Business Week e.biz -- Upstarts
Making the Web Go
Sites hum with Vignette's software, which helps publish and manage Net content
It's a beautiful warm spring evening in downtown Austin, Tex., and the patrons are flitting around Serranos bar and restaurant, eyeing name tags and ordering $5 frozen margaritas. More than 1,000 people are here for Austin's High-Tech Happy Hour, a monthly schmooze fest. Most work for the local dot-coms springing up all over, but nearly everyone wishes they worked for Vignette Corp. "Vignette is the dot-com that made it," says Harry Pape, 32, a freelance marketing consultant and longtime Austin resident who co-founded the happy hour. "They're the example that everyone looks up to."
Granted, Vignette may not be a household name like Yahoo! or eBay. But when it comes to the Web, Vignette's software plays a crucial behind-the-screens role. Vignette makes software that helps companies publish and manage content on the Internet and elsewhere. Sounds simple, but consider this: Today there are nearly 1 billion Web pages, and 3 million new ones are being unleashed every day. If this material were not carefully indexed and delivered by software from companies like Vignette, the Web would look like a giant Jackson Pollock painting.
Tending to all that Web content has placed Vignette at the vanguard of the New Economy. Since going public in February, 1999, the five-year-old company's stock has spiked more than 1,500%, from $19 to a split-adjusted $300, giving Vignette a market capitalization of nearly $9 billion--even after Wall Street's recent oscillations. Its market cap is bigger than any other Web software company except BroadVision Inc., whose valuation nears $11 billion. And its 700-customer base is more than double its closest rival. In the quarter ended Mar. 31, Vignette reported $55.2 million in revenues, up 505% from the year-ago quarter, and an operating loss of $5.3 million. Analysts expect the company to turn profitable by the fourth quarter.Soup to nuts. But Vignette CEO Gregory A. Peters has his eye on bigger pastures. The 40-year-old former All-American high-school quarterback from Little Rock says he wants Vignette to "become the fastest software company in the world to reach $1 billion in revenue." The record, held by security-software maker Network Associates Inc., is nine years. Peters figures he can do it in seven or eight. To get there, he must transform Vignette into a soup-to-nuts e-business software supplier, offering clients the ability to run their entire business online, from sales to customer service to marketing. Throughout this year, Peters will roll out software to handle online billing and payments, as well as ways for merchants to track thousands of orders.
The prize for pulling off this transformation is huge. E-business software is predicted to mushroom into an $18 billion market by 2003, up 300% from $6 billion this year, according to Banc of America Securities. With so many greenbacks up for grabs, the market is fiercely competitive, and growing more so every day. Vignette faces tough rivals such as BroadVision, which specializes in building online stores; Art Technology Group, which sells e-commerce software to build Web pages; and fellow content manager Interwoven. And it's only a matter of time before it butts heads with giants such as Oracle Corp. and SAP as they create new software to run online businesses. "There will only be two or three [software] companies that survive the e-business wars," predicts BroadVision Executive Vice-President Rani Merritt.
Peters is unfazed. Colleagues say he's the Gary Cooper of Web software--the strong but silent type. "Greg is very self-effacing," says Laurie Frick, Vignette's senior vice-president for marketing. And he's not one to duck a challenge. In 1996, three weeks after becoming the chief financial officer of Logic Works Inc., a database-software company, it failed to meet Wall Street's earnings expectations, and its stock nosedived. "I was like, `I can't believe I moved my whole family to Princeton, N.J., for a catastrophe,"' recalls Peters, who today likes to kick back on his 24-foot boat with his wife and two kids. He got the company back on its feet before selling it to Platinum Technology International, Inc. for $175 million in March, 1998.
Peters has a different ending in mind for Vignette. From his first days there, he has built a strong service organization to hold customers' hands. Now, he's shoring up Vignette's product gaps by crafting a series of technology and marketing partnerships. In a ringing endorsement of its products and strategy, Andersen Consulting agreed on Apr. 10 to train 500 consultants to install and maintain Vignette's software, and, Business Week has learned. If the deal is successful, Andersen will take a minority stake in the company. Last September, Vignette teamed up with IBM to integrate Big Blue's e-commerce software with Vignette's programs. This will offer Vignette's customers with software for online billing, electronic catalogs, and a simplified way to track thousands of orders at once.Chaos. The strategy seems to be working. On May 10, Vignette landed its largest deal ever, a $10 million order from Telefnica's Terra Networks to manage the content for the Spanish Internet service provider. At the same time, current customers such as First Union Corp. are eager for the new software. "We've been very pleased," says Parrish Arturi, a vice-president of First Union Corp. "But we're more excited" about the new applications.
Vignette's path wasn't always so clear. The startup was founded in late 1995 by Ross Garber and Neil Webber, friends who had worked together at Austin printer-management software outfit Dazel Corp. With little idea of what they wanted to do, the duo cold-called 300 businesses trying to identify big problems that needed to be solved. The message: Help us bring order to the chaos of Web publishing.
Garber called CNET Networks Inc., because he knew the tech-news and retail site had developed its own sophisticated online publishing system. The two companies struck a deal: In exchange for $500,000 and a 35% equity stake in Vignette, CNET sold Vignette the patent, source code, and all future development rights to its Web publishing system. That investment is worth some $150 million today. "Besides CNET and Snap [CNET's Web portal], Vignette is one of the three things I'm most proud of," says CNET Chairman Halsey Minor."Hot sites." The deal gave Vignette the launchpad it needed. Within three months, the company was shipping product. By mid-1998, realizing the company had become too complex for them to run, the two founders stepped down from day-to-day management, and in came Peters.
Since coming on board as employee No. 115 in June, 1998, Peters has sharpened the company's focus on customer service. Today, Vignette is a 1,300-person organization, with nearly 40% of its employees in service-oriented jobs. At the weekly senior-management meeting, the first item of business Peters discusses is "hot sites"--customers that are having trouble with the company's products. Peters also designed a way to make the sales staff sensitive to customer needs: As much as a quarter of a salesperson's salary is tied to customer satisfaction. And rather than booking revenue after shipping its software or during the period when customers are installing its programs--as most software companies do--Vignette records a sale when the software is up and running. This keeps Vignette employees focused on ensuring buyers' satisfaction. "We'll bend over backward, and then bend over some more, to make the customer successful," says Vignette's Senior Vice-President for Development Bill Daniel.
That doesn't mean every deal goes smoothly. "They're making all the right moves now, but it was initially painful," notes Jan Hier-King, a senior vice-president for Charles Schwab Corp., one of Vignette's first big customers. The launch date of Smart Investor, Schwab's new personal finance Web site, has been pushed back six months, says Hier-King, partly because Vignette wasn't familiar with the product-development procedures, security systems, and legal and regulatory requirements of a big firm like Schwab. It is now.
Nor does Peters want Vignette to get caught flat-footed when it comes to technology. His engineers have developed a pack of applications that includes a search engine and a bookmark tool that lets customers quickly access the content they want. And, until Vignette can offer more home-grown software, it's partnering with other companies to fill out its offerings. An alliance with Inktomi, for example, will help e-commerce companies distribute content faster. And its partnerships with E.piphany and NetGenesis give Vignette customers a way to help marketers gauge the success of online sales pitches, as well as segment customers by profitability or pages visited. Analysts applaud these deals as smart short-term moves but warn that Vignette could get burned if it fails to cook up its own applications.
One encouraging sign: Vignette's move to non-PC devices. Sprint Corp.'s service, which provides wireless access to the Web, is using Vignette technology. This allows Sprint's content partners to write "10-second applications" that would enable a bank, say, to notify a client of the arrival of a money wire--all via cell phone. In many countries, "the Net-enabled phone will be the primary way people access the Internet," says Richard Schwartz, Vignette's senior vice-president for technology.
The question is: Can Vignette leverage its content-management strength to become a $1 billion supplier of e-commerce software? If not, Austin's best and brightest will dream of working elsewhere.By Spencer E. AnteReturn to top