According to the conventional wisdom of several years ago, push technology, which pushes information to users on demand, was poised to become the next big Internet craze. As with other cases of Internet hype, this technology did not exactly conquer the market.
Users quickly wearied of the flow of unfocused advertising, known as junk mail, that reached them. A serious traffic problem also developed on the network. Since the information being pushed was sent simultaneously throughout the Internet in real time, it required a lot of bandwidth, which made servers crash under the resulting loads.
Customers began abandoning sites using push technology and those providing services to them, including BackWeb, one of the first companies to develop solutions in this field. The subsequent dumping of its share caused a real collapse in the company value, which currently stands at only $40 million. Luckily for BackWeb and in contrast to many other companies, it managed to survive, largely thanks to a change in its business model. The new model focuses on developing proactive portals.
BackWeb learned the hard way that transmission of crucial business information must not create excessive loads on the network. The company therefore decided to direct most of its efforts to restricted distribution of information as part of the customers' infrastructure. It initially contacted the sales apparatuses of organizations like Cisco Systems (Nasdaq: CSCO) and Charles Schwab & Co. After succeeding with this approach, BackWeb turned to the whole organizational market and began to accumulate large customers and partners, such as Compaq (NYSE: CPQ), HP (NYSE: HWP), Ericsson (Nasdaq: ERICY), and IBM (NYSE: IBM).
It seems, however, that all this is not enough. The inauspicious climate surrounding the high tech industry in general and companies creating new categories and future technologies in particular, has forced BackWeb to make a further business adjustment. After its growth slowed in the first quarter of 2001 and the company had to lay off a quarter of its workforce, BackWeb decided to focus on organizational portals.
An organizational portal is an information management concept. An Internet or Intranet site is set up to coordinate all the information resources used by the company, its customers, its suppliers, and all other parties with whom it is in contact. The portal provides information and updates about the organization and its activities. Market research commissioned by BackWeb prior to the change in its business orientation indicated huge demand in this market. The Meta Group research company, for example, predicts that the portal market will grow from $2 billion in 2001 to $6.2 billion in 2003.
The problem is that the typical portal is inadequate as an entry point for business information. Many companies with organizational portals have already employed proactive announcements and offline access as an essential component of their portal strategy.
BackWeb's new business strategy is therefore based on the need of large companies for technology to enable them to optimize their return on investment in their portal, by adding the possibility of accessing the portal offline and making it proactive. BackWeb President and CEO Eli Barkat says that large international organizations have recently been setting up portals to coordinate large sections of their information transmission activity under one URL address. Setting up a portal is considered an investment in integrating the existing information systems and upgrading the synergy between them. Portals are consequently awarded priority during retrenchment periods.
What does being proactive mean? Barkat says, "BackWeb is capable of making these portals proactive, which means verifying that the information will be pushed selectively to the end users, according to the definition of the user or his superiors. The information will reach the desired interface as planned. Our technology can guarantee that the information will reach its destination. If it doesn’t arrive, a warning will appear."
How is this actually done? BackWeb is penetrating the organizational portal market with a package of ProactivePortal products and integration services, based on the company's push technology. Using BackWeb's technology to design an organizational portal facilitates the creation of a central page for the organization. The page includes the information the organization wishes to make available to its employees, including updates of important business information, such as new inquiries and organizational communications. It will allow the information to be transferred directly to the users' desktop computers and wireless devices, without creating traffic overloads on the network. The portal's capabilities "force" customers and suppliers to take note of business information updates, as well as Internet content defined as essential.
The new approach, combined with additional restructuring in BackWeb’s company headquarters, is beginning to achieve results. The company has succeeded in reducing its losses somewhat, to $9.2 million in the third quarter, including depreciation, a 20% improvement over the previous quarter. In comparison with the corresponding quarter last year, however, the company’s losses have multiplied several times over. Incidentally, when depreciation is excluded, BackWeb's third quarter loss amounts to $5.5 million, or $0.14 per share, compared with $8.2 million in the second quarter. BackWeb, therefore, actually beat the analysts' forecast of a $0.15 per-share loss in the third quarter, if depreciation is excluded.
In terms of revenue, however, BackWeb has still not recovered. Its revenue totaled $4.5 million in the last quarter, similar to the previous quarter, and down 61% from the corresponding quarter last year. BackWeb’s smaller loss is due to the its economy measures - general and management expenses fell to $7.45 million in the last quarter, compared with $9.1 million in the previous quarter.
Turning to the company's business itself, BackWeb recently signed several new agreements. The first was signed with Eastman Kodak (NYSE: EK), which chose BackWeb's solution for transmitting automatic updates to its millions of digital camera customers. Eastman Kodak thereby hopes to substantially reduce the number of incoming telephone calls to its telephone support centers and lower its technical support expenses. This week, Logitech (Nasdaq: LOGIY) also announced it would include BackWeb's portal solution in the software accompanying the computer mice and keyboards it sells, in order to achieve optimal relations with its 20 million customers around the world.
The point BackWeb chose to emphasize in its third quarter results is its customer base, which includes many Global 2000 companies, such as Renault and Procter & Gamble (NYSE: PG). These companies bought BackWeb's technology to improve the productivity of stationary users by providing offline access, expediting the following of business procedures through proactive warnings, and upgrading emergency and management communications using enhanced video transmission and proactive warnings.
The success of the focus on developing and marketing proactive portals can be viewed as a second chance for the company, after it greatly misread market needs and was punished accordingly. In any case, the company is not expected to run out of cash. BackWeb has $46 million in cash reserves, which is designated to keep its head above water in the short term until the push technology market recovers, if it ever does.
Barkat, incidentally, regards the terrorist attacks and the anthrax scare in the US as an opportunity for his company. In his opinion, awareness of alternate electronic communications methods, which of course include the push method, has risen significantly. "During the third quarter, we made real progress in developing technology for our portal strategy. We expect to begin posting revenue in the portal field in the second half of 2002."
Meanwhile, BackWeb continues to streamline. The company completed the reduction of its payroll by 25% in the third quarter, thereby lowering its current expenses by 15%, compared with the second quarter. BackWeb also recently instituted further plans for cutting costs, including executive perks and lower budgets for projects not linked to the company's core business. Together with the layoffs, BackWeb expects these economy measures to save $12-13 million per year, starting with the third quarter of this year.
Published by Israel's Business Arena on November 1, 2001