CROSS-CHANNEL, CROSS-LIFECYCLE CUSTOMER SERVICE PRODUCT AND COMPANY UPDATE
Business Was Very Strong in 3Q2007
By Mitchell I. Kramer, November 29, 2007

NETTING IT OUT

Fueled by excellent customer growth, customer service business was very good in 3Q2007. That customer growth produced excellent financial performance almost across the board. Only KNOVA, among the seven suppliers that we cover, did not have a good quarter. Remember that KNOVA was acquired by Consona Corporation two quarters ago.

Product activity for the quarter was slow. Third quarters are historically quiet from a product perspective. Only RightNow made significant announcements—a fifth industry solution and the regular, quarterly release of its product suite. But InQuira, InStranet, and KANA are ramping up for rollout of new major product versions early in 2008.

There were only a few company announcements. Most significantly, InQuira also announced the creation of a Customer Advisory Board. The real company action is in hiring. Customer service suppliers are hiring aggressively. For example, eGain, InQuira, InStranet, and KANA are trying to grow their staffs by 10 percent or more! They anticipate continued growth.

In our 1Q2007 report, we stated, “Momentum is building in this space. We feel that growth will continue as companies introduce new products and customer adoption continues to broaden.” Our prediction was spot on. 2Q2007 was a very good quarter for product introductions and good for customer growth. 3Q2007 was excellent for customer growth.

CROSS-CHANNEL, CROSS-LIFECYCLE CUSTOMER SERVICE: 3Q2007

Product and Company Viability Factors

This report is the latest and eleventh of our quarterly update reports on the products and companies in our research practice on customer service.

These updates focus on the product and company viability factors, factors that are important in the evaluation, comparison, and selection of customer service products.

For each of the seven customer service suppliers that we currently cover, we examine these factors:

We want to see continuing improvements in products, and we want to see continuing company growth of the suppliers. We don’t want to change our evaluation based on a quarter’s news, but we do want to raise a red flag when that news deviates from a positive, multi-quarter trend, or to wave a green flag when that news is particularly good. For key product and company events, we identify those occurrences that could have a significant impact on cross-channel, cross-lifecycle customer service technologies, applications, and the market landscape.

Note that PSGroup also offers a large body of research evaluating and comparing the products against a framework of customer requirements. If you need to or want to know our take on how the products stack up against each other and/or against your requirements, take a look at our research on http://www.psgroup.com/research_cccsv.aspx. Our research is up to date and reflects the latest major version of the flagship products for all the suppliers that we cover.

A Very Good 3Q2007 Fueled by Excellent Customer Growth

3Q2007 was a very good quarter for customer service. After a seasonally soft 1Q2007 and a mostly good but spotty 2Q2007, customer growth fueled a very good third quarter for all but one of our suppliers.

That exception was KNOVA. KNOVA’s customer acquisition and growth were down again, and there was no product or company activity. This level of performance raises concerns, especially so when all of the other customer service suppliers had very good performance during the quarter. We won’t be too critical of KNOVA, not yet anyway. Remember that KNOVA was acquired by Consona Corporation in March 2007. It’s still being assimilated into Consona’ organization, processes, and culture. That earns KNOVA a pass through the end of this year. We’ll look at KNOVA more critically beginning 1Q2008.

Now, here’s a brief look at what made the quarter very good for the other customer service suppliers:

You can see that customer growth and financial performance were where the action was in 3Q2007. Except for RightNow, which is on a quarterly release cycle, none of the suppliers made significant customer service product announcements. Suppliers told us to expect major new product versions first and second quarter next year.

Suppliers and Products

Just a reminder, we offer up-to-date research on these leading cross-channel, cross-lifecycle product offerings and their suppliers:

• ATG Self-Service, Commerce
• eGain Service
• InQuira 8
• InStranet Contact Centers In-Line
• KANA Service Solutions
• KNOVA Application Suite
• RightNow CRM

ATG

Financial Performance Drives a Very Good 3Q2007

ATG had a very good 3Q2007. Customer acquisition was good but flat as compared with last quarter. Only a product feature was introduced. Financial performance was excellent with significant increases in every metric.

New Customer Growth

ATG acquired a total of 52 new customer in 3Q2007, 7 for ATG’s ecommerce and customer service offerings and 45 for eStara’s click-to-call and click-to-chat Software as a Service (SaaS) offerings. Last quarter, these numbers were 11 for ATG and 40 for eStara. Two quarters ago, the total number of new customers was 44, and ATG did not break down the number further. On a base of approximately 900 customers, the acquisition of 52 new customers in a quarter is very good customer growth.

eStara’s offerings are a lot easier to sell than ATG’s offerings. They’re add-on features of your Web-based customer experience. As a result, the number and the rate of new customer acquisitions are much higher for eStara than they are for ATG. However, while ATG’s numbers may seem small relative to eStara’s numbers, remember that ATG’s ecommerce offerings are mature products (we’ve been evaluating them for 10 years!) that require you to make a significant implementation effort that are being sold into a mature market. That makes new customer growth for ATG Commerce very impressive. It also demonstrates the appeal and benefits of SaaS. You can purchase and implement an on-demand ecommerce system so much more efficiently and effectively than you can an in-house system through perpetual licensing.

We can’t complete the picture of customer growth for ATG. ATG has decided not to release the number of existing customers who purchase additional software. Bummer.
Products

In 3Q2007 ATG announced advanced “searchandising” capabilities for its ATG Commerce and ATG Commerce Service Center (CSC). Searchandising combines personalization, merchandising, and search. It lets customers or agents acting on customers’ behalves search for products that they’d like to learn about and purchase, and it lets merchants cross-sell, up-sell, and make promotional offers within search results. ATG’s offering leverages the personalization capabilities of the ATG Wisdom platform, the merchandising capabilities of ATG Commerce and ATG CSC, and the search capabilities of ATG Search as well as the affinity selling capabilities of ATG affinity selling. These are useful capabilities for you and for your customers. Searchandising helps your deliver a better customer experience to customers who prefer to search for products rather than browse your product catalog. ATG CSC gives searchandising capabilities to your agents, enabling cross-channel searchandising.

ATG has not made any product announcements so far in 4Q2007.

Company

On July 23, ATG announced the additional executive position of Senior Vice president of Corporate Development, and named Drew Reynolds to fill it. Reynolds responsibilities are partner development and strategic relationships, including mergers and acquisitions. Before joining ATG, Reynolds was most recently vice president of corporate development for Hyperion Solutions, Inc.

ATG had recently made two significant acquisitions before this position was created—eStara in 2006 and Primus in 2004. It appears ATG might be thinking about a few more.

Staff Growth

Looking at the Careers section of its Web site, we found 33 open positions, up from the 19 openings last quarter. There are 10 sales openings, 8 in R&D, 7 in customer support, 4 in professional services, and 2 each in marketing and G&A. ATG currently has about 380 employees. 33 openings is about 9 percent growth in staff. That’s pretty aggressive staff growth.

Financials

Just a reminder that ATG is one of four suppliers that we cover that has adopted a business strategy emphasizing subscription sales of SaaS offerings. The effect of adopting the strategy is lower revenue, license revenue, and net income in the short term and higher, recurring, more predictable, more consistent revenue, license revenue, and net income in the long term. ATG is in that short term transition which will likely last several quarters.