Content Matters

Microsoft has offered $1.2 billion for enterprise search provider FAST Search & Transfer, a roughly 42% premium over the current stock price.

FAST has had tremendous growth over the past six or seven years, but has struggled recently to manage costs.  The Company reported revenues of $163 million in 2006, 58% higher than the prior year, and boasts of 2,500 customers worldwide.  Revenue growth has come largely through organic growth, though the company recently acquired competitor Convera.  Net income for 2006 was only $10.1 million, down slightly from the prior year, and analysts were projecting flat revenues and significant losses in 2007.  The Company had a reorganization earlier this year, contributing to an astounding $100 million loss in the 3rd quarter.

There has been significant consolidation in the enterprise search market in recent years.  Prior segment leaders such as Convera and Verity have been acquired by FAST and Autonomy.  FAST has been an innovator since their start.  Their technology enabled them to leapfrog Verity whose platform had aged, gaining global market share and becoming a significant player in the space.

The deal makes sense for Microsoft, as it strengthens its position in the enterprise software space.  Microsoft’s SharePoint content management software has been a growth engine for Microsoft this year and the combination of FAST and SharePoint will give Microsoft a dominant position in the portal and search space. 

Some are suggesting that the acquisition will help Microsoft compete in the web search market against Google, Yahoo and Ask, by improving its Microsoft Live.  I don't see this as impacting Live at all.  Microsoft's problems in the web search space are not technology issues.  Moreover, enterprise search is very different than web search.  While the back-end spidering may be similar, the concepts of relevancy are totally different inside the enterprise than on the open web.  Those expecting this to help Microsoft compete in the search space will be disappointed.  That said, the deal certainly expands Microsoft's position in the enterprise space and may provide additional technical talent in Europe.

Congratulations to John Lervik and the FAST team.

For more on the deal, see PaidContent, SearchEngineLand and TechCrunch.