Norwegian authorities’ actions hit a nerve. Not surprising. Many of the information professionals in attendance rely on Microsoft search technology in their organizations. Details, of course, were sparse. The International Herald Tribune has a write up online and one person had printed out the story. Here’s the link to the AP article “Norwegian Police Raid Microsoft Subsidiary.” I don’t want to quote from an AP story and then have to deal with accusations that I am using content without permission. You can find this story online in a number of places. Another good source is http://e24.no/boers-og-finans/article2716323.ece. You can translate this at http://translate.google.com. Select Norwegian as the source language. A helpful PCWorld write up “Microsoft’s Fast Search Charged with Fraud in Norway” by Jeremy Kirk here includes this comment: “Microsoft has said it has taken steps to align Fast Search & Transfer’s accounting practices with its own.” This suggests to me that Microsoft wants to work through this problem and move forward. That’s good news for Fast Search employees in Oslo.
I spoke with several people about this situation. One executive who does business with both Microsoft and Fast Search said, “That’s really bad news.” A Danish software vendor said, “This is a public relations disaster. Fast Search had worked hard to make itself the number one Scandinavian software company. Now that’s a joke if there was fraud.” An information professional in Germany told me, “We are looking at Fast Search for our SharePoint installation. I don’t know what today’s police action will mean. We are a very conservative organization so we will have to get more facts. We don’t like difficulties with our vendors.”
A black eye for those involved. Source: http://www.lonewolffx.com/images/large%20images/make%20up%20effects/black-eye-from-Flynton.jpg
After I heard about the economic crime division’s actions, I jotted down my thoughts about this incident. Feel free to comment about my opinions. You may have more detailed information than I can get at the conference venue:
First, this is a public relations problem for Microsoft. If the company conducted a thorough audit and missed something, we learn that the phrase “Microsoft audit” carries a connotation that is not too positive. If Microsoft did not do a thorough audit, we learn that when the company decides to buy something, the philosophy may be “Fire, Ready, Aim. Microsoft will have to deal with this “do you still beat your wife” situation.
Second, Microsoft just said that it would concentrate search research and development in Oslo, presumably with Fast Search engineers. If the authorities action is more than window dressing, what is the working situation in Oslo in the wake of this high profile action. Norway is a comparatively wealthy and small-town type of country compared to my own beloved US of A. Fast Search’s employees, the reputation of the Norwegian business community, and Norway itself have a black eye. How long will it be to remove the mark if a problem is uncovered?
Third, Microsoft sales professionals and partners are making Fast Search a big part of SharePoint procurements where large document collections must be indexed. How will some organizations react to finding the suggested solution the product of an engineering operation that has been the subject of this alleged action by the police? My thought is that in some government procurements, the police action against Fast Search could be a deal breaker.
Fourth, I have had little experience with investigations of this type. If the action results in more negative information, a court action may make the marketing and public relations task even larger. If I were a competitor, I would communicate to potential customers that the action reported by the Associated Press might be sufficient cause to shift the procurement effort from Microsoft Fast to an alternative without a similar issue.
As I thought about this information–assuming that it is true–I don’t see a silver lining to this particular cloud. Here’s why:
- Information about a ball fumble by Microsoft is powerful sales information for Microsoft’s competitors
- Some clients may shift from a SharePoint procurement with Fast Search as the industrial strength solution to another vendor’s solution to eliminate any risks related to the authorities’ actions in Oslo
- More information about financial irregularities will cause me to ask, “What other discoveries can be made by flipping over rocks?”
- With some news sources mentioning historical financial records, the question is, “Will Fast Search executives who are no longer at the firm likely to fall under the umbrella of the authorities?” My hunch is that if there is solid evidence of revenue inflation that was not known to Microsoft, the authorities will be revisiting their list of people with whom the investigators will want to speak.
As the enterprise search sector struggles to keep revenues up, the Microsoft Fast Search affair shines a bright white light on a little understood business sector. If there is an issue with the pre Microsoft Fast Search financials, I think the shockwave will buffet other firms as well. The news stories recycle a small set of facts. It is important to reserve judgment. However, Norwegian authorities had to have some spur to action. An early morning visit to snag information from a subsidiary of the world’s largest software company is not a spur of the moment undertaking.
Just today I obtained more information about the financial health of one small search vendor (debts mounting quickly and trouble likely in the next month) and one large vendor (miserable sales in the July August September quarter and deteriorating renewals forecast in the October November December quarter now unfolding. If Fast Search did add some flab to its financials, have other search engine vendors taken similar actions? Who knows? But if revenues were booked before the cash arrived from the customer, the need for cash may become more acute than it now is in organizations where revenue was not deferred. I will have to wait and see what becomes public about this matter and other search vendors’ financials in the last three months of 2008.
Fast Search itself is covering the incident. If you navigate to www.alltheweb.com, a Fast run search system owned by Yahoo, a useful list of stories about this incident is here. A happy quack to AllTheWeb.com for its coverage of the Fast Search & Transfer issue.
Stephen Arnold, October 16, 2008
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