The Coming Financial Crunch on Search Vendors
November 17, 2012
I sat through three, maybe four, “We’re doing great!” teleconferences this week. In one of those teleconference Go To Beating things, I was told, “We think that there is great opportunity in enterprise search.”
I agreed but one cannot call “search” search. Search, in my opinion, have become a new four letter word. But this person insisted that he and his team had the solution to the revenue ceiling problem. Now the concept of a “revenue ceiling” may be unfamiliar to those running companies in a crazed effort to get enough cash to pay last month’s bills. To me, “revenue ceiling” is what keeps most enterprise search vendors below the $20 million in revenue benchmark. In fact, since I have been tracking the enterprise search sector, the companies which have blown past $20 million are no longer in play. These outfits are now part of larger firms, managed by people who are or, should I say, were confident that making oodles of money from enterprise search technology was a “no brainer.”
A happy quack to http://goo.gl/xQMP0 for this inspirational image.
So what’s happening to my through the ceiling outfits? HP owns Autonomy and based on the grim financial results HP continues to report, Autonomy is not lofting HP to new revenue heights. The Endeca crowd managed to get revenues north of $150 million before the sale to Oracle. I have not heard that the Endeca team is pushing Mark Hurd aside due to their financial performance. I do know that Endeca is now just one more arrow in the Oracle quiver of tools and solutions. And Fast Search & Transfer? Microsoft does not break out revenues from Fast which once reported revenues of $170 million. The number was revised downward and I picked up a rumor that some in the Sinofsky free environment were looking at Fast Search as a technological equivalent of a 68 year old soccer player. It’s great the fellow remembers to go to the game, but in a crunch, let’s let gramps watch the 20 somethings win the game.
So, search has been a tough sector to make payoff big. Autonomy, much to the chagrin of the “real” consultants sold for $10 billion. But the real important point is that no other firm to my knowledge has been able to make almost a billion from “search.” Keep in mind that giants like IBM and Google can make numbers dance the tango. But for most search and content processing companies, revenue life and cost control have been similar to earning enough in a war zone to buy a new Rolls Royce. It can be done, but a close look at how may not be a wise idea.
Smash cut to these interesting developments:
- Yahoo is putting more heat on employees and may fire thousands of Yahooligans. See Yahoo CEO Mayer Cuts End-of-Year “Week of Rest” for Employees, While Prepping Plans to Cull Bottom 20 Percent of Staff
- The brains behind Netflix’ brilliant pricing moves alleges that Amazon is losing $1 billion a year on streaming video. (My reaction was, “That number seems low.” The reference is at Netflix CEO: Amazon Losing Up to $1 Billion a Year on Streaming Video
- Apple’s stock continues to decline. some folks think there are worms in the cook’s Thanksgiving pie. See Apple’s Stock Price Falls to Lowest Point in Six months
If life is tough for the big guys, what’s this mean for the hundreds of search and content processing companies fighting for pennies and nickels?
You know my answer, “Life is about to get really tough for many search and content processing vendors.”
In fact, I think the “pivots” like Coveo into customer support and Vivisimo (IBM) into Big Data underscore the plight of search and content processing vendors. Consider:
- Most search and content processing vendors do pretty much the same thing: Intake content, and output indexing. How can one tell the difference? The technical measurements are expensive, time consuming, and complex to do. The result is that no one really tests these systems.
- Customers just want to find “stuff.” Not surprisingly, the “real” consultants are pitching baloney like governance (editorial controls). These people know that asking a distributed, financially challenged outfit to get organized and implement an indexing and content control system is essentially impossible. What’s selling are systems which toss out old notions and just “predict” what the clueless users want. If these systems worked, why do I have to read about intelligence professionals’ email being compromised?
- Competitors happily borrow useful words and phrases. By repeating nonsensical things like “smart content” or unified information access, the hapless buyer thinks he or she has heard something that sounds better than search. Unfortunately, these fancy new systems used numerical recipes which are quite well known. The variances can be appreciated by an expert. The users just see the systems as too complex. “Give me Google,” most users say. That does not work too well either.
Add up these three points and the output is financial problems on a larger, more significant scale than at any previous time in the history of search.
Don’t agree? That’s okay. You put your retirement savings in a search vendor. I will put my retirement savings in a guaranteed corporate bond. In two years, who will have more money? Look at it this way. You may be the investor in the next Google or Autonomy. Odds, in my opinion, are against that unlikely outcome.
Stephen E Arnold, November 17, 2012