“Burn rate” is not a dirty phrase at Omniture Inc., an Orem, Utah-based Web analytics provider that just raised $40 million in Series C funding. While other IT companies still equate expenditures with barrel rides down Niagara Falls, Omniture CEO Josh James insists that his company needs to invest heavily (in other words, spend lots of money) to become the undisputed market leader (in other words, make the most money).
“Some of our competitors say that they’re only hiring one sales exec per quarter,” James says. “We feel that the ultimate leader in the online marketing services market is going to be the one that comes out as the dominant player in Web analytics. … But, to do it, we need to be flexible and able to take advantage of the investment opportunities we’re seeing today. We want to win.”
It is for this reason that Omniture opted to raise an additional round of VC funding, even though rival Websidestory Inc. went public last fall and has seen its stock price nearly double. Specifically, James was concerned that public shareholders wouldn’t accept Omniture’s strategy of voluntarily losing money (the company was once profitable, and could be again if it curtailed certain expansion efforts), and that long-term success might be sacrificed for short-term gains.
BA Venture Partners led Omniture’s oversubscribed Series C deal, and was joined by Attractor Investment Management and return backer Hummer Winblad Venture Partners. The company has raised $65 million to date. In comparison, Websidestory raised about $45 million from Summit Partners, TA Associates and others before it held a $43 million IPO last year.
Rory O’Driscoll, a general partner with BA Venture Partners and new Omniture board member, is not new to the Web analytics space, having backed NetGenesis Corp. in 1999. He says that the main innovation of companies like Omniture is the offering of on-demand solutions, which he defines as “applications where the software is hosted by a vendor on the Internet, and made available to customers on a subscription basis priced per customer per month.”
O’Driscoll also acknowledges, however, that the Web analytics market is becoming more competitive as it consolidates. While he was pricing the Omniture deal, for example, Google Inc. acquired Urchin Inc. for a reported $30 million, and immediately slashed prices for Urchin customers. Other recent sector acquisitions include CheetahMail, a subsidiary of Experion Co., buying Harvest Solutions last month, and Digital River buying FireClick in April 2004.
The result of consolidation, of course, is product parity. Not only does this include on-demand, but also many ancillary bells and whistles such as bid management and email. If one company doesn’t have a particular feature today, check back tomorrow. Product parity also makes it more difficult for a company like Omniture to convince potential clients that it is better to receive Web analytics from a dedicated provider than from a more generalized online services company, a la Google, for example, which could package Web analytics and keyword search at an attractive price.
Eric Robinson, a senior analyst following the Web analytics space for Jupiter Research, however, argues that Omniture is still in great shape and has the momentum to prove it. “Omniture has been racking up high-profile wins like AOL, Ford and CMP Media, so if you start thinking about the best-known sites, Omniture is getting pretty good at getting global contacts,” he says.
The Series C round is expected to be Omniture’s last dip into the private markets, with acquisition interest possibly to come from Microsoft, Oracle or possibly Salesforce.com. But since James doesn’t seem like the selling type, expect Omniture to file for an IPO within the next two years, depending on market conditions.
Email Daniel.Primack@thomson.com
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