HP Autonomy: Tax Methods and a Sidewalk Guarantee

December 3, 2014

I watched Dr. Mike Lynch on CNBC explain, quite patiently, that Hewlett Packard struggles with accounting procedures. He pointed out that HP created a document that explains how a rebasing exercise created the magical billions written off the $11 billion purchase price of Autonomy.

The story gets some legs in “Document Raises Questions on HP’s $8.8bn Write Down of Autonomy.” Note that this a Financial Times’s document and you may have to pay to view it, assuming it is still online when you read this blog post. The link I am providing plunked me in the middle of a wonky “slide show” with the article stuck on the lower edge of the PowerPoint.

The write up reports that Mike Lynch was fired and a team of HP professionals started work on a rebasing exercise. My thought is that if one is going to spend $11 billion, one might want to do one’s homework BEFORE turning over the cash and buying the company.

Dr. Lynch is quoted by the FT as saying:

“The document was completed a month after HP made those allegations and any future valuation of the company would have had to include them. HP’s own court filings repeatedly assert the rebasing analysis includes the effects of the allegations,” he said.

In terms of time, HP purchased Autonomy in October 2011. Autonomy had discussed selling with other companies. Autonomy tapped the expertise of Frank Quattrone and his colleagues at Qatalyst Partners. Oracle posted some information about the Quattrone pitch deck in September 2011. You may be able to snag a copy at http://www.oracle.com/us/corporate/features/please-buy-autonomy-503330.html.

Autonomy is unique among vendors of enterprise search systems. It was the first company to generate revenues from enterprise search in excess of $600 million. At one time there were more than 60 vendors competing directly with Autonomy. Some like Convera and Siderean Software ran into financial difficulty. Others like Fulcrum Technologies, iPhrase, Exalead, ISYS Search Software, and Vivisimo among others were able to find buyers before the market contracted more. Most vendors of enterprise search either scrambled to reposition themselves or develop technologies that positioned the companies to provide something other than search which was by 2008 accelerating on a path to becoming a low value utility.

HP, as I recall, performed due diligence. After doing the MBA and CPA thing, the company paid $11 billion for a company that after 15 years of invention, innovation, great marketing, and savvy acquisitions was at full sail. At the time of the deal, proprietary search was under assault from open source options that were simply “good enough.” HP bought at a time when valuations of search companies was not just softening, valuations were downright mushy.

HP, I assume, is smarter and more informed than I. HP bought Autonomy, and HP quickly demonstrated its buyer’s remorse. The groaning and moaning about Autonomy not being worth $11 billion is becoming a bit tiresome.

I envy Dr. Lynch for his ability to maintain his poise and temper. I am not sure I would have advised HP to purchase Autonomy. I know what happened to AltaVista, which HP converted into jet fuel for Google. I know that the company has been plagued by management upheavals and products that seem to have wandered from the HP way. Ink is profitable, but it is not a refined scientific instrument. Now HP’s senior manager is garnering some attention due to Pando.com’s write up “Documents Show How eBay’s Meg Whitman and Pierre Omidyar Conspired to Steal Craigslist’s Secrets.” If true, I wonder how reliable HP is today when it comes to presenting facts in a fair and accurate manner.

Exalead commanded a sale price of about $200 million. Oracle paid about $1 billion for Endeca. Microsoft paid $1.2 billion for Fast Search & Transfer. Vivisimo went for a modest $20 million. Now along comes HP dragging the history of its mishandling of AltaVista.com and ponies up $11 billion. I found that number pretty darned amazing, and I have done work with some pretty crazy investment bankers over the years. HP paid the equivalent of the purchase price of nine Fast Search & Transfers, a company that landed in hot water for its financial methods. HP paid the equivalent of buying more than 50 Vivisimos. Consider $20 million or $1.2 billion versus $11 billion. Yowza. What the heck were the consultants advising HP using as a valuation scorecard?

My view is that HP wants its money back. I remember when I bought a 1955 Oldsmobile from a used car dealer on the bad side of Peoria, Illinois. I asked, “Does the car come with a warranty?”

The dealer looked at me and said, “See that sidewalk? When you drive the car off the lot and hit the sidewalk, you get a sidewalk guarantee.”

I had no idea what a sidewalk guarantee was. I asked, “What’s a sidewalk guarantee?”

The dealer replied, “When you cross that sidewalk, you are responsible for any problems with the car.”

HP is now struggling to understand “sidewalk guarantee.”

Stephen E Arnold, December 3, 2014

Private Investor Buys Metalogix

November 13, 2014

SharePoint support and add-ons are big business, and there is news this week of a major shakeup in the market. Permira Funds just announced their purchase of Metalogix. Read more in the CMS Wire article, “SharePoint Shakeup: Private Investor Acquires Metalogix.”

The article says:

“Metalogix spent the latter half of 2013 buying out some SharePoint technology to boost its content infrastructure software suite. Permira Funds is spending time a year later buying Metalogix. The Menlo Park, Calif. international private equity firm announced today it acquired Metalogix, known for its suite of Microsoft management platforms that include SharePoint, Exchange and Office 365 . . . Metalogix, based in Washington, DC, fattened its SharePoint suite last year, making it an attractive acquisition target.”

The news may affect some customers more than others, in terms of day-to-day operations, but many are waiting to see how the move affects the overall market. Keep an eye on enterprise specific resources like ArnoldIT.com from Stephen E. Arnold, a longtime leader in search. His SharePoint feed is a great way to stay in tune with the latest news, tips, and tricks.

Emily Rae Aldridge, November 13, 2014

Unicom Global Acquires Cognos

November 10, 2014

Catching up on old news: Just wanted to document that Cognos is no longer part of IBM. “Unicom Global Acquires Cognos Finance Business Analytics Software from IBM Corp.” The write up does not make clear exactly what Unicom acquired nor how much money IBM received in the deal. Presumably Unicom paid cash. Presumably IBM did not pay Unicom to take the Cognos bundle off its hands. For IBM analytics’ fans, you don’t need to worry. IBM owns SPSS and the dozens of systems and methods developed at its various research labs. Anyone remember Web Fountain?

Stephen E Arnold, November 10, 2014

Wall Street Journal Forecasts Microsoft Purchase of Equivio

October 23, 2014

The article titled Microsoft to Buy Israel Text-Analysis Vendor Equivio: Report on ZDNet covers the potential purchase reported recently by the Wall Street Journal. According to the article, Equivio’s main draw for Microsoft is the product Zoom, a legal tool for document organization. The article states,

Equivio has been working with Microsoft technologies, including Windows XP, SQL Server and SharePoint Server, since 2006, if not earlier. The company develops text-analytics products for legal and compliance e-discovery tasks. Its main product is Zoom “a court-approved machine learning platform for the legal area”. Zoom organizes collections of documents in meaningful ways, while quantifying and visualizing the decision space. So you can zoom out for the big picture. Or zoom in to find just what you need.”

The price of the purchase is reported at $200 million dollars. This may sound steep, but makes sense when some of the users of Zoom include The U.S. Department of Justice and the Federal Trade Commission. Microsoft has been in the habit of buying up text-processing technology, and has overseas cash to spend on companies outside of the U.S. (only a month ago Microsoft spent 2.5 billion on Mojang, the Stockholm-based Minecraft creator.) Microsoft had no comment on the deal, but the Wall Street Journal has been right before.

Chelsea Kerwin, October 23, 2014

Sponsored by ArnoldIT.com, developer of Augmentext

Jetpac the Visual Search App Acquired by Google

September 10, 2014

The article on TechCrunch titled Google Buys Jetpac To Give Context To Visual Searches describes the latest app acquired by Google. Jetpac is an app used to guide tourists and city-dwellers around the hottest bars and most relevant hang-outs for a particular user. Using Instagram data, Jetpac helps its users determine what a coffee shop actually looks like and what the atmosphere is like based on the visual cues from Instagram. The article states,

“Jetpac’s system looks for visual cues like the amount of pictures with mustaches in them to determine the fashion style or how many hipsters are in a certain location. This provides unique contextual information about an area where the photo was taken. It can tell you whether a coffee shop is actually chill like the reviews say or help you find bars women in their 30’s love, for instance. This goes beyond just a Yelp or Google Maps review…”

Clearly, Google is still chasing satisfactory visual search. The CEO of Jetpac is “computer vision expert” Pete Warden. His work in producing real-time local object recognition for his app may help to improve Google Goggles as well. While information about the acquisition has not yet been released by Google, we do know that Jetpac will no longer be available in the App store in the coming days.

Chelsea Kerwin, September 10, 2014

Sponsored by ArnoldIT.com, developer of Augmentext

Galaxy Consulting Explains Vivisimo at IBM

September 5, 2014

The Galaxy Consulting Blog shares information on all things information. Recently, they spelled out details on one of IBM’s smarter acquisitions in the profile, “Search Applications – Vivisimo.” In our opinion, that outfit is one of the more solid search providers. The write-up begins with a brief rundown of the company’s history, including its purchase by IBM in 2012. We learn:

“Vivisimo Velocity Platform is now IBM InfoSphere Data Explorer. It stays true to its heritage of providing federated navigation, discovery and search over a broad range of enterprise content. It covers broad range of data sources and types, both inside and outside an organization.

“In addition to the core indexing, discovery, navigation and search engine the software includes a framework for developing information-rich applications that deliver a comprehensive, contextually-relevant view of any topic for business users, data scientists, and a variety of targeted business functions.”

As one should expect, InfoSphere handles many types of data from disparate sources with aplomb, and its support for mobile tech is a feature ahead of the curve. Perhaps most importantly, the platform boasts strong security while maintaining scalability. See the article for a detailed list of InfoSphere’s features.

Before IBM snapped it up in 2012, Vivisimo passed through the hands of Yippy, which had purchased it in 2010. The firm is headquartered in Pittsburgh but maintains other offices on the East Coast and in Europe.

Cynthia Murrell, September 05, 2014

Sponsored by ArnoldIT.com, developer of Augmentext

Hewlett Packard May Sue Accounting Firm over Autonomy Deal

August 30, 2014

Hewlett Packard fatigue is nibbling at my consciousness. I read “Hewlett-Packard Plans to Sue Deloitte’s UK Arm over Autonomy Audit.” HP appears to find others to blame for its decision to purchase Autonomy. The write up says:

Hewlett-Packard plans to sue the UK arm of accountancy firm Deloitte over its role in auditing Autonomy, the software company HP acquired but later accused of inflating financial figures, a lawyer for the US company said in court on Monday.

The Autonomy matter does keep HP in the news. However, the steady background hum of allegations about impropriety at Autonomy are like white noise. After a short time, the sound fades away.

The Autonomy matter, like the Fast Search & Technology financial restatement, suggests that search is a tough business to make into a massive, sustainable revenue stream.

Buying search technology appears to deliver headaches to those involved. Do the Autonomy and Fast Search issues suggest that content processing is easy to talk about and tough to turn into solutions that make everyone involved happy. Ooops. One group is very happy: the lawyers.

Stephen E Arnold, August 30, 2014

Salesforce Snaps Up RelateIQ

August 20, 2014

Bubble? What bubble? ZDNet informs us that “Salesforce Acquired Big Data Startup RelateIQ” for a sum approaching $400 million. The deal will be Salesforce’s second-largest acquisition, following their purchase of “marketing cloud” outfit ExactTarget last year for $2.5 billion. Reporter Natalie Gagliordi writes:

“According to a document filed Friday with the Securities and Exchange Commission, Salesforce will pay up to $390 million for the Palo Alto, California-based startup, which provides relationship intelligence via data science and machine learning. RelateIQ will become a Salesforce subsidiary, the filing says.

“On its website, RelateIQ says it’s built ‘the world’s first Relationship Intelligence platform’ that redefines the world of CRM. In a nutshell, the platform captures sales data from email, calendars and smartphone calls and social media to provide insights in real time.”

Relationship intelligence, eh? That’s indeed a new one (outside the discipline of sociology, anyway). RelateIQ launched in 2011, based out of Palo Alto. In nearby San Francisco, Salesforce was launched in 1999 by a former Oracle exec, Now, their success in cloud-based customer-relationship-management solutions has them operating offices around the world. Will their spending spree pay off?

Cynthia Murrell, August 20, 2014

Sponsored by ArnoldIT.com, developer of Augmentext

The Guardian Explores HP Autonomy

August 16, 2014

I read “Hewlett-Packard Allegations: Autonomy Founder Mike Lynch Tries to Clear Name.” The British “real” newspaper focuses on Mike Lynch, the founder of Autonomy. I am convinced that Autonomy pitched the value of its company to a number of firms. I know that Hewlett Packard bought Autonomy. I assume that spending $11 billion was not a K Mart blue light special impulse purchase. I know that HP has had what the MBAs call “governance challenges.” These range from allegations of getting frisky with folks to management churn. I know that for me, the HP of electronic devices yielded to the HP of the ink cartridges.

Here’s a point I highlighted in the Guardian’s write up:

Meanwhile, lawyers on all sides are using legal privilege to sling mud. Lynch says it is not only his name that has been stained, but that of the British technology industry. Autonomy’s accounting and marketing methods had attracted criticism before the HP acquisition, but Lynch was also a poster child for the achievements of Cambridge’s Silicon Fen. The Autonomy affair casts a shadow, and a conclusion from the SFO is overdue.

I have a slightly different view of the dust up. Folks want to believe that information retrieval will generate another Google. Because of those expectations, executives whose expertise in search extends to running a Google search on a mobile device assume they know about content processing.

When buyers get excited about a purchase, some people buy Bugatti Veyrons and spring for gold iPhones. Others snap up search companies and expect the money to roll in like the oohs and aahs at the golf club when the Veyron rolls up.

Wrong. The dust up between HP and Autonomy is an illustration of what happens when folks without too much understanding of content processing’s complexities covet a home run. The impact does affect Mike Lynch, a Cambridge PhD and real live inventor.

The collateral damage is on the buyers of search companies who toss millions at a sector without understanding how difficult it is to create a search company that is not selling ads or living exclusively on Department of Defense largesse.

HP bought a company with a strong brand, customers, and technology that when properly resourced works. HP did not buy a Google scale money stream, a Palantir clinging to the US government, or a break even metasearch system.

The impact on the reputation of Autonomy professionals is significant. What does this dispute do to other search and content processing companies? Search is tough enough without having a megaton dispute played out in the datasphere.

HP did not have to buy Autonomy. Microsoft passed. Oracle passed. HP bought. HP had time and resources to dig through Autonomy. If it did not, then HP created its own problem. If it did, HP created its own problem. Autonomy, with 15 years of history, was looking for a buyer. My hunch is that HP was looking for a Google and bought a different business because HP convinced itself it could generate more money than Autonomy could. HP found out that it could not match Autonomy’s revenues. Whom does any self respecting MBA or lawyer blame? The other guy.

This hassle says much about HP. Sadly it affects other search and content processing companies as well.

Stephen E Arnold, August 16, 2014

Quote to Note: HP and Autonomy

August 5, 2014

I read “HP and Autonomy Bitter Battle.” I found the write up interesting, but I remember my high school Latin teacher offering some phrases to learn. One of them was caveat emptor. According to the Cornell Law Web site, the catchphrase put shoppers on alert when prowling the more interesting shops in 2nd century BCE Rome.  The translation which even aspiring and real lawyers learn is:

Let the buyer beware.

The BBC article is less evocative than Milton’s reference to a blue mantle, but it did contain one quote to note for my collection. After explaining the $11 billion deal, the story offers:

The two sides have been at war since HP had to write off most of the purchase price in what now looks like one of the worst deals in corporate history.

I fancy the superlative. The BBC’s position is clearly stated:

What is far from clear amidst the claim and counter claim is whether Autonomy did break any accounting rules in the run up to its sale to HP – and if so, why that was not spotted in the process of due diligence which is a key part of any such deal.

There was one Autonomy when the deal was closed. Prior to the purchase, there were many HP directors, officers, and accountants going over the deal.

I know that Mike Lynch is a pretty bright guy, but was he smart enough to outwit so many folks with green eyeshades, MBAs, and HP calculators?

I have a modest question racing through my mind:

Who was on the HP Board of Directors when the deal was approved?

I may look up the names of this roster of business and technical luminaries some day. I wonder if Meg Whitman recalls who gave the green light for the biggest deal in enterprise search and content processing history?

Even the relatively swift Microsoft paid $1.2 billion for a search company that subsequently was found to have done some fancy dancing with its revenues. HP’s team paid 10 times as much and has become a business school case study for “what now looks like one of the worst deals in corporate history.”

Yikes. Enron displaced?

Stephen E Arnold, August 5, 2014

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