What Technology Customers Can Learn from the HP-Autonomy Debacle

By now you've likely seen HP's announcement about taking an $8.8B impairment charge related to their $9.7B Autonomy acquisition, of which HP claims $5B relates to "accounting improprieties" by some of Autonomy's previous leadership.

Many long-time Autonomy followers were not surprised. Some observers started ringing alarm bells right after the 2011 acquisition -- including in these pages -- not so much about accounting shenanigans, but more disbelief that Autonomy could really have been as successful as they claimed.

There are many lessons here for investors and other people who follow M&A activity, but what about for you the technology customer? I hope that Autonomy customers don't suffer further collateral damage from this whole episode. (We're already getting inquiries from subscribers who license Autonomy platforms.) We'll have more to say about that in coming days, but in the meantime, how can you protect yourself from these sorts of episodes?

The savvy technology customer ignores what equity markets consider "hot" -- and digs deeper to find the right fit.

How Autonomy Grew

Autonomy hit its biggest growth spurt by becoming a technology holding company. It went on acquisition binges, got rid of the back offices among its acquirees, saw its margins and stock price go up, and leveraged that expanding equity to purchase more firms.

Content Management vendor Interwoven was among Autonomy's bigger acquisitions. It was a telling choice. Interwoven itself was a kind of roll-up firm with some decent document and asset management tools, but whose flagship WCXM products were falling irretrievably behind the market, forcing the vendor to employ increasingly aggressive sales tactics.

In my experience, Interwoven and Autonomy enterprise customers shared one thing in common: disappointment. Sure, most enterprises struggle with technology, but I haven't encountered a happy TeamSite or IDOL customer in more than a decade. Have you?

Autonomy Adherents

Speaking of "market leadership," Autonomy's other ace in the hole was very effective press and analyst relations. Among industry analysts, Autonomy was always infamous for the pressure (and goodies) it threatened (promised) to bring to bear. Did they warp research heavily in Autonomy's favor? Probably not. Did Autonomy make analysts wary of confronting them in writing? Some have told me yes.

By the way, we experienced this pressure as well, but we're fortunate that we don't depend on Autonomy (or any other vendor) for work.

What's a Customer To Do?

First, don't assume that a vendor's financial performance is a solid measure of their underlying technology. Yes, we all want to work with successful suppliers. But even leaving aside HP's allegations, clearly there was much amiss at Autonomy that had nothing to do with their quarterly filings.

In particular, you should remain wary of vendors whose growth plans revolve primarily around acquisitions. Financial engineering and technology engineering are two different things. Industry observers may confuse the two, but customers need to know the difference.

Excerpt from the IDOL Server Evaluation

Enterprise Search Evaluation Stream looks at... Training Autonomy IDOL

"With IDOL, the system has to be trained by iteratively exposing it to training sets. According to Autonomy, the set of exemplars needed is not large, and the system is trained out of the box. In practice however, you may find its efficacy to be disappointing if you rely on the automatic - once over, many times - too much. It is possible to over-train or under-train the system; getting it just right may take a few tries...."
(p. 92)

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