E-Mail Responders Get Ready for IPOs
by Hal Plotkin,
Silicon Valley Correspondent
Jul 23 1999 9:01AM ET
Investors looking for hot new Internet initial public offerings will soon have an entirely new category of Net start-ups to consider: e-mail answering services.
Sound a bit dry? This new group of soon-to-be public companies solves real problems for real customers who actually have real money: They’re automating the process of responding to the avalanche of incoming e-mails bombarding many businesses.
The first of this new breed of companies to go public is Palo Alto, Calif.-based Kana Communications, Inc., which filed an IPO registration statement with the SEC earlier this month. Others in the pre-IPO pipeline include Brightware, Inc., based in Novato, Calif., Acuity Corporation, based in Austin, Tx., and YY Software, Inc., also based in Palo Alto.
The problem — and opportunity — being addressed by these companies is substantial.
According to a self-serving, although totally believable, survey conducted by one of the vendors in this market, only 15 percent of the top 100 companies on the Fortune 500 list were able to answer a very simple e-mail inquiry within three hours.
Another 36 percent of these firms either couldn’t be contacted by e-mail through their web site at all, or made it so difficult few were likely to accomplish the feat.
It took Bell Atlantic, for example, more than a week to respond to a simple query — “what is your corporate headquarters address?” — sent to the e-mail address listed on its Web site. Several other major companies, including RJR Nabisco, Home Depot, United Technologies, and MCI, hadn’t responded at all by the end of the thirty-day survey period.
The software produced by these start-ups relies on artificial intelligence to analyze the meaning of incoming e-mails.
Drawing information from a customer’s preexisting database, the software drafts responses to e-mails and forwards them directly to the person who sent the e-mail, or to company personnel for further review.
It costs U.S. companies about $2.75, on average, to manually answer an e-mail compared with about 25 cents to answer an e-mail with the help of automated e-mail response software, according to Forrester Research, based in Cambridge, Massachusetts.
The market for this kind of software is projected to grow at a compound annual rate of 116 percent, reaching $2 billion dollars by 2003, up from just $42 million in 1998, according to International Data Corporation (IDC), based in Framingham, Mass.
“This is a critical category of software because it solves one of the thorniest problems on the Internet — web site abandonment,” says Albert Pang, research manager for IDC. “The market for this category of software is expected to grow explosively,” he says.
Kana Communications, Inc. is expected to launch its pre-IPO road show sometime after Labor Day. For the quarter ending March 31, 1999, Kana posted sales of $1.4 million dollars, with losses totaling $1.845 million.
The company was founded in April 1997 with $700,000 in seed financing provided by the Draper, Fisher, and Jurvetson venture capital firm based in Redwood City, Calif. Kana has raised $26.5 million dollars in venture capital since then from Benchmark Capital, Stanford University, New Millennium Partners, and others.
According to Charles Rider, an analyst with the Patricia Seybold Group in Boston, Massachusetts, Kana has a “well-thought out and complete solution for companies that want to implement a call center-style solution to the challenge of high volumes of customer e-mail.” Kana’s current customers include Pacific Bell, Netscape, and eBay, Inc. Taken together, Kana’s 148 customers already answer approximately 4.2 million e-mails per week using Kana software.
There is, however, plenty of room for competition.
The number of e-mail messages sent worldwide each day is projected to grow from about 1.9 billion last year to more than 4 billion by the end of 1999, according to Pioneer Consulting, based in Cambridge, Mass.
Several of Kana’s rivals, for example, maintain their products do a better job drafting accurate answers to e-mails that contain multiple, or vague, questions.
Another firm, San Jose-based Quintus, Inc., also in the pre-IPO pipeline, is reselling e-mail response software provided by Brightware, Inc. bundled with their existing call-center products so that customer service personnel can quickly review a customer’s previous e-mails whenever they call in for assistance.
Unlike many currently popular Internet stocks, the strength of these companies is that they don’t rely on revenues from consumers or advertisers.
Instead, their products are needed by any business that operates on the Internet. In the Internet’s rapidly-developing war of attrition, the vendors of automated e-mail response software are selling munitions.
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