Omniture’s dilemma
It’s hard to miss out on Omniture’s $40M funding announcement. The funding’s well deserved – it also puts the entire Web analytics space back into every VC’s radar and it won’t be long before Wall Street takes another hard look at the space as well. I was surprised to see Omniture’ valuation publicly disclosed in a press article, but these things are seldom done by accident, especially if the company is a few months away from its public offering.
What will Omniture do with the funding – and how this is going to affect the space is the question. Given the pricing pressures on the lower end of the market, the ferocious competition for the mid and high end markets, and the lack of differentiation between vendors, only two viable strategies are left to consider.
Strategy 1 is to stay focused in analytics and build up IP in the Best Practices area, i.e. to provide Web analytics consulting to clients. Best Practices is what customers have been yelling and screaming for – one the other hand, building up a large consulting organization is a real challenge because talent is very scarce (the important word in this sentence is “large”). In essence, this option makes good sense on paper, but financially speaking it is hard to get sustained growth and high margins.
Strategy 2 is to continue to build up the platform by making acquisitions in the e-Marketing space. A handful of vendors (Digital River/Fireclick, WebSideStory, Webtrends) have gone that route and started building a true e-Marketing suite which are integrated and work well together. This option makes more sense financially-speaking because you can keep higher margins and scale the business more effectively. On the flip side acquiring companies and integrating them is expensive, takes time and requires a solid long term vision.
So when I read Josh James (Omniture’s Chief Executive) saying “In this industry, whoever gets the largest the fastest is going to win“ – I’d call for more prudence and remind Josh that there is a long history of Web analytics companies which got very big, very fast, went public, and then fell apart. But I guarantee he (or his investors) knows this, and bet you $100 Omniture is loudly advertising the Strategy 1 and silently executing on Strategy 2. At least I hope.
