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  the Software View: Vignette has a StoryServer to tell

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Now, dear readers, on with this week's episode of the Software View! This week, I train my eyes upon a software company called Vignette. The reason Vignette appears upon my radar screen relates to 'ditus Bolanos. Ditus Bolanos and I both attended and were Classmates at the United States Military Academy at West Point, New York. We both achieved Bachelor's of Science degrees in Computer Science and we both graduated from West Point in the year of 1990. I have known Ditus for a time that spans over a decade. I first met him when we both served on an internship at the SEI (the Software Engineering Institute) at Carnegie-Mellon University in Pittsburgh, Pennsylvania. He is the founder and resident software genius of West-Point.org, a thriving community of West Point Graduates, family, and friends. This community has its own Internet World Wide Web site and almost two hundred active electronic mail lists and list servers. Ditus currently serves as a senior tools engineer on Vignette's technical staff. I consider him a Classmate, a dear close friend, and a mentor.

Vignette Corporation is a leading company in a brand new emerging software industry market segment category called Internet relationship management. Vignette provides enterprise solutions for companies that are building successful businesses on-line. Michael Sullivan-Trainor, the Program Director of Internet/Electronic Messaging at IDC (International Data Corporation) writes that, "Successful Web businesses will be those that interact with and service the customer. Vignette is the first company to recognize Web commerce is a process, not a product." Vignette is quietly sitting on one of the more crucial and lucrative niches in the new media world.

Vignette's products and services, which include the industry-leading StoryServer 4.0 and Vignette Syndication Server, allow businesses to use the web as a new channel for customer acquisition and retention. The opportunity for businesses that take advantage of this new channel is to build long-term, high-value relationships with customers and then to use those relationships to create new market opportunities. The company's StoryServer content management software lets Web publishers drop in stories on their sites without reprogramming, and helps manufacturers personalize private Web pages with data for individual clients. Vignette's Syndication Server transmits content to other Internet World Wide Web sites: A bank, for instance, could trasmit its updated stock research to online brokerages. It is the industry's first server for building automated trading networks between affiliated online businesses.

The great advantage of StoryServer is that it allows sites with elaborate, slick-looking layouts to update their content rapidly and easily. As a result, it's changed the way the Internet and the World Wide Web looks. One can use it to serve millions of pages a day across a network of sites. StoryServer's scalable architecture makes it ideal for building high-traffic Web sites, whether you're publishing a ton of content or you want to create interactive Web applications.

The key to building a site with StoryServer is separating presentation from content. That is, you put your content into a relational database and your presentation and processing logic into objects called templates. Templates look like HTML source combined with calls to a fully extensible, embedded scripting language. Using the integrated development environment, you can modify a single template and instantly update thousands of pages while preserving your data integrity.

StoryServer constructs Web pages out of components. This technique is used often at CNET to deliver consistent toolbars or, more compellingly, to incorporate the most recent CNET News.com headlines into thousands of pages across the network of sites - with nearly no performance impact.

StoryServer's Production Center lets you manage a hierarchy of projects, with each project containing site templates, database records, flat files, and workflows. Workflows let you define lists of tasks you can use to help manage or enforce policies surrounding your site's assets (for example, to make sure the site editor approves each new story before it goes live). Other new features in StoryServer 4.0 include the ability to process XML documents and create highly personalized Web sites using a suite of technologies Vignette calls Internet Relationship Management.

Based in Austin, Texas, but with offices located throughout Europe and in Australia, Vignette Corporation was founded in December of the year 1995. The company is privately held and has received $27.8 million, the largest venture investment in an Austin-based software company to-date, from Goldman Sachs Private Investment Funds, Hambrecht & Quist, Amerindo, Adobe Ventures LP, Attractor Investment Management, Austin Ventures, Charles River Ventures, CNET: The Computer Network, and Sigma Partners.

Vignette, barely three years old, serves more than 160 customers in the financial services, high-technology, telecommunications, publishing, media, retail, travel, and other industries. Their leading customers include: CitiBank, Chase Manhattan, Excite, Sun Microsystems' Java Software division, CBS Sportsline, Lycos, PC World Online, Playboy Enterprises, Time Warner, Ziff Davis, Land's End, Wherehouse Entertainment, Lufthansa, Electronic Data Systems, Nike and Shell Oil use StoryServer to serve a combined 30 million page views per day.

Vignette's Market Associates include: Net Gravity and OpenMarket. Vignette's Platform Partners include: Sun Microsystems, Sybase, Microsoft, Oracle, and Hewlett Packard. Vignette's Internet Partners, interactive advertising and design agencies with whom Vignette has strategic partnerships with, include: AGENCY.COM, Modem Media, and Organic Online.

Om Malik writes, "When National Semiconductor (NSM) decided to use the Internet to do business with its customers, and save some money in the process, it was faced with one major dilemma - how to personalize private web sites for each client.

The chipmaker wanted to develop sites that had customer-specific messages, features and proprietary information. National could, of course, have hired web designers to develop many versions of its web sites - a move that might have been fiscal folly, considering that the company wanted to keep adding new sites for every new customer.

The answer for National was StoryServer - a web-content personalization system developed by Austin, Texas-based Vignette Corporation. Ted Schadler, an analyst with Forrester Research, a Cambridge, Massachussets-based consultant firm expects the personalized content publishing market to boom, and Vignette is well positioned.

This is a long way from the days when co-founders Ross Garber and Neil Webber were trying to keep the company afloat. The origin of the company is a story in itself. Garber moved to Austin from Massachusetts in 1994 for "hot startups, warm weather and affordable geography." In the year of 1995, Garber and Webber started Vignette to find ways to make web publishing easier and more personalized. They struggled to come up with a working technology, and in the year of 1996 things started turning in favor of the New England transplants. They picked the name "Vignette" by searching an electronic dictionary for words with "net" in them.

PRISM REFORM

Nikki Goth writes, "In July of the year 1996, Garber and Webber were only a few months into their business plan and were attempting to tackle the problem of work flow management for complex Web sites. When a cold call to CNET unearthed PRISM, Vignette's founders knew they had stumbled onto the ideal core technology for their new venture. The software allowed even technophobes to publish web pages. CNET wanted to commercialize the product, and handed it over to Vignette, which merged PRISM with its own technology and released StoryServer.

After the acquisition, Vignette commercialized CNET's system, adding installation procedures and support for multiple platforms. The resulting product was called StoryServer, which addressed a customer base that Mr. Garber describes as the meeting point of three substantial markets: document management, software development, and traditional broadcast management.

Rosenberg, executive vice president of technology for CNET, recalls CNET's Web site production dilemma clearly: "When we launched our first site in the year of 1995, we knew we wanted to generate our sites from databases. Our first attempt produced a very ugly site. We looked for tools that could create something more elegant, but there was nothing appropriate in the marketplace." Mr. Rosenberg and his staff decided to build the system themselves. It was running by late 1995 under the name PRISM, an acronym for Presentation of Realtime Interactive Service Material. But even with an immediate solution on hand, Mr. Rosenberg and Mr. Minor saw a problem approaching. "Once people realized that something like PRISM was necessary, we knew some other system would eventually beat ours," Mr. Rosenberg explains. "CNET is not a software company. So when Vignette stumbled onto us, we decided the best way to control and advance our system was to make it into a software product."

"We began developing PRISM over a year ago because we knew that maintaining static HTML pages on a large, constantly changing site like CNET.com would be very difficult. With PRISM, our editors, writers and producers can focus on what they do best, developing content for our services. Only a small production staff is then needed to create the templates which transform the content into compelling, dynamic Web pages."

In addition, CNET pumped in $500,000, provided an introduction to venture capital investors, continued to use the system to run its most complex sites, and in return took a 33% stake in Vignette. Vignette has since raised $27.8 million through venture capital firms, like Austin Ventures, Charles River and Adobe Ventures; its value, in the last round of financing, was pegged at $125 million.

Driving Vignette's early success was a high-end product that took a serious crack at solving the content-management crisis for large Web sites, a strategy of selling to business managers rather than MIS departments, and perhaps most important, an intimate relationship with CNET. Vignette owes much of its early precocious profits to CNET's initial product design and to the constant flow of advice from CNET CEO Halsey Minor. Vignette has skillfully taken advantage of the technology and support of CNET.

The combined efforts of the two companies resulted in StoryServer. The CNET connection helped Vignette get a lot of business. From its origins at CNET, the company found a market for the software with such online publishers as the Chicago Tribune and CBS Sportsline. Vignette rescued online publishers as their sites began to spin out of control. They provided customers like Tribune Media Services with a high-end work-flow system with which managers could produce and control dynamic Web content. Forrester Research predicts that the potential market for online publishers running their sites could grow to $1 billion. Based on those figures, Mr. Garber thinks that by lowering its costs as the market grows, Vignette could attain market share of 20 percent, or $200 million in revenues.

The problem Vignette attacks is a serious one. Forrester interviewed 50 executives responsible for their sites' management and concluded that the rapid increase in both the size of Web sites and the demand for dynamic sites was creating a content-management crisis. According to its research, total content volume, measured in number of pages, will double by the end of this year and triple next year. At the same time, the sites plan to add an average of only one staff member per year to handle this volume.

Vignette's StoryServer provides complex Web sites with a work flow system that allows managers to produce and control sites in the same way that TV networks handle their content. The basic concept behind the system, according to Mr. Webber, is to make Web site content reusable by forcing it into a template format. "Roughly 80 percent of the Web site visitors are going to use 20 percent of the content. So we take that 20 percent and store it rather than throwing it away every time," he explains.

CACHE AS CACHE CAN

To accomplish this, StoryServer uses a patented caching system that was developed at CNET. In addition to serving the pages faster, StoryServer adds and deletes new pages on the fly, generating and adjusting links automatically to connect the pages in a predetermined format. As Forrester's Josh Bernoff puts it, StoryServer effectively shoehorns unruly Web sites into a manageable structure. And according to Mr. Rosenberg, "The structure of News.com is made trivial by StoryServer."

However, realizing that the market for online publications was somewhat limited, Vignette changed direction. Garber, then company CEO and now Chairman, repositioned Vignette as a customization and production tool for dynamic web sites of all kinds, refocusing its marketing efforts on the lucrative corporate market. Many corporate intranet sites are evolving into large, dynamic sites more quickly than Vignette's co-founders anticipated.

Vignette's revenues have since shown a nice trajectory - up to $5.2 million for the six months ending June 30, from $733,000 for the same year-ago period. The company's revenues in 1997 were $3.0 million, up from no sales in the year of 1996.

Its strategy is to sign up as many customers as it can. Then eke out profits by providing consulting services to its clients, à la International Business Machines (IBM). So far the plan seems to be working. Services-related revenues jumped 2,700%, from $82,000 for the six months ended June 30, 1997 to $2.3 million for the six months ended June 30, 1998, representing 11% and 44% of total revenue, respectively. (In comparison, software sales increased by 345%, from $651,000 for the six-month period ending June 30, 1997 to $2.9 million.)

"We've bootstrapped the professional services organization. We have over a dozen active consultants. What we focus on is how can we make a lot of customers really successful really quickly," says Garber. The approach fits with co-founder and Chairman Garber's vision of Vignette: "We are like the PeopleSoft of the web-application business."

"We're religious about not being religious, and in fact, we think that's one of the keys to our success. We are raving atheists about technology. Absolutely. We work on all databases, all Web servers. Everyone has a religious agenda, but we drive straight down the middle. Right now, the game is about market share, and we want to blanket that. The most important things for me are to build a revenue engine and a customer base and make sure we continue to hire the smartest people."

"We've gotten this empire together in a very short time, and there wasn't an original idea involved," crows Garber.

Vignette hopes that its products, which allow publishers and other businesses to get more visibility for their content and services by broadcasting it to affiliated sites, will increase its sales and profitability - making Vignette a web fable of a story."

At its current hiring rate, Vignette should reach 250 employees by year-end. Co-founder and Chairman Garber predicts that revenues will surpass $100 million by 2001. CEO Greg Peters, who recently joined Vignette from Logic Works, says the company's next funding round will be an initial public offering within the next 12 months.

Vignette plans to be first to market with a Web-site-syndication application that uses eXtensible Markup Language (XML), the heir apparent to HTML. The new product will enable publishing customers to extract additional revenues from their content by developing private-label portals and will help enterprise customers manage their intranet content from various departments, vendors, distributors, and customers more effectively.

FOUNDERS' DAY DINNER (OUR FOUNDING FATHERS)

Previously, Garber was the senior director of worldwide channel sales at Dazel, an Austin-based client/server company, and the director of strategic planning at Epoch Systems in Westborough, Massachusetts, as well as serving with industry giant EMC Corporation. Garber was instrumental to the marketing and channel sales launch at Dazel and played a major role in the $141 million acquisition of Epoch Systems by EMC. Garber graduated Magna Cum Laude from the University of Massachusetts, Amherst, where he holds a B.S. degree in finance, with a minor in Jewish history.

Mr. Webber was formerly the chief product architect at Dazel and a system architect at IBM. They have surrounded themselves with well-seasoned directors and advisers.

Vignette's youthful management ideas have also led the company in some promising directions. Its sales strategy targets the business manager rather than the MIS department of each company's site. This approach allows Vignette to avoid an overcrowded field of players trying to sell to the MIS buyer. By selling to business managers, Vignette has also been able to distinguish itself from dynamic site development environments which target a more technical audience.

Beyond sales, strategic partnerships are giving Vignette a boost. For transaction-based sites like CNET's BuyDirect.com, Vignette partnered with Open Market to integrate its OM-Transact technology with StoryServer. Vignette has also negotiated an agreement with Sybase through which Sybase would resell StoryServer and the two companies would conduct joint marketing initiatives.

Mr. Garber also identified Web design firms as an additional sales channel for Vignette. "Site design is no longer simply graphics and layout principles," he says, "and professional site developers have yet to get the production platform they need." Mr. Garber is presenting StoryServer to these firms as an alternative to hiring teams of in-house software engineers. So far, Organic Online, Agency.com, Digital Planet, Roger Black's InterActive Bureau, Razorfish, and several other site developers have agreed to join Vignette's partnership program.

Internet analyst Bill Gurley of Deutsche Morgan Grenfell believes Vignette holds an advantage over other players because it has had a close relationship with several customers for the past year. "While other software companies guess what customers want, Vignette has been in the unique position to merely ask."

THE STANDARDS OIL COMPANY

Vignette's adherence to open Internet and World Wide Web standards is quite impressive. Sun Microsystems' Java has the potential to become the de facto programming language of the Internet and World Wide Web and the potential to become the standard for cross-platform executable content. It could be the DNA of this new networked enterprise economy. It holds the promise of "Write once, run anywhere."

On May 8th of the year 1998, Vignette purchased RandomNoise, a San Francisco publisher of Coda, Web page-building software written in Java that creates Java Web pages.

InfoWorld's Jeff Senna writes, "XML (eXtensible Markup Language) is not new, but rather a smaller, more manageable subset of SGML (Standard Generalized Markup Language), an international standard for defining electronic documents and akin to HTML. As proof of its viability, the World Wide Web consortium (W3C), an international standards organization, has already recommended an industry standard for XML, insuring that all players will stick to the same rules. XML documents are ASCII files containing both text as well as tags identifying structures within that text. However, unlike HTML, XML lets you define your own custom tags and attributes, but without SGML's inherent complexities. That enables XML documents to include meta data - data about the content in the document, including hierarchical relationships." XML is a data format for structured document interchange on the Web. Peter Flynn writes, "XML itself is not a single markup language: it's a metalanguage to let you design your own markup language. A regular markup language defines a way to describe information in a certain class of documents (e.g. HTML). XML lets you define your own customized markup languages for many classes of document.

Owen Thomas writes, "In February of the year 1998, Firefly (now owned by Microsoft), Sun Microsystems' Java Software division, and Vignette came out with their proposal for a cross-site Web content distribution standard - ICE, (a catchy acronym for Information and Content Exchange Protocol).

ICE would create a defined way, based on XML, to assign the roles and responsibilities of content syndicators and their subscribers, as well as the format for content exchanged. With ICE, Time Warner may reuse the same Monica Lewinsky story in Time, in People, and on CNN - and it may also license it to outlets outside the Time Warner empire. Championed by Vignette, ICE also claims Adobe, Sun Microsystems, and the News Internet Services (NIS) division of News Corp. as standard bearers. Without ICE, they claim, it is too expensive for publishers to repurpose content; with ICE, much of the manual effort of repurposing is automated. ICE will even allow content syndication through "chains" of content resellers.

While modern Web servers can perform all kinds of magic with the content they serve up to users - pulling it from databases, customizing it for individual users, and pouring it into various templates - they're still lousy at trading content with other servers. Online publishers, content aggregators, and retailers spend a lot of time and money to acquire articles, product specifications, and other "media assets" that they then repurpose onto their own sites. Are we going to have six media outlets, or six million? If the recently proposed ICE protocol takes off, we may have many more news outlets to choose from. And publishers will have a way to get their content out to many more eyeballs.

Richard Wiggins writes, "ICE is much more complex than a set of tags - it is both a protocol and a markup language that is focused on content distribution, particularly news. For instance, embargoed news can be tagged so that a distributor's server delivers the content to subscribers only at the instant the embargo expires.

At present, this is mostly done through systems that site managers develop internally; content aggregators like Excite and Yahoo! have legions of engineers devoted to maintaining their feeds from news services, specialty Web publishers, and content partners. The cost makes it prohibitive for most Web sites to incorporate content from multiple sources - which in turn may be keeping content providers from sources of licensing revenue.

"Presently, there's sufficient amount of friction in the interchange of digital assets that it puts a floor in to how small a site's traffic volume can be (for content syndication) to make economic sense," says Neil Weintraut, general partner at 21st Century Venture Partners. "This standard plays to the natural economics of information - the antidote to information's price tending towards zero is to get it before more eyeballs." Vignette's Syndication Server is compatible with ICE.

AUSTIN CITY LIMITS

I have had the pleasure of visiting Austin, Texas twice in my life. Once, in the year of 1987 and earlier in the year of 1998. The first time, I visited the University of Texas, Long Horn stadium, and a French Mardi-Gras type party bar on Sixth Street. The second time, I Country line-danced at the Hang'em High Saloon bar. Also, Austin is the fourth most-wired city in the country. Over fifty percent of Austin's population is connected to the Internet.

Daniel Fisher writes, "Want to build a software company? Your dollars will go a lot further in Austin, Texas than in California. When former IBM executive Andrew Heller got tired of nurturing new high-tech startups in Silicon Valley, he took his multimillion-dollar pile to Austin. That was in 1993. Now, he is advising a profusion of would-be entrepreneurs in what has become a hot spot for technology startups.

Michael Maples, who was executive vice president in charge of the software division at Microsoft from 1992 to 1995, calls Austin home. Last year he moved from Seattle to a 1,450-acre ranch west of town.

Then there's James Treybig, the colorful Texan who founded Tandem Computers Inc. in 1974, headquartering it, naturally, in California. Treybig moved to a ranch outside of Austin two years ago, shortly before Tandem was sold to Compaq Computer Corp. for $3.3 billion. Now Treybig spends his time advising a series of young companies on recruiting managers and raising capital as a venture partner with Austin Ventures, the town's dominant venture capital outfit.

The collective brainpower and experience of Heller, Maples and Treybig are important contributions to Austin's new status as an alternative Silicon Valley. Add Austin's temperate climate, affordable real estate — you can still get a decent home for $200,000 — and lack of state income taxes, and it's not hard to see why Austin is grabbing more than its share of venture capital and young entrepreneurs.

THE EYES OF TEXAS'RE ON YOU

Austin-area software firms pulled in $72 million in venture capital funding in the first six months of the year of 1998, according to accountants Pricewaterhouse-Coopers. That is seven times as much as Austin got in all of 1995. Austin has reached critical mass as a technology center. In or near Austin are $15 billion Dell Computer, the MCC research consortium, IBM's fast-growing Tivoli Systems division and a University of Texas campus that is home to more than 2,000 budding computer scientists.

The number of software firms in Austin has doubled, to about 800, in the past five years. Roger McNamee, a general partner at Integral Capital Partners, a Menlo Park, California venture capital and public investing firm, says Austin has moved ahead of Seattle and Atlanta in the quality of its software startups.

Local software companies include: Activerse (a Java software company), Acuity (formerly known as ichat), Adhesive Software, Data Junction, Dazel, Evolutionary Technologies International, Garden Escape, Jato Technologies, living.com, Motive Communications, OfficeDomain Incorporated, pcOrder.com, Powered, Smart Technologies, Surgient Networks, Tivoli Systems Incorporated (an IBM business unit), Tower Technology, Trilogy, and, of course, Vignette.

"Austin's a much healthier environment than Silicon Valley. It's as vibrant, but it's not poisonous in that you have to have a million dollars to buy a house. We have a number of people in Austin that lived in Silicon Valley 15-20 years ago, and it was first developing, and they said, this is just the exact same thing all over again. It obviously hasn't peaked yet, but you can start to feel it. There's a lot of talent," says Garber. "People have this visual image of Texas being flat, brown, and dusty. When you go to Austin, it looks like Marin County. It's green, rolling hills, lakes everywhere, people are hiking and biking. It really draws people who are fed up with Silicon Valley or tired of the snow of Route 128. There are over 400 startups in Austin right now. There's a lot of employment liquidity, which had been one of the things that held Austin back. People say, oh, that's a hot company, but if it doesn't work, what I do next, and now, all of a sudden, I can do anything in Austin."

Also, on December 3rd of the year 1998, Vignette filed with the Securities and Exchange Commission for an initial public offering to be led by Morgan Stanley Dean Witter and co-managed by Hambrecht & Quist and Dain Rauscher Wessels.

Vignette has developed a reliable product suite for managing Internet content and customer relationships that commands a high price and appeals to a wide range of customers. The company has top-tier investors, a new but seasoned CEO, and - with its new Web-site-syndication software - a second major product. This is as good as it gets in 1998. And that's a StoryServer worth repeating.

Sincerely,
Mark Kuharich

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