Microsoft Passed Over Cambridge Enterprise Search Firm Endeca Before Acquiring Norway’s Fast
A Microsoft product manager says the software giant evaluated several companies selling advanced search tools for businesses, including Cambridge, MA, startup Endeca, before deciding to offer $1.23 billion for Fast Search & Transfer of Oslo, Norway, which has a 200-employee outpost in Needham, MA. But that may be just as well for Endeca, in light of uncertainty over Microsoft’s plans for Fast’s Massachusetts employees.
Microsoft’s bid for Fast, announced January 8, is intended to help round out its product selection in the area of “enterprise search,” meaning software that companies implement to help customers find products online or to help employees navigate internal corporate knowledge bases. Fast provides a range of heavy-duty search technology used by big companies such as the Washington Post, Getty Images, Best Buy, and Lexis Nexis to manage their intranets, their external-facing corporate sites, and their public databases. Microsoft, by contrast, offers two lower-end search-related software products: Search Server 2008 Express for small businesses and SharePoint Server 2007 for medium-sized organizations.
Jared Spataro, group product manager for enterprise search at Microsoft, told me that the company decided about two years ago to add major features to SharePoint, which mainly provides a collection of collaboration and document management tools. “Search bubbled to the top very quickly, based on customer research,” Spataro says. “Starting in October of 2006, we introduced some of our own innovations—Search Server Express is a great example—and we also started to look around at what an acquisition could get us. We certainly looked at all the high-end vendors—Autonomy, Fast, and Endeca—to see what we could get.”
Endeca is known for its “guided navigation” aids that organize search results into relevant categories, while San Francisco-based Autonomy focuses on servers that retrieve information using Bayesian inference and other advanced forms of pattern matching. Asked whether Microsoft’s evaluation of Autonomy or Endeca advanced to the stage of actual acquisition talks, Spataro demurred. “Microsoft explored a variety of ways to increase its investment in this rapidly growing market segment,” he said. “However, we do not disclose specifics of those discussions.”
Spataro did, however, list several reasons why Fast stood out against its competitors. “First, they had an incredible vision for what search could be, and they’ve extended that vision through leadership; one great example is their FastForward conference, which they’ve made into an event for the whole industry,” Spataro says. “Number two was their people—we felt they had the best minds out there when it comes to understanding search. Number three was the technology. We were very impressed with it, after spending time with it ourselves and consulting with analysts.”
Spataro says that Microsoft was especially impressed with Fast technology that helps users refine search results by entering additional details as they go. “In Internet search, you ask a question through a couple of keywords, and you get tens or hundreds or thousands of pages of results,” he says. “But with Fast, if you go to BestBuy.com—which has really built their business on Fast technology—and you are looking for a computer or an MP3 player, you can ask a question, and then you can narrow it down, say, to MP3 players for less than $200. Slowly but surely you can refine that question until you have exactly what you are looking for.” (While those features are similar, on the surface, to Endeca’s guided navigation aids, Endeca says its software is specialized for data with more built-in structure.)
Outside observers say the acquisition makes sense for Microsoft, especially given the company’s desire to catch up with Google in the market for search technology. “Microsoft does not have search as its core DNA, and they desperately want to have search as their core DNA, so I think this was a smart acquisition, to go after the higher end of enterprise search,” says Tom Wilde, CEO of local multimedia search startup EveryZing and a former vice president of marketing for Fast.
Wilde says Fast is a better match for Microsoft than either Endeca or Autonomy, both because Fast’s technology is capable of indexing so-called “unstructured” or non-textual data, and because the company offers a variety of software products ranging from mobile search to legal discovery and regulatory compliance. “Endeca has really done a nice job solving the e-commerce problem, which is a structured search problem, but it does not have a particular strength in unstructured search, and Fast really does represent the best core technology there,” says Wilde. “Also, Microsoft needed a very horizontal technology to go after the enterprise, and Autonomy and Endeca just aren’t horizontal enough.”
An executive I contacted at Endeca agreed that Fast and Endeca offer very different products. “They have pretty good technology, but they’re aimed at a slightly different problem from the one we’re attempting to tackle,” says public relations manager Craig VerColen. “Fast is building a fact-finding kind of infrastructure, whereas we are more famous for guided navigation. Rather than having people throw words in a box, we’ve said they should have some context. Knowledge workers inside the enterprise and consumers looking to buy a product may not know what’s available. Our success to date has been attacking these older problems in a completely new way. Microsoft is talking primarily about enhancing SharePoint and access to documents; that’s one part of the problem we solve, but Endeca focuses on a very different problem, with more highly structured datasets.”
Like Spataro at Microsoft, VerColen is mum on whether Microsoft approached Endeca about a potential acquisition. “In terms of whether we were involved in those discussions, I can’t comment,” he says. (VerColen does say, however, that Endeca is preparing for some kind of investor exit scenario. “We’re a typical VC-backed company, whether your exit is either going to be to file for an IPO, be acquired, or go out of business,” he says. “We’re successful enough that we’re not going to be in that last category, so for us, it will be one of the other two. We’ve really just been trying to prepare ourselves for either eventuality, and to begin to act a bit more like a public company, and make sure we’ve got the underpinnings in place.”)
Endeca employees may well be breathing a sigh of relief that a Microsoft merger is not in the cards, given Microsoft’s history of assimilating acquired companies’ software into existing product lines and often downsizing the remaining organization. Fargo, ND-based Great Plains Software is one example; Microsoft acquired the company in 2001 and recast its accounting software as an add-on for Microsoft SQL Server.
In that case, though, Microsoft kept and in fact expanded Great Plain’s Fargo campus. It’s not clear that Fast will be so lucky. According to a report yesterday in the Boston Globe, Kirk Koenigsbauer, Microsoft general manager for the SharePoint business group, said Microsoft would retain Fast’s 750 employees in Oslo as well as its operation in Needham. But when I asked Spataro yesterday specifically whether Microsoft will retain the 200-odd sales, marketing, and service employees in Fast’s Needham office, he said that matter hadn’t been decided. “It’s just too early for all those questions now,” he said. “We are just barely beginning to do some of the planning.”
At least one observer thinks Fast employees in Massachusetts might want to start updating their resumes. “I’m skeptical that they would keep them,” says EveryZing’s Wilde (who, coincidentally, was Koenigsbauer’s college roommate). “If you look at Microsoft’s modus operandi, they fairly quickly fold new companies into the Microsoft flagship. I see Fast eventually becoming just an extension of the SharePoint brand. Sales is a slightly different animal, but I’d be skeptical that Microsoft would want to have a big sales and marketing operation in Needham over the long term.”