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Into the Enterprise We Go: Web Search Technology Companies Seek Stable Revenues in Corporate Sector
By Andrew Goodman, May 28, 2001
It's becoming a familiar pattern.
In order to stave off extinction, a dot com business reinvents itself as a software
provider, consultant, or application service provider for the corporate market.
This is as common in the search engine field as anywhere else. In the past year,
several high-profile search companies have made decisive shifts away from their
broad-based consumer search engine businesses and have begun offering custom services
for the corporate market. The highest profile of these have been CMGI flagship
AltaVista and publicly-traded Ask Jeeves. Similar patterns have been observed
in moves by search companies at various stages of development: Inktomi (publicly
traded); Moreover (VC-funded); Quiver (VC-funded); Atomz (VC-funded) and Wherewithal
(privately funded and seeking Series A funding).
Some of these transitions have been relatively sudden. Others, like Moreover's,
were likely built into the business model from the beginning.
When it comes to the highest profile consumer search properties, the trend may
be disconcerting, as careful analysis reveals that few search engines are entirely
focusing on their consumer dot com properties. Even if the major portal brands
MSN, AOL, and Yahoo may define themselves as consumer-focused, there is no assurance
that the search engine companies that power their search products - such as Inktomi
and Google - will still be around in their current form in a year or two. Shareholders
and investors tend to be hard-headed when it comes time to show a clear path to
profitability. Even the very popular Google has no proven business model as yet.
Selling a few advertisements might not pay the bills to keep the consumer search
engine running, and from what we understand, those are expensive bills given the
heavy usage of Google. So expect them to follow others in taking a harder look
at the market for enterprise search and other custom services.
A question that seems to be on a few people's lips these days is whether the pursuit
of corporate clients for search technologies is actually a good idea. But first,
here's a sketch of what's happening with some of the above-mentioned companies.
The Exemplar: Open Text
What other search engine companies
are struggling through today, Open
Text went through years ago. Open Text, founded in 1991, once stood alongside
Infoseek, Yahoo, Excite, Magellan and Lycos on the featured list of search engines
seen by all users of Netscape. They gained something of a name for themselves
in the early days for licensing their technology for the "back end" search for
Yahoo. Like several other Internet search engine companies, they believed that
advertising might be the way to pay the bills. But unlike the others, Open Text
saw the handwriting on the wall early on. In 1996, instead of keeping one toe
in the water as a consumer search engine, they bade farewell to the broad consumer
market forever and set about the business of building intranet solutions for large
corporate customers. After developing new applications for their technology, and
several key acquisitions later, they released an integrated product called Livelink,
which offered features like collaboration, multiple security levels, document
management capable of handling complex engineering documents and allowing revisions
and collaboration ("workflow management") amongst geographically-dispersed team
members, and so forth.
The company reached break-even
fairly soon after it found several blue-chip clients, including automakers, oil
companies, and pharmaceutical companies, for its high-end product. Today, Open
Text is comfortably profitable, having announced several consecutive quarters
of record profitability, including the most recent one. Many factors were likely
involved in making this bumpy road lead to success. One clear advantage was that
the company was able to use the proceeds from its IPO to ride out the transition.
Most companies won't be lucky enough to have reached the IPO stage when it comes
time for such a reckoning. Some that are post-IPO delay their strategic shifts
until the cash is almost completely burned. Open Text did the right thing in acting
as decisively as it did, while there was still money in the bank.
AltaVista
AltaVista ,
a pioneer in the field of indexing the whole Internet, lost focus in the dot com
boom. The company's diversification into glitzy general-interest content and a
free Internet Service Provider offering turned out to be de-worseification; it
was forced to shut down the majority of its "portal wannabe" and consumer shopping
properties starting in September, 2000. While it is still actively maintaining
its online search engine at AltaVista.com, clearly much of the company's hopes
are now pinned on its heavy-duty enterprise search solutions. AV recently added
Ticketmaster to their client list. In hindsight, the portal fluff was a big misstep
for AltaVista, merely an attempt to chase easy investor dollars in a financial
climate that was friendly to portals like Yahoo. When that unraveled, AltaVista's
dreams of a lavish IPO had to be put aside. Chasing actual customers and real
profitability is probably a sounder goal than chasing after the investment bankers'
fads-of-the-month.
As AV progresses with its enterprise search product, it just may get to that long-awaited
initial public stock offering. The consumer search engine may actually turn out
to be a profitable division in the long run, especially if advertising shows any
kind of rebound. Also, leading search engines are learning better how to monetize
the millions of targeted clickthroughs their searches are delivering to businesses.
At present, AV is a LookSmart Express Submit partner and GoTo Premium partner
- both generate revenue shares. Longer term, AV could conceivably replace GoTo
with an in-house pay-per-click model that would generate higher revenues. Given
these prospects, expect AV to keep a foot in both the enterprise and consumer
search engine camps indefinitely.
Ask Jeeves
The business model
for this natural-language-understanding, question-answering butler
has included the corporate market for some time, but it's now being emphasized more
strongly than ever. In essence, Ask Jeeves can offer large corporations at least a partial
"customer relationship management" (CRM) solution to help reduce the burden on human
helpline employees and cut costs. What's a bit different about this company is that
its online brand has continued as strong as ever. ask.com and ask.co.uk are very
popular search destinations, though this side of the business has been depressed
due to the ad downturn. A sign that the consumer side will be maintained is Jeeves'
recent acquisition of the assets of ETour, a quintessential "consumer surfer" property
with a large database of consumer info and major brand name adverstisers such as
Coke. In this case, it seems as if it would be foolish to give up on a serious generator
of cash flow. The consumer search engine business could in fact help to fund the
growth of the whole company. It will be interesting to watch; clearly, all financial
projections for the dot come side depend on the advertising market. If this fails
to rebound, then a more decisive transition to the enterprise may be needed.
In hindsight, this clever butler looks like he was asleep on the job in failing
to take advantage of his formerly robust stock price to make key acquisitions. Jeeves
might have done well to acquire technologies that could have made it a more credible
player in the field of customer relationship management or natural language search
technology. The company paid too much for Direct Hit, the "popularity ranking" engine,
and failed to pick up other needed pieces of the puzzle. (Recall how swiftly Open
Text moved to build a suite of interrelated services through an acquisition spree
shortly after its shift in strategy.)
But regardless of its prior missteps, it looks like Jeeves was right all along in
saying that its software solves key problems for corporations trying to control
their CRM costs. On May 23rd, the company announced yet another partnership - this
time with automaker Mazda. The release reads in part:
Ask Jeeves Business Solutions, a division of Ask Jeeves, Inc., today announced
that Mazda North American Operations has selected Ask Jeeves to help deliver superior
online support for its customers. Ask Jeeves will build on its experience answering
more than 1,000,000 automotive-related questions per month on corporate customer
Web sites and on Ask.com to help Mazda anticipate customers' questions and direct
them to relevant information about the company's products and services. Mazda
joins other automotive industry leaders Ford Motor Company and DaimlerChrysler
as clients who also benefit from Ask Jeeves solutions.
"Because we are able to leverage a significant amount of industry-specific knowledge
from frequently asked questions on Ask.com and customers' sites, we implemented
a highly targeted, customized solution for Mazda within weeks," said Claudio Pinkus,
president of Ask Jeeves Business Solutions.
Moreover
Moreover
attained ubiquity by distributing its revolutionary approach to real-time topical
news search into the hands of many thousands of smaller webmasters. The party isn't
over for these webmasters, as the basic Moreover "web feeds" are still freely usable.
But Moreover doesn't make money from this. Its business model depends on selling
higher-powered competitive intelligence services to the corporate sector. In addition,
though Moreover began by helping small publishers generate clickthroughs to their
content for free, new publishers are now required to pay a monthly fee of $250,
which includes tech support and up to 2,500 clickthroughs.
This strategy was more or less premeditated, and follows a common enough pattern
in the technology industry. Products like Microsoft Windows became the standard
by being installed on the systems of personal computer users, but this market was
never going to make Microsoft into the giant it is today. The plan all along was
to sell operating systems and office software to the corporate market.
[See Olivier Travers, The Free Internet is Dead,
Long Live the Free Internet , for a useful related article.]
Atomz
Atomz developed an industry-leading search engine that offered
small webmasters site search capability. Many thousands of webmasters adopted
Atomz' robust and free solution. Today, Atomz has passed several funding milestones,
and is offering higher-end enterprise-grade search and content management products.
Atomz seems to be truly a story about business models. They have focused on distribution
strategies, relationships, and the competencies needed to be successful as an
Application Service Provider. There are no technological magic bullets here, and
few boastful claims about being cool or #1. Most companies in this field will
probably sink or swim on the same basis.
Quiver
When I first interviewed
execs from Quiver , CEO Scott Potter had recently arrived and had already
led the first of two strategic shifts the company would undergo. At its formative
stages, the company was little more than a technology - a set of algorithms being
developed by graduate students in Israel. Their technology was essentially a cousin
of the type of cognitive science that powers Google. Following Potter's arrival,
the new plan was to build directories for vertical portals such as their early
customers Gay.com and GORP.com . Getting the product out into the knowledge management
area for thousands of similar sites, Quiver thought, might be a neat way of becoming
something like a cross between LookSmart and Inktomi.
Unfortunately, the plan didn't work as well as it might have. There are considerable
costs involved with providing custom services to a larger number of medium-sized
companies, and these companies often don't have pockets deep enough to pay the
cost of the service. By comparison, a company such as Ask Jeeves is likely getting
solid payback on the staff time it invests in building CRM solutions for much
larger companies like Ford.
So Quiver has now refocused once more, aiming more squarely at the enterprise
market, and working to refine - and better explain - how its unique filtering
and ranking technology can provide superior relevance in the corporate quest to
streamline and improve knowledge management. Quiver has hired a seasoned former
Inktomi executive to lead the charge into the corporate market. Last time we talked,
I heard that they now have three or four large customers.
Oingo = Applied
Semantics
Oingo , a company which has been building a proprietary lexicon
and concept map whose purpose is to push Internet search technology towards recognition
of concepts as opposed to "dumb" keyword pattern matching, has changed its name
to reinforce its focus on developing business applications for the technology.
The new company is called Applied Semantics and will have three divisions working
on (1) knowledge management for the enterprise; (2) naming solutions for customers
such as domain name registrars, and (3) e-commerce solutions such as technology
to link online advertising with the meaning of web site content. It's likely that
Oingo's moves away from the consumer focus and towards developing business applications
were what netted it a successful venture funding round led by Zero Gravity Venture Partners. Longer
term, one can still envision major search engines such as AltaVista licensing
the linguistic technology. But without a focus on applications which can generate
revenues in the short term, Oingo might never have hung around long enough
to follow through on its promise. An Oingo competitor, SimpliFind, sold out early
in its development to (now struggling) free Internet service provider NetZero
for about $23 million.
Wherewithal
Wherewithal 's CEO, Steve Thomas, a former senior
developer for Netscape, along with co-founder and CTO Darrin Skinner, began work
in 1999 on a set of ideas about knowledge management and web search that were
principally intended to overcome the shortcomings of directories such as Yahoo
and LookSmart: what Thomas refers to as the "fixed taxonomy problem." In general,
the two felt that existing approaches to building a large scale search solution
- especially those which required human intervention - were like pea shooters
compared to the advanced weaponry that is needed to keep up with the growth of
a massive amount of online content.
While Wherewithal's demo versions have so far been all about showcasing the system's
technical superiority and scalability in comparison with dot com competitors such
as the Open Directory Project and Yahoo, and about highlighting (much like Quiver)
the potential to provide custom human-edited directory services and search technology
for vertical portals, the company is now gearing up to tackle the corporate market.
Essentially, it will be targeting the same types of large companies that currently
use search technology from providers such as Autonomy, Verity, Semio, and the
like. At this stage, it appears that there is room for several players in this
"taxonomy building" business, as the different providers seem to offer different
flavors of solution. Wherewithal seems to be pursuing a path that LookSmart considered
following, but never did: the provision of software and services that would allow
companies to build custom directories with flexible, customized taxonomies. Since
LookSmart (or Yahoo, for that matter) never thought much about the kind of technology
that would be needed to provide such products at a reasonable price, it seems
as if Wherewithal is aiming at a relatively wide-open niche. They are still facing
that chicken-and-egg question, though. The first large customer is needed to validate
their solution so that they can pursue other customers and much-needed funding.
I have heard off the record that a couple of blue chip customers are close to
signing Wherewithal; there is also a large-scale scientific research project that
is considering the Wherewithal solution.
Pros and Cons
Analysts have cited
a number of real or imagined drawbacks may go with the territory of chasing Fortune
1000 class clients. Cons include:
- If too many companies
in the same sector target the corporate market, they'll all be "chasing the
same dollars."
- The sales process
may be long and involved. It may take a long time to hook a blue chip client.
This can lead to unpredictable revenue projections, at least as bad as projections
for such current market no-no's as ad revenues.
- If your company's
revenues depend almost entirely on two or three very large clients, it's really
an all or nothing proposition. When times are good, you may be very profitable.
If trends change, if the client decides to go with a competitor, etc., it's
more than a slight setback -it could mean rapid extinction.
- A shift to such
a strategy in mid-stream is risky, especially with minimal capital and/or a
strong burn rate. MobShop, formerly a consumer group buying service now trying
to sell software to the corporate market, had to lay off 60% of its staff in
spite of the shift in strategy, and there is no assurance that the shift will
succeed.
- A dot com company
might not (at least not yet) have the right people or the right products to
truly win over exacting corporate clients, or to smoothly penetrate corporate
culture. It might be better not to go into a meeting with the title "Biz Dev
Yahoo." As far as image goes, a company like Open Text has a comfortable-sounding
name, but as we saw, Oingo felt the need to change to Applied Semantics. MobShop,
already through one name change (it used to be called Accompany.com), may find
itself facing an uphill battle with its current name.
- It might not
be ethical to use the consumer market as a testing ground when the plan all
along is to abandon this market. Companies that are forced to switch strategies
can be excused, perhaps, whereas those who have built a hybrid model from the
beginning (for example Moreover and Ask Jeeves) have more of an obligation to
continue providing service to consumer and small business clients.
Advantages
- Blue chip clients
are just that. Robbing banks makes sense "because that's where the money is."
- While there may
be a huge amount of potential revenue in the consumer market, for example in
advertising revenues, usually it takes a strong brand to compete in this sector.
On the other hand, in the B2B sector, an experienced sales staff can sell a
superior product to just a few key companies, and from there, others may follow
suit. Niche products are more likely to thrive in this sector, if they solve
a significantly large problem for the enterprise.
- Your customers
may tell you exactly what it is they need. So you wind up doing a better job
of tailoring your products and services, and the growth of your business, to
real market demands.
- You can credibly
offer ongoing support with a smaller, well-trained team, and bill for the privilege.
By contrast, when dealing with a large consumer market, you'll need a much larger
complement of customer support staff. But no matter how large the staff or how
good the automated help, there will likely be a persistent element of dissatisfaction
in a broad consumer-based Internet operation even though these customers typically
don't contribute much, if anything, to the bottom line.
- Depending on
the product, you may be successful in finding resellers who are experienced
in suggesting solutions in your field to appropriate customers. This extra layer
can help build one's market share even without a lot of in-house sales experience
or resources to get the product or service into the appropriate channels. Netscape
actually acted as a reseller of aspects of Open Text Livelink in the first year
of Open Text's life as an intranet company.
- Corporations,
while they would like to think that they are careful in their IT expenditures,
are not necessarily any more rational than consumers. There is a good possibility
that relationships and happenstance can lead a certain number of important companies
to choose Solution A over Solution B, even if Solution B might be objectively
superior. I'm not saying corporations engage in random behavior, but I have
always felt that there was some small truth to the Garbage Can Theory
of decision making, which suggests that decision-making in organizations is
often irrational, and based on such understudied minutiae such as timing, physical
proximity, memorable jokes told by a speaker at a conference, etc. Laugh at
Cohen, March, and Olsen's theory all you want... but reflect on (just for example)
all the jobs you, your parents, and your siblings have had in their lifetimes,
and think about how structured and predictable the process was. The bottom line:
when you're dealing with large organizations, you'll be frustrated with bureaucracy,
on one hand, but on the other, if you get your foot in the door and have some
seasoned sales reps on staff to build relationships, you always have a chance.
Just ask Open Text.
It was a long and likely painful transition from sexy search engine technology
to full-service intranet builder. But it has turned out to be a profitable move
in the long run.
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