The Search Ponzi Scheme

It’s not every day I get to stare goggle eyed at my screen and just go “Wow”….then pause a little and say “Wow” again. As I write this piece I’d like you to add the word “allegedly” in front of every sentence or assertion I make. The details I’m quoting are from today’s Forbes piece but it’s also in WSJ and other leading publications so I think this counts as color commentary or my angle on this amazing story.

Join me in the way back machine and reset the clock to 2000. At the time I was doing biz dev for FAST Search and Transfer…an amazingly talented bunch of Norwegian and US search guys. We sold web search to websites (our competitors were companies like Alta Vista, Inktomi and an upstart with a goofy name you have probably never heard of called Google). We also sold “Enterprise Search” to big companies who were trying to make sense out of the ever growing amount of data they were generating. The problem then (and now) is that enterprise data lives in all kinds of systems and formats and it’s really hard to manage it at scale. For example; imagine you are a home improvement mega store with 1,000 outlets, 100,000 employees and 200 product depots. Keeping track of the people, product info, inventory sales and shipping across all the different systems involved is a nightmare. A simple question like “how many 1″ nails should I order” might require you interrogate five different sub systems. At the time FAST was developing and selling systems which do just that…they were subsequently bought by Microsoft to its Enterprise Search component, but that was long after my time.

Back in the day I was mostly involved in the web search side of the business but I did get involved in the corporate side too and was keenly aware of the competition. One of the competitors we constantly ran into was an outfit form the UK called Autonomy. They cultivated a fiercely academic style; they were always the smartest kids on the block…certainly smarter than us mere Vikings. They had what they called an Intelligent Data Layer which mobilized and wrapped data to make it intelligently searchable.  We went up against them many times and we won lots of the battles. The weird thing was that even though I did manage to sneak into a few actual demos I never saw the product work and I never spoke to a client who was using it successfully…or at all. I always figured that I just wasn’t close enough to the battle to see all the use cases and I was out of Enterprise Search completely in 2004 so I rather lost track of the plot. I did note that just as Microsoft had bought FAST so HP bought Autonomy a couple of years back, which I figured completed the narrative arc nicely….good for the clever Brits….Ka Ching!

Today I read that HP has just written off $8.8 Billion of the $10 Billion they paid for Autonomy alleging accounting irregularities. As I read the story I had to hold my jaw up lest I drool on my keyboard. Autonomy grew large and swallowed up other tech services such as Iron Mountain data storage and Interwoven content management. They would (allegedly) do big deals for these fairly mundane tech products and services in high volume and low margin and ascribe the revenue from the deal to their fancy search product…even where the company didn’t want the product and wasn’t using it…either because they didn’t need it or couldn’t get it working. This created the illusion of a massively successful and wide spread search company as opposed to a data storage company which gives away a phony baloney (allegedly) vaporware search product.

Apparently the financial coroners at HP have tracked down the bodies, dug them up and determined cause of death…and have written off the vast majority of the acquisition….they have left about a billion on the books as the intrinsic value of the actual search….my hunch is that may be a little high. In a year of “other shoes falling” this one is a Jimmy Choo….Wow, wow ….wow.

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