Can Brainware and ISYS Search Get Lexmark Back on Track

September 5, 2012

I was surprised to learn that Lexmark in Lexington, Kentucky, was getting into the search and retrieval, content processing, and indexing business. I had a meeting at a Lexmark facility a couple of years ago, and I was struck by the absence of activity in what was and probably still is a very large building. The meeting was held in the “library” for one of the firm’s units. Quiet. Search was a challenge. I left the meeting wondering how the employees found repair data, training manuals, proposals, and technical reference information.

When I learned that in a short span of time in early 2012, Lexmark purchased Brainware. You may know that Brainware was originally a search vendor. The technology which worked the firm’s retrieval magic was based on trigrams or three letter sequences. The query terms were parsed into three letter groups. Documents with the query’s three letter groups were identified and rank order by trigram match. There are numerous technical details associated with the patented technology. The point is that Brainware got into back office processing and took off. The search and retrieval business supported the paper-to-digital-to-index business. Brainware landed some juicy accounts. I assumed that Oracle would acquire the company, but I was wide of the mark. Heck, I wasn’t even in the same county. You can get some details about the deal in the Brainware news release, “Lexmark Acquires Brainware.” To beef up Brainware’s back office capabilities, Lexmark also bought Nolij.

A few days later, Lexmark purchased the ISYS Search Software company. Like IBM’s magical repositioning of Vivisimo, Lexmark described ISYS as being more than search. Okay. According to the news release about the deal, ISYS’s technology dates from 1988. That works out to almost a quarter century. The ISYS technology will complement Lexmark’s Perceptive Software business. The idea is Perceptive will be better able to compete in process and content management solutions.

With the closing of the ink jet business, Lexmark is going to have to find a way to generate significant revenues from its search enabled applications and its search based businesses.

The question becomes, “Will Lexmark be able to generate significant revenue from search?”

In the annual report for 2005, Lexmark said:

Lexmark makes it easier for businesses and consumers to move information between the digital and paper worlds. Since its inception in 1991, Lexmark has become a leading developer, manufacturer and supplier of printing and imaging solutions for offices and homes. Lexmark’s products include laser printers, inkjet printers, multifunction devices, associated supplies, services and solutions.  Lexmark develops and owns most of the technology for its laser and inkjet products and associated supplies, and that differentiates the company from many of its major competitors, including Hewlett-Packard, which purchases its laser engines and cartridges from third-party suppliers. Lexmark also sells dot matrix printers for printing single and multi-part forms by business users and develops, manufactures and markets a broad line of other office imaging products. The company operates in the office products industry. The company is primarily managed along business and consumer market segments.

With this shift, Lexmark is going in a different direction; that is, buying technology instead of developing it. The announcement that Lexmark was terminating more than 1,000 employees with about half located less than an hour from my goose pond in Harrod’s Creek, Kentucky, was bad news in a state with lots of bad

How will that work out?

My view is that Lexmark is likely to experience some unwelcome surprises. As you may recall, Hewlett Packard was shocked at Autonomy’s performance once the company was on board. With the departure of a number of key Autonomy executives, including Mike Lynch, Hewlett Packard has become quiet about Autonomy. I assume that the massive write off of the EDS business is occupying the senior managers. Lexmark may be headed for some cost surprises; for example:

  • Brainware incurs some labor costs with its back office sales. Oracle and other companies want to get into this “old fashioned” business, so the marketing costs are likely to go up. How much of a spike will be determined by the appetite of hospitals and other paper centric operations in a lousy economy and the uncontrollable actions of companies like Oracle.
  • ISYS costs are likely to be a shock as well. ISYS is similar to Fast Search & Transfer, just older. As a result, the cost to keep the system current are likely to grow over time. The fancy new features like text mining are easy to talk about. To build out systems which can compete with services from Digital Reasoning and Quid is another level of investment entirely.
  • Support costs in the search enable applications sector are tough to control. A major company may not tolerate a filtering call handled in India and then a wait for an engineer to get involved. Perhaps Lexmark will use ISYS for customer support?

But what could Lexmark do?

Printing is environmentally unacceptable to many people. In addition, a PDF file can be emailed more quickly and cheaply than sending a document via FedEx. With iPads in the hands of executives, a digital version of a document is good enough.

Like HP, Lexmark is going to have to work some marketing, cost control, and management miracles to get back on the growth path with generous margins. Is it too late for Lexmark to return to revenue glory in the Bluegrass State? Well, I am not willing to go out a limb. Let’s just watch.

Stephen E Arnold, September 5, 2012

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