The deal is subject to the usual closing conditions and is expected to close in 2Q. Convera will continue to trade under the NASDAQ symbol CNVR.

"Convera is a respected and trusted brand in government markets, particularly among U.S. Federal agencies," said John M. Lervik, FAST’s CEO. "The acquisition of Convera’s RetrievalWare business will enable us to deepen our relationships in the government sector, and will provide access to next generation search capabilities to Convera’s vast government customer base while protecting their current investment."

"We’ve heard from our government customers that they are looking for innovative ways to better leverage their information assets," said Patrick C. Condo, president and CEO of Convera. "FAST is the right company to take government agencies to the next level. With a broad range of complementary technologies, solutions and services, FAST is prepared to deliver great and immediate value to our sizeable customer base."

Why Sell?

The sale by Convera was not unexpected. A look at Convera’s financial results shows that the company has been steadily losing ground in the last few years. In mid-March it reported that revenue for 4Q of fiscal 2007 totaled $2.8 million, a 24-percent decrease from the comparable period of fiscal 2006, while full-year revenue totaled $16.7 million versus $21 million for the prior fiscal-year period. (RetrievalWare accounted for $16.4 million of that $16.7 million.) The year before that (FY 2005), revenues totaled $25.7 million. The company has a recent history of operating losses and was clearly struggling in an increasingly competitive market.

RetrievalWare is also a 20-year-old product, competing with newer products from deep-pocketed vendors. Over the last few months, following the report of its disappointing results, the company separated into two business units and streamlined expenses to "enable the enterprise business to be profitable and accelerate the progress we are making in the vertical search business as well." The move was partly with the view of selling off RetrievalWare, but also to bring more focus to the business, according to Graham Charlesworth, Convera’s vice president for international operations and worldwide partner management. "Convera is an innovative company that had been doing many things, but we’ve never been able to execute as well as we should have. We are now trying to do just one thing well."

Charlesworth said that some of Convera’s government customers had started working with FAST, and it had been tough fighting larger companies. He also said that Convera’s approach to indexing and classification was very similar to FAST’s approach—while being "poles apart from some other vendors in enterprise search."

Why Buy?

According to Susan Feldman, research vice president for search and digital marketplace technologies at IDC, "There has been little attention paid to some of the technical riches that come with RetrievalWare." She stressed the importance of Convera’s history and the technologies it obtained from its componentmerged companies. Convera was formed in December 2000 through the combination of the former Excalibur Technology Corp. and Intel’s Interactive Media Services Division. Excalibur had previously merged with Conquest in the mid-1990s.

Feldman explained: "Each company brought some valuable assets to the table. Conquest’s semantic network provides a robust linguistic foundation for disambiguating terms, but also for speeding multilingual and cross-language retrieval. Excalibur’s pattern-recognition technology was developed for the Defense Department to aid in face recognition. These were integrated into RetrievalWare, a solid enterprise search product that lacked good marketing in the commercial arena. Government agencies, however, adopted it readily. During the Intel period, Convera acquired Screening Room, and we believe that this technology could position FAST strongly against Autonomy’s rich media foundation for their Virage and eTalk products. Screening room ingests video content, storyboards it, snatches the closed caption text, and thereby enables both image and voice search. While FAST won’t own this rich media engine exclusively—Convera retains the IP to the VRW engine—it is embedded in RetrievalWare, and they may be able to capitalize on it."

Impact on Government Customers

"FAST will continue to support Convera’s RetrievalWare customers, partners, and resellers worldwide," said Peter Bauert, senior vice president of corporate development at FAST. "As of this morning we are beginning our outreach effort to these organizations, and we anticipate much excitement in the government sector as a result of this agreement."

While FAST will continue to support the RetrievalWare platform, it will not continue development on it or add new features. RetrievalWare customers will be offered an upgrade path to FAST’s own offering. The FAST platform offers faster performance, more robust scalability, and the flexibility to link with a wide variety of databases. However, according to Bauert, RetrievalWare does offer some desirable features and functionality that FAST does not have now. He explained: "An example of a feature that we intend to ‘port’ from RetrievalWare to FAST ESP is the way that Convera is doing semantic mining using ontologies and taxonomies. While FAST already supports ontologies/taxonomies, Convera’s customers are used to a tool called the KnowledgeWorkbench and we intend to make that available to the customers as they migrate to FAST ESP."

In the software business, changing to a completely new platform is generally known as a "rip-and-replace" action—one that can be a long and painstaking process. This will be a tough decision for some customers. Some of FAST’s competitors are likely to see this as an opportunity.

Kathleen Reidy, enterprise software analyst for The 451 Group, said, "RetrievalWare customers can at least now be assured that they will have continued support for their current implementations for the foreseeable future. Migration to FAST ESP will be non-trivial for most customers though, so I imagine we will see many customers take this as an opportunity to evaluate a range of solutions rather than just converting automatically. And other vendors are likely to encourage that behavior with migration offers and so forth. Still, FAST is a leader here and provided it makes migration financially attractive and as technically smooth as possible, I would imagine more customers will go to FAST solutions than will not."

Feldman said that "Autonomy and Endeca will certainly see this upset as an opportunity to make inroads as well. And smaller players like Inxight and Vivísimo who have a government agency following, will also see this move as an opportunity to grab new customers."

Prior to acquiring Convera, FAST had 38 direct customers in the government market, plus additional government customers through FAST’s partners. According to Bauert, FAST now intends to "focus on a worldwide perspective for government customers."

Convera Focuses on Hosted Solution

Convera is now clearly pinning its future on the success of its Web-based business. The company had been transitioning from a pure enterprise-search software concern to a more diverse search provider offering a professional-grade Web-based search technology through its Excalibur solution—since rebranded as TrueKnowledge for Web. It now has about a dozen customers for the hosted solution. Convera has signed recent contracts with publishers such as John Wiley & Sons, United Business Media, Euromoney Institutional Investor, and Centaur Media.

Convera has also licensed FAST Ad Momentum, a private-label contextual advertising and monetization platform developed with the support of a number of online publishers. FAST Ad Momentum will be integrated with Convera’s hosted vertical search solution and its Publisher Control Panel. FAST will do joint marketing with Convera, since it will be in both companies’ best interests to be successful.

"As for Convera, it’s perhaps still a bit too soon to tell how the company will fare now," according to Reidy. "It has invested a lot of money into the Excalibur service and has started to sign some major publishers. Still, its revenue associated with Excalibur for fiscal ’07 was tiny (less than 2 percent of total company revenues) so it still has a lot of growing to do. The company will have quite a bit of cash after the acquisition closes and far fewer expenses (at least in terms of head count) so it will have some runway to make a go of it."

FAST is headquartered in Norway and is publicly traded under the ticker symbol FAST on the Oslo Stock Exchange. The company operates globally with presence in Europe, the U.S., Asia, Australia, the Americas, and the Middle East.