Vendor
Genesis
NetGenesis, Inc. (NASDAQ: NTGX) has been developing web analytics software
since 1994. Their original product, NetAnalysis, provided metrics to measure
site traffic. It has since evolved into the NetGenesis 5 product suite
that provides analytics to measure stickiness, frequency, and other sophisticated
site visit characteristics. The analytics applications can be used in
conjunction with third party campaign management and content management
products from vendors such as Annuncio and Vignette. The analytics data
can be merged with catalog and transaction data. This enables sites powered
by NetGenesis to provide relevant content, marketing campaigns and site
promotions targeted to customers based on their web behavior and purchasing
history.
NetGenesis
targets the Fortune 500 and high traffic dot-coms whose client web traffic
ranges from 10 - 200 million hits per day. Retail, financial services
and high technology are strong vertical markets. Some of the company's
flagship clients include 3Com, Lotus, Barnes & Noble, and Charles Schwab.
NetGenesis
hopes its new product suite will speed revenue growth; since 1996 NetGenesis
has watched its own revenues grow at slower pace than those of its competitors.
Figure 1 shows annual revenue from 1996 though 1999. Figure 2 shows quarterly
data for the first three calendar quarters of 2000.
Figure
1.
*Accrue's
Fiscal Year Ends 3/31, thus data reflects revenue one quarter ahead of
the other vendors
Figure
2.
*Accrue's
Fiscal Year Ends 3/31, thus data reflects revenue one quarter ahead of
the other vendors
NetGenesis'
average annualized revenue growth from 1997 through 1999 was 148%. Accrue,
its closest competitor, had average annualized revenue growth of 487%
over that same period. NetGenesis has experienced significant stock devaluation
since going public at the end of February this year. The stock traded
at $59 per share on 2/29/2000, approximately 95% higher that its current
price of $2 5/8 per share on 11/14/2000. Accrue, Net Perceptions, and
WebTrends are each off their 12-month highs, but NetGenesis has had the
largest devaluation (current price as a percentage of 12-month high price)
and has the lowest market capitalization of the group.
WebTrends
competes primarily in the low to mid-market, but does have a presence
in many large organizations. It is also quite likely that WebTrends will
compete in the mid to high-end market in the near future. Net Perceptions
is a borderline competitor in this market because it focuses primarily
on personalization software, but it does have a web analytics product
that analyzes web data at the transaction level.
TEC
considers relative revenue growth and stock valuation as important indicators
to long-term viability in the web analytics market. This market is primarily
composed of small, unprofitable vendors with low revenue multiples for
the software industry. Thus consolidation is likely to occur. WebTrends
and Accrue both reported profits for 3Q00, and as of 11/14/2000 WebTrends
had a revenue multiple considerably higher than any of the other vendors.
Accrue
Software, Inc. (NASDAQ: ACRU) sells Accrue Insight 5, a suite of applications
grouped into four categories that provide analytics for campaign management,
content management, e-commerce transactions, and partner relationship
management. WebTrends, Corp. (NASDAQ: WEBT) sells two enterprise level
products, Commerce Trends 3.0, which provides web analytics and campaign
management, and Enterprise Reporting Server, which provides reporting
and report management. Net Perceptions, Inc. (NASDAQ: NETP) sells applications
primarily in three categories: commerce, knowledge management, and personalization.
Vendor
Strategy and Trajectory
NetGenesis' strategy has been to increase the functionality of NetGenesis
5 over previous products such as NetAnalysis, and to develop web analytics
consulting services to move the company away from being a niche web statistics
vendor towards being a supplier of online-customer information. This is
an important move as the e-businesses of NetGenesis' target market become
more sophisticated.
NetGenesis'
competitive advantage comes from the combination of scalable, sophisticated
analytics applications and analytics consulting services. Services represented
42% of the $6.5M in revenue generated in 1999, and 43% of the $5.8M in
revenue generated during 2Q00 (note that the 3Q00 10-Q was not yet released
at the time of writing). Future product and service enhancements are focused
in these areas:
- Improving
scalability to handle high traffic websites
- Improving
integration by focusing on multiple database support, metadata schema
extensions, and data source independence
- Improving
analytic capabilities by enhancing metrics, segmentation, and predictive
modeling
- Expanding
reporting capabilities with report groups for vertical industries
- Enhancing
consulting offerings in strategy and analysis, training, and implementation
NetGenesis
has forged partnerships with a number of technology vendors to support
these enhancements. Business development has focused on three areas:
- E-business
Platform Vendors - Partnerships with vendors such as IBM, Oracle,
Sun, and Vignette include co-development agreements to allow NetGenesis
applications to integrate with widely used databases, servers, and content
management software.
- Marketing
Applications Vendors - Partnerships with Annuncio, Net Perceptions,
and Double Click expand the analytics functionality of NetGenesis applications.
- Systems
Integrators - Partnerships with integrators such as Deloitte, Digitas,
and IBM Global Services provide NetGenesis with an indirect sales channel
and implementation services.
NetGenesis
told TEC that future partnerships would continue in these areas, with
a particular emphasis on marketing applications vendors. NetGenesis will
focus on ensuring that its applications can run synchronously with technology
from other vendors.
ANALYSIS
Vendor Strengths
NetGenesis
is in the right market at the right time. Net Perceptions is the only
vendor facing shrinking revenues, and it is unclear if its web analytics
product is to blame. Besides Net Perceptions, demand is high and double
to triple digit revenue growth is the case across the board.
NetGenesis
has a comprehensive analytics product and its Professional Services organization
has expertise in designing measurement strategies for e-businesses. The
company offers both standard implementation services and strategic analytics
consulting services. NetGenesis has also produced an e-metrics white paper,
which it claims has been recommended reading at a number of universities
and has led to winning numerous customers.
NetGenesis
5 includes a core analytics platform and a packaged extensibility layer
(NetGenesis Developer Kit) that is leveraged both by NetGenesis and its
partner community to build on top of the platform. This allows third parties
to offer value-added solutions that leverage the core platform. The company's
product has a number of useful capabilities including, near real-time
integration of online data into a data mart and sharing summary profiles
of customers' web behavior with offline data. NetGenesis also claims to
be a leader in the areas of user identification, analysis of dynamic sites,
and analysis of multi-property sites.
Vendor
Challenges
Although NetGenesis has developed an extensive partnership network, the
long-term impact of its agreements may cause problems. Consider the partnership
with Net Perceptions. NetGenesis partnered with Net Perceptions to use
its personalization technology and since that agreement was signed Net
Perceptions has added campaign management and e-commerce analytics applications
to its product line. These applications compete with NetGenesis' offerings
and incorporate Net Perceptions personalization technology. Furthermore
Net Perceptions had shrinking revenues, layoffs and management departures
during 3Q00. Thus continued support for NetGenesis' products by Net Perceptions
is questionable.
Gaining
certification for analytics metrics by an independent third party is a
challenge to all web analytics vendors. The industry lacks a widely accepted,
formal certification process similar to, for example, ISO certification
for manufacturers. Auditing organizations such as ABC Interactive and
IAB do exist, but these standards organizations have yet to agree on simple
web traffic measurements (see Traffic
Audits Make Strange Bedfellows: Part I - The Why's And What's Of Auditing
and Traffic
Audits Make Strange Bedfellows: Part II - The Audit Process).
BOTTOM
LINE
Vendor Predictions
NetGenesis
should continue to enjoy triple digit revenue growth over the next 12
months. The demand for sophisticated web analytics is just beginning to
explode and NetGenesis is among the top vendors, positioned with a sophisticated
offering to take advantage of the opportunity. As Figures 1 and 2 indicate,
NetGenesis has not had the momentum of some of the other web analytics
vendors. The introduction of NetGenesis 5 and related consulting services
should help fuel growth provided that investments in sales and marketing
and product development remain strong. Figures 3 and 4 illustrate NetGenesis'
spending compared with other web analytics vendors.
Figure
3.
*Accrue's
Fiscal Year Ends 3/31, thus data from 1Q00 was used to represent this
calendar period
Figure
4.
*Accrue's
Fiscal Year Ends 3/31, thus data from 1Q00 was used to represent this
calendar period
Figure
3 indicates that NetGenesis' raw spending is consistent with other vendors.
Although revenues continue to be lower than competitors, NetGenesis has
not cut off spending in these key areas. Figure 3 indicates that NetGenesis'
expenses as a percent of revenues is very high. This suggests that available
cash is being funneled towards sales and marketing and product development.
These factors are critical to their long-term chances of success.
TEC
predicts that over the next 12 months market pressures will force larger
CRM vendors to acquire small web analytics vendors with good technology
to integrate in their own offering. Many potential clients are demanding
a single vendor solution to meet their CRM related needs. As NetGenesis
attempts to sell its products to larger clients it must be aware that
web analytics is a key component of a CRM initiative that may include
traditional business intelligence, personalization and recommendation,
campaign management, call center management, and many other analytics
and operational components. Thus NetGenesis is an attractive acquisition
target for CRM vendors. This would be beneficial to clients because tight
integration among CRM components enhances functionality and reduces implementation
time.
Vendor
Recommendations
In the short-term NetGenesis appears to be on the right track with its
product and service enhancements. A particular focus on scalability and
integration with other business application vendors should be a top priority.
In
the long-term NetGenesis needs to consider how they plan to remain competitive
in a young, consolidating market. NetGenesis does claim to be on a track
to profitability, but a low valuation makes the company a prime target
to be acquired by a larger vendor (within either the web analytics market,
the business intelligence market, or the CRM market) for its technology.
NetGenesis should consider focusing future business development and product
development on making its product integrate seamlessly with products from
the top vendors in each of these markets.
User
Recommendations
Organizations looking to add sophisticated reporting and web behavior
analysis tools should consider NetGenesis' offering. The list of vendors
providing web analysis tools as sophisticated as those of NetGenesis is
relatively short. A small number of vendors represent the majority of
the market. You may consider other vendors such as Informix that have
web analytics tools (see: Informix
Decides To Start Analyzing Websites) but these tools are not as sophisticated
in analyzing web behavior.
Integration
with other systems may be a concern if you plan to include web analysis
and multi-channel campaign management as part of a larger CRM initiative.
NetGenesis is still a niche product compared to full CRM suites such as
those sold by Siebel or E.piphany. NetGenesis does have an open data model
built on top of a standard relational database as well as a rule-based
import process, adapters and activators, but the company has no formal
co-development partnerships in place with any major CRM vendor. Without
CRM partnerships, potential clients should be particularly cautious of
integration issues between their CRM applications and NetGenesis' applications.
Be sure to get references from previous clients who faced integration
of the same products before making a purchase decision.