Microsoft is to spend $1.2bn in cash buying beleaguered Norwegian enterprise search firm, Fast Search and Transfer (FAST).
As well as bolstering Microsoft’s information management tools, the acquisition is clearly intended to strike at one of Google’s fastest-growing segments – Google Enterprise which has been selling a search appliance to enterprises since 2002 and already has over 10,000 customers.
FAST, meanwhile, has had a series of setbacks, culminating in the firm restructuring last August as the CEO admitted to a series of operational failures in a Computer Business Review interview at that time: We have not been very good at operational excellence, CEO and co-founder John Lervik told us last August, adding, In fact that’s an understatement.
Lervik said then that the firm was battling operational failures that led to revenue recognition questions and ultimately the company plunging into the red and in need of a restructuring.
Little wonder then that FAST’s board are unanimously in favor of the acquisition by Microsoft, which represents a 42% premium over FAST’s share price the day before the acquisition.
Also backing it are shareholders representing in aggregate 37% of the outstanding shares, including FAST’s two largest institutional shareholders, Orkla and Hermes Focus Asset Management Europe, which have irrevocably undertaken to accept the offer.
The transaction is expected to be completed in the second quarter of this year.
After a profit warning, the Norwegian enterprise search firm’s second quarter 2007 saw a net loss of $26m – down from net income of $2.7m a year earlier – on revenue down 11.4% to $34.1m.
In response the company said it would streamline operations, and regain profitability in 2008; it paired down to around 730 staff and reduced its quarterly cost base by over $12m.
FAST’s closest competition has been the British firm Autonomy which has roughly double its revenues and almost four times its market capitalization, thanks in part to its $500m acquisition of Verity at the end of 2005. Both FAST and Autonomy offer software, whereas Google Enterprise offers enterprise search in an appliance format.
As for Microsoft, the firm’s Jeff Raikes, president of the Microsoft Business Division, said: Enterprise search is becoming an indispensable tool to businesses of all sizes, helping people find, use and share critical business information quickly.
Until now organizations have been forced to choose between powerful, high-end search technologies or more mainstream, infrastructure solutions, said Raikes. The combination of Microsoft and FAST gives customers a new choice: a single vendor with solutions that span the full range of customer needs.
Lervik, meanwhile, said: This acquisition gives FAST an exciting way to spread our cutting-edge search technologies and innovations to more and more organizations across the world. By joining Microsoft, we can benefit from the momentum behind the SharePoint business productivity platform to really empower a broader set of users through Microsoft’s strong sales and marketing network. It validates FAST’s momentum and leadership in enterprise search.
Microsoft also said the deal increases its R&D presence in Europe, complementing existing research teams in Cambridge, England, and Copenhagen, Denmark, with new and significant capabilities in Norway.
A good move for Microsoft, as enterprise search is a rapidly-growing segment and it has a big gap there when it comes to searching for non-Microsoft-based unstructured data; searching unstructured data within its own platforms is more achievable.
We expect Autonomy to rejoice at the news of its closest competitor being subsumed into Microsoft, and to play on the fear, uncertainty and doubt (FUD) that accompanies any acquisition by arguing that if you want to search more than just Microsoft platforms, a truly independent search player like Autonomy is what you need. However Autonomy’s vision goes beyond search these days anyhow, instead saying it tackles Meaning Based Computing.
As for Google, its head of Google Enterprise and Applications (which includes the Google Search Appliance) Dave Girouard recently told us its mission is to keep things simple: Search is a very simple idea, although the ranking algorithms that are at work in the background are incredibly complex, said Girouard. There are three things that IT departments and users want in the enterprise. They want the results fast; they want relevance, in that the results they are looking for are in the first few hits they get back; and they want security so it searches what they are allowed to and nothing else.
If we can get those right, said Girouard, and we believe we have, then we know that everything else the competition can sling at us is just noise and FUD.
In essence Google is trying to give enterprise users the Google search experience inside their own company’s networks, FAST is a software-only enterprise search platform and Autonomy is a broader information search and management platform.
They aren’t the only players chasing a lucrative market: competitors include Endeca, Oracle, and IBM is also targeting the space with a Yahoo collaboration.
Whatever Microsoft opts to do with the FAST technology – and integration with its SharePoint Server is an obvious first step – Autonomy and Google just lost a fierce competitor. As for FAST, it will be glad its technology has found a safe home and that it will no longer he held back by concerns over its own lack of operational excellence.
We have simply not focused on (operational execution), Lervik told ComputerWire last year. Had it focused a little more on execution, it might have gone on to become a gorilla in enterprise search. Instead, it has succumbed to acquisition by a company playing catch-up in the space.