Endeca and The Butterfly Effect

Let’s go back to July of 2010.  Imagine you’re having coffee with Endeca’s CEO, Steve Papa, a brilliant guy and someone for whom I have great respect.

But let’s say we’re having a coffee with Steve in July, 2010 and say the following:  “Here is what’s going to happen over the next 18 or so months.

  • Hurd will expense those dinners.  Someone at HP is going to look into those expense reports and launch an investigation.
  • Hurd will — and I know you’re not going to believe this — basically get fired over those expense reports, which are the monetary equivalent of stealing Post-It notes relative to his salary.
  • HP’s board is going to appoint — and I know you’re really not going to believe this one — former SAP CEO Leo Apotheker to the HP CEO slot.
  • Leo is going to miss financial targets  — OK you can believe that — and then one day he’ll announce that he’s spinning off the the PC business and acquiring Autonomy for an astronomical $10B.  Yes, that’s right $10B for the meaning-based M&A leader.
  • And, as a strategic response to that, Oracle is going to buy Endeca for what I’m guessing will be a very nice multiple as well.”

This purpose of this post isn’t to slight either Endeca or its CEO.  I think Endeca was a fine company, I am a big fan of founder CEOs who build their companies, I have even greater respect for those few who make it work over extended time periods (Endeca was founded in 1999) and with a pivot or two along the way.

But I’d say that the average (largely perpetual) enterprise software company is worth 2-4x revenues and I’m guessing / speculating that Endeca got more like 6.  What accounts for that 50% uplift?  You could say it’s market dynamics and demand.  Or, looking at the above chronology, you could say it’s The Butterfly Effect.

But, either way, timing is everything and I believe Endeca did the right thing at the right time for the right price.  And making the wise decision to say yes wasn’t random.  Well done and congrats.  But remember the butterflies.

“In preparing for battle, I have always found that plans are useless, but planning is indispensable.” — General Dwight Eisenhower.

4 responses to “Endeca and The Butterfly Effect

  1. I believe one thing that adds to your argument is that Endeca’s value had to be dwindling within the world of software development too. I haven’t seen a redmonk.com study on this yet, but it seems that most of Endeca’s competitive advantage was being eaten away by open source projects such as Solr. This leads me to believe that more was at play in the Endeca purchase than simply their technology or customers.

    It also begs the question of what do you do when you see open source software targeting you. Is it becoming harder to differentiate from open source as its growth continues?

  2. Open source doesn’t so much target anything (it hasn’t got the marketing budget!) as creep up on you…and if I was running a closed source search company I’d be nervously looking over my shoulder and searching for a sugar daddy.

    Luckily I’m not, so I can concentrate on building search apps!

  3. Talking about Endeca I recommend reading this article and the comments underneath. http://authoritylabs.com/blog/omg-target-really/

    This analyzes the use of Endeca’s technology on Target.com but as the repeated outages of the site happened in the fall (which ended costing their jobs to the Target.com management team) the comments under the article become less and less about the technology itself and start reflecting the overall customer service nightmare Target created for themselves with this revamp of their e-commerce site.

  4. @Charlie This quote reminds me of the record companies slant towards the internet circa 1995 “Open source doesn’t so much target anything (it hasn’t got the marketing budget!)”. It’s similar to “the internet isn’t targeting record companies, crooks are.”

    I don’t necessarily think it’s an equal analogy, but reproducing functionality of something that is a piece of a puzzle rather than the complete puzzle seems to equal targeting it.

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