Search Froth: Coveo Swallows Another $35 Million
November 7, 2015
If you believe in search, you will not feel nervous that a 10 year old information access company has required $67.7 million in capital. I don’t believe in search as a million dollar business. I struggle to understand how Coveo will generate enough sales to pay back the $67 million and change.
I read “Coveo Grabs $35 Million Series D.” Here’s a passage I highlighted:
The funding will fuel the expansion of Coveo’s operations and its strategy to become the de facto technology that businesses and enterprise platforms use to recommend the most relevant information, people, products and services for customer and employee engagement. The funding will help speed the launch of additional intelligent search apps for large enterprise technology ecosystems where contextual insights from outside the platform are critical to delivering unified, engaging experiences. Coveo also plans to make further investments in sales and marketing, R&D and product groups, and will also grow its team in those strategic areas of the business.
Yep, intelligent. Search based apps. Customer support. Rah rah.
I also circled this passage:
Coveo is experiencing an extended period of hyper growth, recently announcing many consecutive quarters of record-breaking growth and recent industry recognition. Growth stats include quarterly records for new customers signed, and quarterly revenue bookings that have more than doubled over prior years. In Q3, and for the second consecutive year, Coveo was recognized as the most visionary leader in Gartner’s 2015 Magic Quadrant for Enterprise Search. The company was also named a leader in Big Data Search and Knowledge Discovery by Forrester Research in September.
The write up invokes the Coveo Cloud and uses Attivio’s phrase “unified search.” There are references to content management. There are nods to the mid tier consultants who opine about search technology often without context or hands on experience.
But the subtext is clear: Coveo is in the same game as IBM Watson. But Watson is hitting the same barriers as its search precursors. Making money from a utility function is tough. With open source options, the business proposition supports a consulting business. But cranking out hundreds of millions from search technology remains a very tough job.
The search challenge is meaningful because enterprise search continues to drag around several financial albatrosses. There is the implosion of Convera which not even Allen & Co. could push to supersonic speeds. There is also the small matter of Fast Search & Transfer, its financial missteps, and the $1.2 billion that Microsoft paid for a company which has the distinction of a founder found wanting in the eyes of the law. And I have to mention
Autonomy. Yikes, Autonomy.
The point of these examples is to underscore several points:
- Investment in search and content processing seems to have a pattern of falling short of the revenue mark or the expectations of the purchasers of these gussied up outfits. Hey, it is history, folks.
- Open source search alternatives exist and are gaining wider acceptance. The business model of Elastic is to provide value added services, but the “customer” essential sells himself or herself.
- Wild and crazy IBM wants to reinvent search as cognitive computing. The bet is in the billion dollar range, and I think it faces insurmountable odds because the IBM model is somewhat similar to HP’s plans for search. How many big dogs fit in this kennel?
So what does a company do with tens of millions in funding after 10 years in business?
My hunch is that the investors want Coveo spiffed up and sold to a larger company. Once that deal goes through, the investors will breathe a sigh of release and move on to the next big thing—maybe investing in luxury safari resorts in Africa.
My hunch is that Coveo, like Attivio, BA Insight, Recommind, and X1, will have a very difficult time hitting Endeca’s revenue number of about $140 million when the company sold to Oracle. Talk about hundreds of millions in revenue is easy. Delivering sustainable, organic revenue requires more than buzzwords, pivots, and incantations from mid tier consulting firms.
In today’s market, selling Coveo and moving on may be the golden egg a decade old goose might be able to lay.
Stephen E Arnold, November 6, 2015
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