Hummingbird Smells Nectar In The Corporate Portal Market

Vendor Genesis

Fred Sorkin, Chairman & CEO, and Barry Litwin, President, founded Hummingbird Ltd. (NASDAQ: HUMC, TSE: HUM) in 1984. The company began selling a PC-to-Unix connectivity product named Exceed in 1990. Exceed, which currently holds over 70% global market share in the PC-to-Unix connectivity market, fueled Hummingbird's growth in the early to mid 1990s. In 1995, growth in this market began to subside and Hummingbird started acquiring software vendors to move into other markets. The company's major acquisitions include the following:

• June1999 - The company finalized its acquisition of PC DOCS to enter the Knowledge/Document Management market.
  
  
• March 1999 - Hummingbird acquired Leonard's Logic for its Genio product and moved into the ETL (Extract Transform Load) market. Hummingbird also acquired Financial Software Solution to expand its Business Intelligence offering to Financial Services clients.
  
  
• January 1998 - The company acquired Andyne Computing to enter the Business Intelligence market.

The vision to build a corporate portal product emerged in early 1999 when Hummingbird realized it could leverage its expertise in Business Intelligence, Knowledge Management, Document Management and ETL. In January of 2000 the company began shipping Hummingbird EIP (Enterprise Information Portal). Early sales were strong in smaller law and financial services firms, and sales to the Global 2000 steadily increased over the following seven months. By October 2000 Hummingbird closed 101 portal deals that represented 33,000 seats. The company will make the second generation of the product, Hummingbird EIP 4, generally available some time this month.

For TEC's high-level definition of a corporate portal please click here. Hummingbird EIP includes such typical corporate portal features as web-based access (no client installation), single log-on, secure access to internal data from outside the firewall, a unified search across all data sources and a personalized user-interface. Hummingbird develops XML-based APIs called e-Clips to integrate applications into the portal. e-Clips use a similar technology to Plumtree's Gadgets (see Plumtree Fuels Growth With New Corporate Portal Product for more information on Plumtree). There are currently over 200 e-Clips available through Hummingbird, the majority of which are designed for such content feeds as iSyndicate and Moreover.

The company does offer e-Clips pre-built to integrate Hummingbird Business Intelligence and Knowledge/Document Management products into the portal and e-Clips for Cognos applications are for sale through Hummingbird. Cognos is currently the only third party vendor for which there are e-Clips, but the company states that it is in the process of developing applications for six other undisclosed vendors. Hummingbird EIP also features group messaging and document sharing to enable collaboration. In addition to the portal product, Hummingbird recently launched EIPCentral.com, a website for portal developers to discuss portals, download e-Clips, and view product documentation.

Hummingbird's Competitive Position

The corporate portal market consists of vendors from primarily three segments. The first is mid-sized enterprise software vendors who have developed portal products. This includes such vendors as Hummingbird, Brio, Cognos, and Hyperion. The second is pure play portal vendors that only sell a portal product. Plumtree, InfoImage and Viador are vendors in this segment. The third segment is large technology vendors in which portal products make up a small percentage of their revenue. This segment is made up of Microsoft, Oracle, IBM and SAS.

Hummingbird's annual revenues are in the middle of the pack among vendors in the first segment. Note that Hummingbird does not break down total revenue into product revenue and service revenue. The company did state that product revenue has consistently been approximately 70% of total revenue while maintenance and services make up the remaining 30%. Figure 1 compares annual revenue among these vendors. Note that the fiscal year end of each competitor is not the same: Hummingbird - 9/31, Brio - 3/31, Cognos - 2/28, Hyperion - 3/31. Thus Hummingbird's revenue over the same calendar time period as the other three competitors is slightly higher than what appears in the graph due to the company's revenue growth.

Figure 1.

Hummingbird has had healthy annual revenue growth over the past three years. Figure 2 indicates that the company's annual revenue growth rate has been increasing over the past three years, while its competitors' growth rates have been flattening or declining.

Figure 2.

Vendor Strategy and Trajectory

During the late 1990s Hummingbird acquired vendors to incorporate new technology into its offerings. Now, part of Hummingbird's strategy is to acquire technology vendors to increase market share within the markets that it currently operates.

Hummingbird is focusing internal development on integrating its current portfolio of technologies. Future product development will focus on what the company calls "application collaboration" which will allow portal users to drag and drop any installed Hummingbird Business Intelligence or Knowledge/Document Management tools into the portal. This will allow business users to customize aspects of their portal that currently require an IT professional.

The company clearly sees its corporate portal product as a tool to cross-sell its Business Intelligence and Knowledge Management products because it can offer out-of-the-box integration with these products. Therefore current Business Intelligence or Knowledge Management customers can add a portal with limited additional cost and risk integrating existing Hummingbird products.

The company has invested reasonably in product development and sales and marketing over the past six quarters. Figure 3 shows product development and sales and marketing expenses as a percent of revenue have consistently been above 50%.

Figure 3.

Spending in these areas is partially why Hummingbird has operated around breakeven. Figure 4 illustrates the company's quarterly revenue and net income. Hummingbird posted losses in two of the previous six quarters. Net income has slowly increased over the past four quarters. The net profit margin for 4Q00 was 9.6%

Figure 4.

ANALYSIS

Vendor Strengths

Installed Base: One of Hummingbird's biggest strengths may lie in its installed base for Exceed. The company boasts a 70% market share and has sold products to 75% of the Fortune 500. Hummingbird can tap its proven success and customer contacts to sell its portal product.

Diverse Product Line: Hummingbird hopes to use its portal product to cross-sell existing applications. With over twenty products in Knowledge/Document Management, Business Intelligence/Analytics, and Data Integration there are plenty of opportunities to cross-sell existing products.

Owns Portal Technologies: Hummingbird owns the Business Intelligence, Knowledge/Document Management, and Data Integration technologies, which allow it to offer quick integration and "application collaboration." Pure play vendors will be challenged to provide that level of integration via co-development partnerships.

Reasonable Level of Resources to Commit to Portal Development: Although Hummingbird is much smaller than the likes of Microsoft, Oracle and IBM, and is not as big as competitors Cognos and Hyperion, the company is considerably larger than any of the pure play portal vendors. Thus if the portal market does explode, Hummingbird will likely have more resources to devote to portal development than any of the pure play competitors.

Vendor Challenges

Sustaining Profitability: Wall Street has recently put stringent expectations of profitability on business application vendors, yet to remain competitive in the market large amounts of cash need to be invested in sales and marketing and product development. It is a challenge for any vendor to invest sufficiently in these areas to support top line growth while at the same time generate net income. Figure 2 indicates that Hummingbird has had three consecutive quarters in the black, but short term actions could have been taken to produce a positive fourth quarter at the expense of the following first quarter. Hummingbird's next quarter results should help indicate if the company is on a true path to profitability.

Third Party e-Clip Development: Most portal products from Business Intelligence or Knowledge Management vendors currently support the vendors' own products, e-mail, and content feeds. Many vendors claim to have a truly horizontal portal that provides each employee with the right information at the right time. A truly horizontal portal should be able to provide the necessary functionality from any business application to the proper user at any time or place. TEC is unaware of any portal vendor that supports enough third party applications to truly provide this level of functionality. It is important for any corporate portal vendor to focus on supporting third party applications from Business Intelligence, ERP and CRM. Plumtree has significantly more third party development (i.e. Gadget development) than most portal vendors.

BOTTOM LINE

Vendor Predictions

TEC predicts that Hummingbird has a solid chance of success in the portal market. Although the company entered the market only seven months ago, Hummingbird has generated $8M-$12M in revenue from portal sales to date. For the first nine months of 2000 Plumtree generated $17.5M, indicating opportunities Hummingbird lost from a later time to market are counterbalanced by other strengths.

Hummingbird stated that it plans to acquire other software vendors or professional services firms to build market share. It would not be out of the question if Hummingbird decided to acquire a pure play portal vendor for the same purpose. A pure play vendor could provide market share as well as technology and established partnerships. If Hummingbird could find a portal vendor that has already forged relationships with major business application vendors and uses similar technology for its adaptors, the acquisition could provide a quick way for Hummingbird to establish important partnerships (assuming the agreements will carry over) and attain any technology related benefits from the acquired vendor. Furthermore, the value of community-based assets like EIPCentral.com would increase as more users and e-Clips are added. Note that TEC is not alluding to an acquisition of any specific vendor.

Vendor Recommendations

TEC believes that Hummingbird's ability to be a leader in the corporate portal market will partly depend on the company's ability to do the following:

• Provide a portfolio of e-Clips that support major business application vendors including ERP and CRM vendors in particular.
  
  
• Provide custom e-Clip development services or partnerships with integrators to provide these services.

User Recommendations

Portal products vary among the following characteristics:

• The number of third party business applications supported
  
  
• The level of functionality provided for the business applications out of the box o The collaboration and Knowledge Management functionality of the portal itself
  
  
• Scalability
  
  
• Platform Support

At this time Hummingbird's portal supports relatively few business applications but has very strong support for its own Business Intelligence and Knowledge Management applications, which are very powerful. Current Hummingbird customers should find this product very useful, if business problems exist that require a portal. This would include problems around disseminating information from existing Hummingbird applications throughout the organization (especially for users requiring remote access).

Corporate Portals Defined

TEC describes corporate portals (also referred to as Enterprise Information Portals or EIPs) as web-based technology used to disseminate business information to employees and other constituents of an organization. Each individual constituent receives only personally relevant business information. Corporate portals can pull information from internal business applications as well as from external data sources, including automated web searches. The following diagram illustrates a generic corporate portal architecture at a high level.

Figure 5.

Both the business constituents and the data sources can be internal or external. Typical portal technology consists of; middleware, a personalization engine, security, and search agents. The search agents search internal and external data sources. Other servers and data stores may fall between the data sources and the portal technology.