Let’s try to understand what this means.
First, some background on Convera. Technically, Convera is a seven-year old company created through the combination of Excalibur Technologies and Intel’s Interactive Media Services division. I’d always thought of Convera as the re-branding and reincarnation of Excalibur, a search company that has been around for over 20 years. Convera always struck me as a company that historically did well in Federal government (e.g., defense, intelligence), but that never appreciated its own strengths.
Financially, Convera has not done well. For example, in its most recent quarter, 4Q07 (FY ends on 1/31), Convera reported total revenues of $2.8M, down 24% from 4Q06, and a net loss of $9.7M. Retrievalware revenues in 4Q07 totaled $2.6M, down 27% from 4Q06. Looking over the longer term, the FY06 10-K, shows on page 23 that annual revenues have monotonically decreased since 2004, descending from $29.3M to $25.M to $21.0M and, per this press release, to $16.7M in 2007, reducing the company nearly by half over the past 4 years.
I’d occasionally joked that it was perhaps appropriate that the company’s headquarters were on Gallows Road.
Convera has some quirkiness it its history, detailed in this Washington Post story. I’d guess that one reason Convera has not been content simply to be a Federal play is that Herb Allen is a medial mogul, running an exclusive conference in Sun Valley, and arguably the premier investment house in media and entertainment. Hey, when you’re on the Forbes Billionaire List already, why mess around with a Federal play when, with luck, you might convert it to the next Google, and without luck you lose what amounts to a rounding error? When billionaires play, it’s rarely to make pocket change and it’s usually for keeps.
This is speculation on my part, but my guess is that Allen’s involvement is what accounts for Convera’s schizophrenic past, as evidenced by this graphic that I took off their homepage today.
To me, Convera is one small ($10M run-rate), shrinking company with two strategies: vertical search platform and enterprise search engine. Or, I should say, was.
After this deal, it seems that Convera becomes a tiny ($800K run-rate) company with one strategy. While it’s hard to believe — and I’ve had to check the figures a few times to do so — Convera seems to have sold the business that accounts for 93% of their revenues. While I might question their wisdom or sanity, I certainly can’t fault them on commitment.
Let’s flip over to the Fast side of the equation.
Since no MBA who passed quant class would pay $23M for a $10M business shrinking at 24%, there needs to be more going on here. In this IWR blog post, CEO John Lervik says that the deal helps Fast in “aiming at the lucrative government market,” which this InformationWeek story says accounts for about 70% of the acquired business.
That’s consistent with Fast’s recent comments about tactical acquisitions, and I suppose the business argument is that they can try to sell their search technology to the Retrievalware installed base. The success of that strategy will depend on a number of variables:
- Have Retrievalware customers already and long-ago found alternative paths forward?
- Are those that remain customers merely interested in keeping existing systems running?
- Is enterprise search technology the appropriate replacement technology?
- Will government customers, particularly in the sensitive defense and intelligence sectors where Convera did much of its work, be comfortable buying from foreign suppliers? [See note below.]
In our experience, particularly in Federal government, XML content servers are often a better replacement technology than contemporary search engines. That’s because (1) government likes XML as a storage format since it’s open and standard, (2) the ability in XQuery to express arbitrarily complex queries, (3) the ability to easily hook a series of best-of-breed extraction / enrichment tools together in an open architecture, and (4) government contentbases are often massive in scale and require the ability to run very complex queries against very large contentbases with high performance.
The last point requires obeying “rule 1” of database performance, which troubles search engines because, compared to XML content servers, they have a limited ability to push constraints to data.
As for Convera’s vertical search platform strategy, I’ll say one thing: they have most definitely burned the ships on landing in the New World.
Time will tell whether they go on to greatness or get eaten by the natives. Either way, there’s no going back now.
Note: I do not claim definitive expertise on whether the US government or sectors of it can or should buy software from US or foreign suppliers. While I do know that the Buy American Act exists, it seems to exclude software in section 25.103 (e). Despite that, I often hear that there are “issues” with foreign suppliers in the more sensitive sectors of government and I would welcome email pointing me to relevant regulations. Meantime, I have disabled comments on this post to avoid repeating a problem I had in the past with what I suspect were competitors testifying anonymously and anecdotally to the contrary. Since it’s my blog, I will share my opinion based on the people I’ve asked this question. Please feel free to send me information (e.g., links to regulations) so I can learn more.
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