Two weeks ago, Microsoft ponied up $1.2 billion to buy a leading player in enterprise search, a growing corner of the market that isn't...
Two weeks ago, Microsoft ponied up $1.2 billion to buy a leading player in enterprise search, a growing corner of the market that isn’t dominated by Mountain View. Yet.
If the deal goes through as expected in the second quarter, the acquisition of Fast Search & Transfer, based in Oslo, Norway, will rank among the six largest in Microsoft history.
So what is Microsoft getting with this big buy?
It’s a broad set of technologies and talent that could help Redmond in key areas, including the broader Internet search market where Google’s huge lead.
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More directly, the acquisition signals Microsoft is serious about enterprise search, a market still very much up for grabs.
The largest player, Autonomy, had only 15 percent of the market in 2006, according to research firm IDC.
Fast claimed nearly 9 percent and Google, based in Mountain View, Calif., was close behind with 8.5 percent — though growing at a faster rate.
Enterprise search comes in several forms, each fulfilling a different and growing array of functions inside a business.
In general, these tools are designed to address information overload and save time spent sifting through multiple databases and archives, corporate intranet sites, public e-mail folders and other repositories.
Microsoft Business Division President Jeff Raikes, in a conference call explaining the bid for Fast, said why those tools could be attractive.
A company with 1,000 “information workers,” he said, citing IDC research, can expect $5 million a year “in annual salary costs to go down the drain because of the time that is wasted looking for information and not finding it.”
Particularly for companies in information-intensive or regulated industries, search is becoming the starting point for many tasks — in much the same way it has become the starting point for navigating the Internet.
But enterprise search is still a small, fragmented market. IDC pegged it at $1.4 billion in 2006, up 38 percent from the previous year.
Figures for 2007 aren’t yet available, but IDC analyst Susan Feldman said a conservative estimate is annual growth of 20 percent.
In a forthcoming research report, Feldman will look at adoption of enterprise-search technology.
Only 21 percent of the 450 enterprise companies she surveyed had bought some form of search or categorization technology. Another 21 percent plan to in the next two years.
Hundreds of small companies are working on software and systems to scour a business’ digital resources and quickly bring back relevant information, regardless of where or how it is stored.
They provide different solutions for different scenarios.
The call-center worker with a customer on hold needs a quick, definitive answer, not a list of 200 documents to thumb through.
A biotechnology researcher may want a brain dump of everything the company knows about a particular molecule, and everything that’s been published about it in scientific journals.
This kind of search has to be able to peer into data stores and applications from different vendors and find information in “every format under the sun,” Feldman said.
The tools also have to be able to limit access to certain information within a company — think human-resources data or trade secrets.
Another segment of enterprise search involves functions used by customers on e-commerce and media sites, for example.
Microsoft had entered the business-search market before its bid for Fast.
In November, it launched a free search-server product targeted at small businesses and a related offering geared for midsize firms.
“With Fast as a high-end product, they can cover the market,” Feldman wrote in a note analyzing the acquisition.
The lower end of the market is crowded with the big names of Internet search: IBM has a free version of its OmniFind tool, released in partnership with Yahoo.
The Google Search Appliance, a server and search software package, starts at $30,000 to search up to half a million documents. (Google offers an even smaller search tool that can handle 50,000 documents for less than $2,000.)
Google is clearly pushing larger deployments for its enterprise search offerings, too, although they’re not as powerful as more expensive products — including those from Fast.
Google’s search appliance has about 10,000 customers, including some very large ones. “Honeywell serves more than 500,000 employees and visitors to its public Web site using Google appliances,” Matt Rosoff, analyst at Directions on Microsoft, wrote in a November review of the enterprise search market.
“Response to Google”
Lee Nicholls, global solutions director with IT services company Getronics, sees Microsoft’s bid to acquire Fast as a “response to Google” which is “doing a great job of selling its search appliance.”
But Google’s low price could actually be hurting it in some large organizations, where the search appliance is being “spectacularly underutilized.”
“In some large organizations, the more expensive something is, the more seriously you take it,” Nicholls said.
Knowing this, Nicholls said, Microsoft is trying to leverage its existing products to make sure its search technology will be used. Foremost among these products is SharePoint, “one of Microsoft’s most successful products and one of its biggest selling.”
The company has sold more than 85 million copies of the software, a back-end platform for managing collaboration and business information that Microsoft is positioning as a “hub” for its other enterprise products.
“Everything revolves around SharePoint,” Nicholls said. “Everything connects to it, and everything is fed by it. The problem in the enterprise is that doesn’t necessarily mean good search technology.”
With the Fast acquisition, Microsoft will try to address that shortcoming in a big way, expanding its capacity from tens of millions of documents to billions.
“They have clearly messaged the market that they’re serious about scaling SharePoint for the enterprise,” said Jeff Dirks, CEO of Kirkland’s SchemaLogic, which helps companies make their internal data more searchable and has worked with Microsoft and Fast products for five years.
Outside of businesses, Fast’s technology and expertise are viewed as the latest would-be cure for what ails Microsoft’s Web search efforts.
MSN/Live Search had about 13.8 percent of the U.S. search market last month versus Google’s 56.3 percent, according to report Friday from Nielsen Online. Google lost market share last month, the first in some time.
IDC’s Feldman noted that Fast started out as Web search engine AlltheWeb, which it sold to Yahoo. Bjørn Olstad, Fast’s chief technology officer, is “one of the information retrieval gods,” she said.
Microsoft’s Raikes acknowledged company leaders discussed the relevance of Fast’s work in Internet search while considering the acquisition, but gave no specific plans.
With more big players ramping up their enterprise search efforts, Dirks said the price Microsoft offered for Fast — 19 Norwegian kroners per share, or a 42 percent premium, as Microsoft put it — could indicate that other buyers were sniffing around the company.
But Ali Riaz, Fast’s former chief operating officer who left in 2006 to start his own enterprise search company, Attivio, had another reading.
Not so great
Investors and employees who bought Fast stock or received options priced higher than 19 kroners per share look at the price and think “there’s nothing premium about it,” he said, noting that two years ago, the company’s shares were trading at 26 kroners.
Given the competition for talent, particularly in search, rewarding the Fast employees — or at least not punishing them by buying the company on the cheap — could help engender some loyalty to Microsoft.
Benjamin J. Romano: 206-464-2149