Elastic N.V. Faces a New Search Challenge
September 2, 2024
This essay is the work of a dumb dinobaby. No smart software required.
Elastic N.V. and Shay Banon are what I call search survivors. Gone are Autonomy (mostly), Delphis, Exalead, Fast Search & Transfer (mostly), Vivisimo, and dozens upon dozens of companies who sought to put an organization’s information at an employee’s fingertips. The marketing lingo of these and other now-defunct enterprise search vendors is surprisingly timely. Once can copy and paste chunks of Autonomy’s white papers into the OpenAI ChatGPT search is coming articles and few would notice that the assertions and even the word choice was more than 40 years old.
Elastic N.V. survived. It rose from a failed search system called Compass. Elastic N.V. recycled the Lucene libraries, released the open source Elasticsearch, and did an IPO. Some people made a lot of money. The question is, “Will that continue?”
I noted the Silicon Angle article “Elastic Shares Plunge 25% on Lower Revenue Projections Amid Slower Customer Commitments.” That write up says:
In its earnings release, Chief Executive Officer Ash Kulkarni started positively, noting that the results in the quarter we solid and outperformed previous guidance, but then comes the catch and the reason why Elastic stock is down so heavily after hours. “We had a slower start to the year with the volume of customer commitments impacted by segmentation changes that we made at the beginning of the year, which are taking longer than expected to settle,” Kulkarni wrote. “We have been taking steps to address this, but it will impact our revenue this year.” With that warning, Elastic said that it expects fiscal second-quarter adjusted earnings per share of 37 to 39 cents on revenue of $353 million to $355 million. The earnings per share forecast was ahead of the 34 cents expected by analysts, but revenue fell short of an expected $360.8 million. It was a similar story for Elastic’s full-year outlook, with the company forecasting earnings per share of $1.52 to $1.56 on revenue of $1.436 billion to $1.444 billion. The earnings per share outlook was ahead of an expected $1.42, but like the second quarter outlook, revenue fell short, as analysts had expected $1.478 billion.
Elastic N.V. makes money via service and for-fee extras. I want to point out that the $300 million or so revenue numbers are good. Elastic B.V. has figured out a business model that has not required [a] fiddling the books, [b] finding a buyer as customers complain about problems with the search software, [c] the sources of financing rage about cash burn and lousy revenue, [d] government investigators are poking around for tax and other financial irregularities, [e] the cost of running the software is beyond the reach of the licensee, or [f] the system simply does not search or retrieve what the user wanted or expected.
Elastic B.V. and its management team may have a challenge to overcome. Thanks, OpenAI, the MSFT Copilot thing crashed today.
So what’s the fix?
A partial answer appears in the Elastic B.V. blog post titled “Elasticsearch Is Open Source, Again.” The company states:
The tl;dr is that we will be adding AGPL as another license option next to ELv2 and SSPL in the coming weeks. We never stopped believing and behaving like an open source community after we changed the license. But being able to use the term Open Source, by using AGPL, an OSI approved license, removes any questions, or fud, people might have.
Without slogging through the confusion between what Elastic B.V. sells, the open source version of Elasticsearch, the dust up with Amazon over its really original approach to search inspired by Elasticsearch, Lucid Imagination’s innovation, and the creaking edifice of A9, Elastic B.V. has released Elasticsearch under an additional open source license. I think that means one can use the software and not pay Elastic B.V. until additional services are needed. In my experience, most enterprise search systems regardless of how they are explained need the “owner” of the system to lend a hand. Contrary to the belief that smart software can do enterprise search right now, there are some hurdles to get over.
Will “going open source again” work?
Let me offer several observations based on my experience with enterprise search and retrieval which reaches back to the days of punch cards and systems which used wooden rods to “pull” cards with a wanted tag (index term):
- When an enterprise search system loses revenue momentum, the fix is to acquire companies in an adjacent search space and use that revenue to bolster the sales prospects for upsells.
- The company with the downturn gilds the lily and seeks a buyer. One example was the sale of Exalead to Dassault Systèmes which calculated it was more economical to buy a vendor than to keep paying its then current supplier which I think was Autonomy, but I am not sure. Fast Search & Transfer pulled of this type of “exit” as some of the company’s activities were under scrutiny.
- The search vendor can pivot from doing “search” and morph into a business intelligence system. (By the way, that did not work for Grok.)
- The company disappears. One example is Entopia. Poof. Gone.
I hope Elastic B.V. thrives. I hope the “new” open source play works. Search — whether enterprise or Web variety — is far from a solved problem. People believe they have the answer. Others believe them and license the “new” solution. The reality is that finding information is a difficult challenge. Let’s hope the “downturn” and “negativism” goes away.
Stephen E Arnold, September 2, 2024
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