In the July issue of CBR magazine, we featured a profile of Vignette, including an interview with CEO Mike Aviles. Concluding the piece, I wrote: “We would like to think Vignette can grow more strongly and steadily, but we have to concede that, on balance, we doubt Vignette will be around in its current form this time next year.” Well it went almost down to the wire, but sure enough, Vignette was yesterday bought by Open Text.
In January this year, I reiterated my opinion that Vignette was not long for this world, in this blog: ‘Interwoven bought, now surely Vignette will be next’.
Click continue reading if you’d like to read my Vignette profile of July last year, in which I outline the reasons that I didn’t believe Vignette would make it as a standalone player.CBR Profile, July 2008: Vignette
Seeking Equilibrium
A darling of the dot-com hype, web content management specialist Vignette has seen its fair share of ups and downs. But is it out of the woods even now? Jason Stamper investigates.
Vignette has had a torrid old time since its IPO in 1999. Once the poster child of the dot-com era, specialising as it does in Web content management, it lost its momentum in recent years and looked like only an acquisition was the likely fate for the firm. But as the company brought in a new management team including president and CEO Mike Aviles, its fortunes turned again as he appeared to be getting the firm back on an even keel in the early part of 2007.
Sadly, there has not been consistently good news for the company or its shareholders in the latter part of 2007 and the first quarter of 2008, and once again the firm’s future as an independent entity is in question.
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Vignette’s CEO Mike Aviles.
Vignette’s early history is a story in itself. It was founded by Ross Garber and Neil Webber in 1995. They were looking for ways to personalise Web pages for each individual user, and make Web publishing easy enough for business users instead of just techies. But although they made some progress with their own technology they couldn’t quite get it right.
Garber called Jonathan Rosenberg, an executive at CNET, a San Francisco-based new media company. CNET had a similar technology which allowed even technophobes to publish web pages: Prism. In a stroke of luck, CNET wanted to commercialize the product, and handed it over to Vignette in return for a stake in Vignette; Vignette merged Prism with its own technology and released Story Server.
Within three years Vignette had signed up 130 major customers, nearly all in online publishing like CNET — thanks in part to CNET introductions. It raised $27.8m through VC firms like Austin Ventures, Charles River and Adobe Ventures. Then in early 1999, it IPO’d, and saw its share price rise from $19 per share to $42 per share on its first day of trading.
But after the dot-com crash Vignette came down to earth with a thump, finding itself facing stiff competition in the content management space and struggling with sporadic revenue and quarterly losses. The board brought in Mike Aviles as president and CEO in February 2006. Aviles concedes Vignette has had an “interesting and unique” history.
“It’s been a roller coaster ride,” he says in a recent exclusive interview with CBR. “The first five years was crazy. We were riding the web content craze and irrational exuberance which gave us a market cap of $20bn. After the dot-com bust we were in freefall. If you look at the evolution of ECM, those that survived through this were the ones that had a balance sheet and lots of cash behind them. So the financing we raised allowed us to withstand the instability.
“The first challenge I saw was to turn it into a real company,” says Aviles. “It was a dot-com high flier, but had not had a big infrastructure. To be a serious company you have serious responsibility: you’ve got to get your house in order, address things like the stability of your margins.
“In fact my very first action was to bring in a new CFO and replace pretty much the entire management team. It’s an all new management team, a new head of R&D, new heads of customer care, services, sales and so on.”
Initially, it looked as if Aviles had effected a Midas touch: the first few quarters under his watch showed improvements to revenue and profitability, of which Aviles is still proud today: “Over the past two years, operational profitability has gone up 35%; ’07 versus ’06 was up another 24%. We generated $67- to $70m in cash flow over that time, and we bought back over $100m in stock.
“We’ve gotten the company into a better position in terms of technology and customers. The move from V6 to V7 was a major upgrade, and has made the platform much more stable.”
The root of Vignette’s challenges before Aviles was parachuted into the hot-seat? “Before I got here, Vignette had not participated to the extent I think it should have in new Web 2.0-style technologies,” says Aviles. “It had been going through a lot of change since it acquired Tower Technology in 2004: that acquisition consumed a lot of management time, energy and attention.”
The acquisition of Tower was a bold move by the former management team.
Having built its reputation on Web content management, Tower gave it imaging, document and records management and workflow, and together enabled it to claim a seat at the enterprise content management top table.
But things didn’t exactly go to plan, not helped by Tower’s HQ location in Sydney — Vignette is based in Austin, Texas.
But before Aviles worried about the ongoing integration and strategy formulation, he had to get Vignette back onto a solid plane: “So my plan has been financials; management team; products and customer base,” he says. “I think we have made great progress. And I think the recognition of that that we are getting from our customers is a sign of that progress.
“So it’s a better place in terms of financials, leadership, products. Now we need to execute better and stronger. We turned over a lot of the salesforce — some intentionally, some unintentionally.
“When you bring in a new management team it shakes the tree, and some of the leaves start to fall off. Unfortunately a lot of rival companies understand the talent that Vignette has. It’s tough to affect change in a way that people are completely comfortable with. We had salespeople that were compensated three or even four times for the same deal. I told them: we could have kept things the same if we weren’t interested in making any money.”
In the first few quarters under Aviles’ watch, things were looking up. But then in the third quarter things took a turn for the worse. “We hit a bit of a wall in Q3. There were two things: internal and external,” Aviles says. “Externally the whole sub-prime mess happened, and we do a fair amount of our business in financial services. Internally we were going through some changes of leadership in sales, with a new head of sales and services for the US market. From a revenue standpoint we had a flat quarter.”
If that ‘flat quarter’ disappointed investors, worse was yet to come in the first quarter of 2008. While the fourth quarter saw slight sales growth and a healthy growth in profitability, the first quarter was a disappointment. Revenue, at $44.8m, was down 6%. It posted a net loss of $0.8m, versus a profit of $4.8m a year earlier. On the plus side, it still generated $10.1m cash in the quarter.
But as far as investors were concerned, it was something of a return to the bad old days. So what went wrong? “Going into the quarter we had seen some uncertainty,” says Aviles. “We had the option of rapidly curtailing our own investment or trying to plough on through. We tried to plough on through.
“We saw the need to get new products in the market – we consciously made the decision not to curtail investment. We actually had a very good quarter outside of the US.”
Does Aviles think the company is too reliant on US revenue? “60% of our revenue is from the US,” he says. “Any revenue is good revenue, and I’d rather see a higher total dollar number than a higher mix of revenue from outside the US.
Towering Inferno?
At least some of Vignette’s difficulties before Aviles came on board are down to the acquisition of Tower. Does Aviles think the Tower acquisition was over-ambitious — that perhaps it would have been better to remain laser focused on web content management? “It’s easy to say with hindsight that at that time yes, it probably would have been better to focus on the core business of web content management,” he says. “And with Tower running out of Sydney, it’s not like the geography was easy, either. But now that we do own it, it’s clear that it is key to the business and key to the future of ECM [enterprise content management].
“We’re definitely seeing convergence of the different kinds of content management. It’s clear in my mind that Vignette is better with imaging and workflow than without. This is a big market, a growing market, a competitive market. We need a comprehensive, integrated suite.”
Speaking of which, does he believe Vignette now has the right product portfolio? ” Our focus is on the web experience: we’ve now added various Web 2.0 features such as personalisation, multi-device delivery, collaboration, and so on. The telecoms, media and entertainment markets have pretty demanding expectations and we’re meeting those,” Aviles says.
Nevertheless, with at times disappointing quarterly results there must have been times when the board has discussed whether other strategic options – corporate speak for looking for a buyer? “Vignette is a very attractive company,” says Aviles. “It was attractive when I came in and it is even more attractive today. If we do our job well we will be attractive, if we don’t do our job well we will be attractive, for different reasons – i.e. we would command a different value.
“Let’s say the quarter to quarter march is not getting any easier. A lot of investors today, you can tell they are having 90-day discussions because of the kind of questions they are asking. It really varies across the board.”
So while any CEO would like a company’s stock to do well, does Aviles believe that the market places a fair value on Vignette today? “I don’t think the market has been particularly kind to us,” he says. “At the height of the dot-com bubble it was like we had to tell them, ‘perhaps we’re not quite this good’, and now we’re maybe telling them ‘we’re not this bad’.”
Vignette announces its second quarter results after CBR goes to press. But regardless of those results, isn’t it the case that given its sporadic results it remains a likely acquisition target? “Since the day I walked in there has been speculation that the company is a takeover target. I’m not trying to sell the business, I’m trying to grow the business,” Aviles says. “But of course, life could change tomorrow. I think though it [a takeover offer] would have to be something compelling, and would have to have the support of the board.”
What about the future of Vignette’s technology? Where does Aviles see the next big growth opportunity? “I think video is very exciting,” says Aviles. “Companies are starting to become ‘video-centric’, if you will. It’s the fastest growing content by far. The first stage of the Internet was information delivery, now it’s about user-generated content: content is coming from everywhere.
“For example while he was staying there, a customer made a video of his experience of a Marriott resort. He ended up selling it back to Marriott, who used it on their website, and gave him a free stay in return. More and more companies need to capture and manage this type of content.”
Vignette bought video content management player Vidavee for $6.6m in April this year in support of this new opportunity. Vidavee uses heat maps to help organizations analyze viewer interaction and enable these companies to improve impressions and drive additional revenues, according to Vignette, by taking the most popular sections of a video stream and dynamically inserting advertising and other rich content.
Additional video tagging capabilities allow users to identify sections of interest from a video and share the content to increase views and attract additional users, the firm says.
“Video and user-generated content are a top priority for organizations wanting to improve their Web experience, and Vidavee has assembled one of the strongest video management offerings in the industry,” Aviles says.
So when will there be integration between the Vidavee technology and Vignette’s Web Content Management technology? “There will be meaningful integration this quarter,” says Aviles, though he says deeper integration will be ongoing as the Vignette platform evolves.
Will acquisitions continue to play a strong part in Vignette’s strategy going forward? “I think if anything acquisitions will play an even more meaningful part [of our strategy], says Aviles. “Vignette has always had more of a buy culture than build culture. But our mentality is buy it, build it, or partner it. In each case we look at all three, depending on the cost, whether we can integrate it quickly, or whether a partner model would work better.”
CBR wonders about the logic behind Vignette’s long-term agreement signed with Autonomy for enterprise and web search: with search such a hot topic, especially in the web content management space, wouldn’t it have been a good area to go and acquire technology of its own instead of always bringing Autonomy into those kinds of deals? Especially considering that Autonomy sees itself as offering much more than search these days in the whole information management arena?
“Our alliance with Autonomy is strictly around search,” says Aviles. “It was done before I came to Vignette – they decided to partner for search. It’s a multi-year agreement and actually we renewed it last year. They bring us in on deals for web content management too, so it does work both ways.”
So in which areas might Aviles and his executive team look at possible acquisitions? There are so many adjacent areas,” Aviles says. “If you consider things like personalisation, social computing, analytics, e-commerce, e-marketing – it goes on and on. When I joined the company I said acquisitions were off the table for 12 months while we got the house in order. In September, I said we were in a position to start looking. We have a better infrastructure and now perhaps we’re ready to buy not just technologies but also revenue and customers.”
What about the Vignette brand? Is it still strong today, and does it still effectively stand for the broader enterprise content management message that Vignette spreads today? “I think it’s less about how we position ourselves and more about how customers use our technology and act like ambassadors for us,” Aviles says. “There are plenty of sexy things in our space but for us it’s what customers are saying, not just following the hype.
“We had NASA stand up at a conference and say that Vignette was helping take them to Mars.”
Apparently Vignette’s content management software is helping NASA engineers and scientists connect and share information online, as the federal agency designs its next generation of space vehicles for the Constellation Program. The Constellation Program is responsible for developing crew exploration and launch vehicles that will send humans back to the moon and then, if all goes well, to Mars.
NASA is using Vignette to provide the communication and collaboration workflow for its Review Item Discrepancy (RID) process. RID is the process by which thousands of users inside NASA identify and track technical issues and actions and map the solutions back to a set of requirements. NASA is using the revised requirements documents as the baseline for early designs on spacecrafts, launch vehicles, and life support systems, programs, and processes.
CBR Opinion
Vignette is poised to announce its second quarter results as we go to press: Aviles will be under a lot of pressure to show that the firm is executing “better and stronger”, as he puts it. With a market cap today of just $307m, yet with sales in 2007 of just shy of $200m, Vignette must look like a bargain to any potential buyers, even if its recent performance has been a little ‘lumpy’. Which would be a shame, because few doubt that Vignette has brilliant Web content management technology and a credible story in enterprise content management too. It’s a challenging time to be a public company with revenue under $200m, given the high cost of compliance and the heavy toll constant analyst briefings take on senior management. We would like to think Vignette can grow more strongly and steadily, but we have to concede that, on balance, we doubt Vignette will be around in its current form this time next year. We would love to be proven wrong.
This article first appeared in the print version of CBR.
Related reading: Interwoven bought, now surely Vignette will be next. Vignette was acquired by Open Text yesterday.
