Verity: Finding a Foothold

By Baselinemag  |  Posted 2005-04-06 Print this article Print

Verity's search software excels at zeroing in on what you're looking for in a collection of information not organized in a database, say, some customers.

What if Alan Greenspan wanted to quickly find an economic statistic buried somewhere deep within gigabytes of Web pages, Microsoft Word files and other documents stored on the Federal Reserve's computer systems?

Actually, he'd probably have one of his minions dig it up. But for a typical manager at a large company looking for, say, one specific product brochure among a group of thousands, critical assistance might come from the search and retrieval software supplied by Verity.

A 16-year veteran of the search business, Verity, according to some customers, provides the best tools of the trade for zeroing in on exactly what you're looking for in a collection of "unstructured data": any set of information not organized in a database. The company has been the No. 1 provider of enterprise search software for the past four years, with a 17% share of the $619 million market in 2003, according to research firm IDC.

"If search is strategic to your business, Verity is the search engine to pick," says Herman Baumann, executive director of strategic development for the American Hospital Association. The Chicago-based consortium of 5,000 hospitals and health-care networks uses Verity's flagship K2 Enterprise software to let members and other visitors to its 50 Web sites search for health-related news and information in 76,000 reports, directories and other documents.

K2 scans documents on a network and creates a keyword index, which maps terms to the document's location. When someone enters a search word, the software applies a customizable mix of calculations (such as frequency of keyword in a document) against that index to find the specific documents that match the query. Verity also provides software to help classify documents by subject or theme, which can improve a search engine's results by providing additional clues to the nature of its contents.

Be prepared to fork over some bread, though: Verity says the average selling price of K2 is $150,000, and analysts say large corporate deployments with more than 1 million documents can run to $350,000 or more. For those who find that too rich, Verity also offers a simpler search engine called Ultraseek, priced starting at $6,000, which lacks many features of its bigger brother, such as K2's ability to directly access document management systems such as Lotus Notes.

Is K2 worth the price tag? Baumann thinks so. He says the software is rugged and stable, and allows his team to adjust just about any parameter in the search engine. For instance, K2 can be configured to assign different weights to variables in a search query (like whether the term is in the headline) to come up with more meaningful results. The advantage, Baumann says, is that K2 allows those parameters to be tuned so that "you don't have to write snippets of code to make it work the way you want."

Not everyone has been satisfied with Verity's search software. In 2003, the U.S. Army picked K2 to search across the 1.2 million documents available via Army Knowledge Online (AKO), a Web portal that provides news and information to 1.75 million military personnel and civilian employees. A year ago, however, the Army replaced Verity's software with Autonomy's Intelligent Data Operating Layer Server to provide the search infrastructure for AKO.

"We thought we'd get more relevant search results with Autonomy," says Col. Timothy Fong, director of the Army's office of information-technology services. "Not to say Verity couldn't do it. We just thought Autonomy could do it better." He says that's partly because Autonomy's software works on a different principle than traditional keyword-based search engines such as Verity's (see sidebar). Verity declined to comment on the Army's switch.

Other customers say Verity doesn't add bells and whistles to its products without deliberation and testing—but they appreciate that. "Verity is never the first one to the table, but when they get there, the product works," says Christine Connors, meta-data architect at defense contractor Raytheon.

Anthony Bettencourt, 44, Verity's president and chief executive officer since March 2003, realizes Verity must keep spending on R&D to improve its search technology, particularly as the likes of Google, IBM, Oracle and Microsoft beef up investments in the field. But Bettencourt also believes Verity's cautious approach helped it sustain six straight profitable years. "We're not flashy by any means, but I think we've grown in a smart way," he says.

He says Verity is ready to tangle with new rivals, though he claims the search software market is a niche that big vendors like IBM don't care about winning. "In the search business, I don't have an elephant gunning for me," Bettencourt says. But since an elephant can crush a smaller competitor just by taking a step forward, Verity will have to pick up the pace to stay ahead.

The Company

HEADQUARTERS: 894 Ross Drive, Sunnyvale, CA 94089

PHONE: (408) 541-1500


URL: www.verity.com


Founded: 1988

BUSINESS: Sells software to search and categorize information, and software for scanning and routing documents.

MAIN PRODUCTS: K2 Enterprise can index millions of documents stored in 297 formats (such as Microsoft Word), and locates information via keyword search or organizes it by category. Ultraseek is a less complex search engine for smaller sets of documents.

EXECUTIVES: Anthony Bettencourt, president and CEO; Andrew Feit, senior VP and general manager of search business unit; Prabhakar Raghavan, senior VP and chief technology officer

KEY COMPETITORS: Autonomy, Convera, Endeca Technologies, Fast Search & Transfer, Google, IBM, InQuira, Microsoft, Oracle

The Competition

Two of Verity's rivals are using new technologies and techniques to challenge the search leader:

Autonomy, based in Cambridge, England, provides search software that determines the probabilistic relationship among variables in a document to figure out the "meaning" of different pieces of information and how they're related to each other. For example, Autonomy's software might be able to tell that a document about making French fries is similar to other documents on food preparation, whereas a traditional search engine would simply record a high occurrence of the phrase "French fries." Autonomy says its customers include Citigroup, Ford Motor Co. and Nestlé.

Google, the popular Internet search site, has made its own play to businesses with a family of appliances that search documents on private networks. But some believe Google's method of ranking a Web page primarily based on the number of links to it on other pages is unsophisticated—and that it doesn't work well to search an organization's private documents. "It's a popularity contest. On our intranet, that doesn't have anything to do with finding relevant information," says Eileen Quam, information architect with the state of Minnesota, which uses Verity's Ultraseek. Google, though, says link analysis is just one of 100 variables it uses as part of its search algorithm; others include whether the search term is bolded or appears in a document's title.

Reference Checks

Bret Vincent
Dir., Knowledge Management
Project: Bank uses K2 to let 5,000 contact-center agents search 4,000 documents in a Documentum database of policies and procedures.

Christine Connors
Meta-Data Architect
Project: Defense contractor uses K2 Enterprise 5.5 to index, categorize and search 700,000 documents, including Web pages, representing a total of 60 terabytes.

State of Minnesota
Eileen Quam
Information Architect
Project: Ultraseek provides the search functions for the state's North Star Web portal, which has 1.2 million documents (such as tax forms) on 650 subsites.

American Hospital Association
Herman Baumann
Executive Dir., Strategic Development
Project: Consortium of 5,000 hospitals and health-care providers runs K2 to search across 50 sites, which receive 3.5 million page views per month.

Thomson Gale
Kathi Gruber
VP, Editorial Standards
Project: Electronic reference publisher uses K2's automatic classification tools to help human indexers categorize up to 18 million periodical articles per year.

U.S. Dept. of Energy
Marsha Luevane
Senior Internet Developer
Project: The agency's National Renewable Energy Laboratory uses Ultraseek 5.2 to index 125,000 documents on its intranet and two public Web sites.

Verity operating results*

2005FYTD 2004FY 2003FY
Revenue $106.19M $124.31M $101.95M
Gross margin 78.6% 83.8% 85.3%
Operating profit $7.45M $17.15M $11.56M
Net profit $7.43M $11.61M $11.64M
Net margin 7.0% 9.3% 11.4%
Earnings/share $0.19 $0.29 $0.31
R&D expenditure $17.56M $20.21M $20.14M

* Fiscal year ends May 31; FYTD reflects first nine months

Source: Company reports

Other Financials**

Total assets $348.08M
Stockholders' equity - $298.19M
Cash and equivalents‡ - $126.48M
Long-term debt - None
Shares outstanding - 38.37M
Market value, 3/24 - $373.16M

** As of Feb. 28, 2005, except where noted
‡ includes short-term investments


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