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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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