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Microsoft Pri0

Welcome to Microsoft Pri0: That's Microspeak for top priority, and that's the news and observations you'll find here from Seattle Times technology reporter Matt Day.

January 8, 2008 at 9:25 AM

Microsoft buying business search power for $1.2 billion

The company’s biggest news so far this week came from Norway, not Las Vegas.

It announced this morning, really early, that it’s offering $1.2 billion for Fast Search & Transfer, a business search provider. That’s a 42 percent premium over the company’s recent share price. The deal looks like it will breeze through, with two major institutional shareholders that control more than a third of Fast Search already agreeing to the terms. The company’s board of directors has also given it the nod. Microsoft expects the deal to close in the second quarter.

Microsoft Business Division Pressident Jeff Raikes sees business search as a key area for Microsoft to build on advantages it holds through other business software.

In a statement released this morning, Raikes said:

“Enterprise search is becoming an indispensable tool to businesses of all sizes, helping people find, use and share critical business information quickly. Until now organizations have been forced to choose between powerful, high-end search technologies or more mainstream, infrastructure solutions. The combination of Microsoft and Fast gives customers a new choice: a single vendor with solutions that span the full range of customer needs.”

Technology Business Review analyst Allan Krans pointed out in a research note this morning that Fast Search isn’t going to add a lot of luster to Microsoft’s balance sheet. The deal appears to be more about the technology and fending off competition.

“TBR does not believe the financial impact of this acquisition will be substantial when taken alone, but strengthens Microsoft’s broader content toolset, enabling the company to incrementally deepen its relationship with existing customer accounts.”

Fast Search’s fourth quarter revenues have not been released, but Krans expects it to report total 2007 revenue of $163 million, basically flat compared with $160 million in 2006.

“In response to flat revenue, the company is also struggling with profitability,” Krans wrote. “Fast Search & Transfer reduced headcount by 140 during 2007, and in the mid 4Q07 headcount update total headcount was pegged at 750. The slowdown in revenue and restructuring activity is weighing heavily on profitability, and the company expects to report operating losses of $130 million on revenue of $163 million.”

He added that he expects the company’s financial picture to improve after the Microsoft acquisition.

In November, Microsoft expanded its own enterprise search offerings to small businesses. In advance of that announcement, I spoke with Jared Spataro, Microsoft’s enterprise search group product manager. He said then enterprise search is “on the cusp of a tipping point.”

A quick definition: As opposed to the broad Internet searching we all do dozens of times a day, enterprise search is generally employees of a company looking for information within that company and its network of partners, be it on internal Web sites, databases and other sources. It can also be a way for a company’s customers to interact with the business.

Enterprise search, Spartaro said, got started in the late 1980s with high-end, expensive options. It’s still a relatively high-price, low-volume business, he said, noting that the average enterprise search software package sells for $400,000 and fewer than 1 percent of U.S. businesses are using enterprise search.

The trends driving this flavor of search toward the “tipping point,” he said, include people’s familiarity with search, the information explosion and improved technology.

Other enterprise search providers include Autonomy and Endeca. But Krans and other analysts think Microsoft sees the specter of search giant Google heading toward the enterprise.

“Google maintains a strong presence in the market with its appliance-based offering and in late 2006 IBM announced a partnership with Yahoo! to offer Omnifind enterprise search capabilities to business customers. Furthermore, TBR believes the enterprise search market is a logical extension for a number of companies providing data management solutions, including EMC and Oracle. As the volumes of unstructured data within organizations continue to grow, TBR expects additional focus will be paid to improving the accuracy and efficiency of enterprise search tools.”

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