Analysis: Turning Up the Heat on Enterprise SearchAnalysis: Turning Up the Heat on Enterprise Search

The white-hot Internet search market is raising the heat on the corporate enterprise search market, playing a role in at least three big announcements last week. Topping the list was Autonomy's $500 million plan to acquire its larger competitor Verity. Also notable were IBM's purchase of natural-language search provider iPhrase and the entrance of French search vendor Exalead into the North American market.

With giants including Microsoft, IBM and, most particularly, Google pursuing the enterprise search market, the consolidation of segment leaders Autonomy and Verity shouldn't be surprising. In a hastily arranged acquisition conference call late last week, Verity CEO Anthony Bettencourt tried to paint it as a complimentary deal, describing Verity as a "business search and process management" company and Autonomy as an "information access and applications" vendor--as if the two companies were in different markets. But few market observers were fooled into thinking the deal is about anything other than consolidation in the face of fierce competition.

In recent years, both Autonomy and Verity have crawled their way back to dot-com-era revenue levels of approximately $65 million and $145 million, respectively, but the companies have done so primarily through acquisitions and diversification rather than by organically growing the enterprise search market. Meanwhile, Google and Microsoft are redefining enterprise search as a mainstream market with server appliances (in the case of Google) and operating-system-embedded search tools (in the case of Microsoft) that are lowering cost expectations.

These lower cost offerings by larger and much more visible companies have the likes of Autonomy and Verity fighting an uphill battle. Verity has been on an educational campaign, offering up white papers talking about the widespread confusion over the difference between "consumer search and business search." CEOs and CFOs are saying, "if I can find what I'm looking for on the Internet using Google, why can't I find what I need within our company?" CIOs may know that a multitude of disparate information sources requires a different, more sophisticated security-sensitive and customizable approach, but nevertheless the buying discussion has now changed. Verity, Autonomy and other enterprise vendors have had to ramp up their own ability to search desktops and the Internet even as they defend their claim to enterprise file stores, repositories, intranets and databases.

The clearest synergy in the Autonomy/Verity deal is the combination of the former's strength in the European market and the latter's strength in North America. In a sense, they're divvying up the enterprise market geographically and finding economies in research, development, administration and selling efforts.

In many ways, IBM is in the same camp as Autonomy and Verity, selling high-priced enterprise software in a market with new low-cost competition, but hey, the company is deep-pocketed, enterprise-connected integration and services giant IBM. Keeping up its drumbeat of acquisitions and internal research and development projects, IBM last week announced it had purchased iPhrase, a high-profile boutique company that has specialized in natural-language search in e-commerce sales, online service and support, and call center applications. These are some of the same apps Autonomy went after with its 2005 acquisition of eTalk and Verity pursued with its 2004 purchase of NativeMinds, but iPhrase was surely a bigger prize. IBM didn't disclose financial details, but iPhrase's marquis customer list includes the likes of Bank One, Dell, Intuit, Nintendo, Verizon and Wells Fargo.

And as if competition from the likes of Google and Microsoft on the one hand and IBM on the other wasn't enough, conventional enterprise search vendors also face competition from upstarts such Exalead, which on October 31 announced a desktop search tool that can become the corporate user's interface to workgroup and enterprise offerings. The company also indexes two-billion-plus Internet pages so, like Google and X1 Technologies, Exalead champions the Holy Trinity of desktop, enterprise and Internet search. But the company asserts its desktop interface is unique in tapping all three in a single search.

There are plenty of other indications that Google is making an impact on the enterprise market that far exceeds its actual market share. Whether it's FAST search adding a desktop tool or Convera's announcement last week that it has indexed four billion Internet pages to offer a customizable, brand-neutral search tool, everyone's scrambling to meet or one-up expectations that Google helped create.