Category Archives: Fast Search

Kawaski Interviews Balmer at Mix08

Check out this post with notes from the Guy Kawaski keynote interview with Steve Balmer at the Mix08 conference this week in Las Vegas.

In the interview Balmer talks about Google, the Yahoo! deal, Apple, his three types of day [see below], Silverlight, the Facebook investment, Fast Search & Transfer [see below], the number of emails he gets per day (~60), and he even gives out his email address: steveb@microsoft.com.

On his three types of day:

  1. With customers. From 730 AM to 800 PM and then get on [private] plane to next city.
  2. Doctor in office. Wall to wall meetings all day. “Exhausting.”
  3. Think, write, and research.

On Fast Search & Transfer:

Fast is company had internet and website/corporate products. Sold off web search. They have great for high end search on enterprise and engines that can search web sites. Tech fantastic and team is great. Anxious to build both ways. Love company/people. Great integration plan – more to say.

This is consistent with my thesis for why Microsoft bought Fast (to fend off the Google Appliance in high-end enterprise search, aka, the best defense is a good offense). However, I’d not previously heard the message that they want to build Fast out “both ways” — i.e., in enterprise search and in their Internet search offerings.

The only part of the acquisition that continues to amaze me is the ~8x revenue-run-rate price. That kind of multiple is in-line for high flyers, i.e., for healthy, high growth enterprise software companies. But Fast was in the midst of unwinding a world-class accounting mess, complete with lots of AR write-offs and a revenue restatement. I’d think companies in that situation are usually lucky to trade for 1-2x revenues.

Much as the the price SAP paid for Business Objects wasn’t surprising until you noticed that Business Objects was about to announce a quarterly miss, nor is Microsoft’s price for Fast surprising until you consider the not so easy to overlook financial mess. Personally, I would have guessed a sale in the $300M to $500M price range, proving that I’m not always right.

My current speculation is that there must have been a bidding war for the price to get so high. The fun question then becomes who else was bidding, why did they want it so bad, and what are they going to do now that they’ve lost?

Fast Search to Restate 2006 Results (As Predicted)

As predicted in this post, Fast Search & Transfer yesterday announced that it intends to restate 2006 results. See this Reuters story, entitled Norway’s Fast Says to Restate 2006 Results, for more. Excerpt:

“The effects of such restatements have not yet been established in detail, and Fast is taking appropriate steps to ensure a quick and proper process,” Fast Search & Transfer said in a statement.

“Restatements of the 2006 accounts may have an effect on the 2007 accounts,” the company said.

It’s hard to imagine that this will have any effect on the Microsoft offer, as a restatement was easily anticipated given all the account receivables write-offs, and one must assume that Microsoft learned plenty about Fast’s financials during the due diligence prior to their bid.

Forbes.com has a similar story on the restatement, here.

Microsoft Bids $1.2B for Fast Search and Transfer

It’s a busy week so no time for a deep analytical post (yet), but I wanted to get this news out fast. Microsoft has bid $1.2B for Fast Search & Transfer. See this New York Times story for more.

My initial take:

  • It’s a quite healthy valuation of ~8x the revenue run-rate, partially justified by an above-average growth rate. (Disclaimer: numbers approximate and from memory.)
  • Some of it, I bet, is psychological, because $1.2B gets back to the “recent” peak valuation (during the past year), prior to the accounting scandals which rocked the company and whacked the stock. In my experience, company sellers tend to hang on emotionally to “recent” highs in deciding their price. Sometimes they get the old valuation back. Sometimes they don’t. In Fast’s case, the 52-week range was ~8.5 to 18.5 kroner. The deal is, I believe, at 19 kroner. (Note that the chart seems to miss the last day’s trading, which took the stock up to about 18.5 kroner.)
  • It seems a logical ending for Fast. As I pointed out a few times in this blog, Fast was letting the same guys who got the company in trouble continue to run the company (with one or two changes). I thought this was a mistake. I thought it didn’t hold the executives accountable. I thought they wouldn’t be able to fix the problems. So selling to Microsoft seems a practical solution to these problems.
  • This post on the Microsoft Enterprise Search Blog quotes Kirk Koenigsbauer, General Manager of the SharePoint Business Group, which suggests that the SharePoint team drove the acquisition.
  • A friend at Microsoft had this to say: “[the] deal was all about enterprise search competitiveness (at the high end) vs. Google and to an extent IBM. Both search engine capabilities and connectivity to line of business [systems], content management, and other data sources.”

More coverage:

Fast Forgets Headline and Body Copy Need Linkage

One reason I give Fast Search & Transfer a hard time is that I don’t like their communications strategy. For example, during their recent and ongoing financial travails there has been way too much “happy talk” in their communications for my taste.

They irked me again today with this press release. When I read the headline — silly me — I thought they’d launched a new knowledge management solution, or maybe a whole line of them.

Here’s the headline:

Knowledge Management As We Know It Is Over: FAST Delivers Next Generation Search-Powered Information Discovery Solutions For Enterprise 2.0

Yes, it’s wordy (20 words) and even more buzz-wordy (e.g., next-generation, search-powered, enterprise 2.0). But at least, when stripped of the hyperbole, it seemed clear. Fast was announcing a new series of knowledge management solutions.

Or were they? Let’s read the lead paragraph of the body copy to find out:

Fast Search & Transfer, the leading provider of search technologies, today announced that one of the largest European IT services providers, TietoEnator, has gone live with their intranet solution powered by the award-winning FAST Enterprise Search Platform.

Huh? So a company I’ve never heard of, that’s got more vowels than a Greek wedding program, has deployed Fast’s core product. But what’s that have to do with redefining knowledge management and delivering enterprise 2.0 solutions that change knowledge management, forever?

Not much, it turns out.

We later learn that TietoEnator is not purely an end-user customer. They’re an implementation partner who decided to use the technology internally. This isn’t bad mind you, but it’s not as credible as an end-user customer. An implementation partner, after all, is incented to help you get more implementations.

And if credibility comes from clarity, this not-so-pithy CTO quote doesn’t do much to help:

“During the next five years, we will see more and more organizations shift their investments away from legacy knowledge management and towards Enterprise 2.0, enterprise search, information discovery, and other tools, technologies, practices, and processes that allow for emergent work patterns to form in a vibrant ‘learning organization.’”

Finally, since we now know it’s a customer press release — and not a solutions announcement — it’s always good practice to factor in the health of the customer that you’re promoting. After all, you wouldn’t want to promote Nike’s use of your supply chain software right after they missed a quarter due to a major inventory problem.

So what’s TietoEnator up to of late — let’s look at this three-week-old release: TietoEnator revises full-year profitability guidance, renews strategy and changes CEO.

Fast Search Announces $100M Net Loss in Q3 07

Fast Search and Transfer announced their Q3 2007 results on 10/30. Here are some highlights from the announcement, some of which (the net loss, for example) aren’t actually in the company’s press release.

  • Revenues of $35.6M, down 16% compared to Q3 2006 revenues of $42.5M
  • Operating expenses of $121.2M, up 246% over Q3 2006 operating expenses of $49.2M
  • Net loss of $100.4M, up 2200% over the net loss of $4.5M in Q3 2006.
  • Cash burn of $57.9M
  • They increased guidance for 4Q 07 from $43M to $47M

I’ve not had time to read everything in detail yet, but I’m sure there are lots of one-time restructuring charges in the $121M of operating expense. Fast goes to quite some length to explain why all this is good news. But to me, the numbers are numbers.

As a bit of commentary, I find it a little odd when a company’s earning press release doesn’t include the financial statements. But a lot of people do it. However, I find it quite odd when you press the link to the financial statements (which wasn’t easy to locate) and find something other than, well, the financial statements. In this case, you find a what I’d consider a veritable Q3 07 “brochure” with a few well chosen and well framed financial metrics on the first page, several pages of good news, (carefully) selected metrics and commentary, and a few high-and-to-the-right arrows, boasting 4%, 5%, and even 23% growth rates.

In fact, there’s so much pre-material in the financial statements, that you might get weary wading through it before you get to page 6 and finally find the income statement.

Hey, perhaps that’s the point.