Verity Inc. History

Address:

894 Ross Drive
Sunnyvale, California 94089
U.S.A.

Telephone: (408) 541-1500
Fax: (408) 511-1600

Public Company
Incorporated: 1988
Employees: 524
Sales: $124.3 million
Stock Exchanges: NASDAQ
Ticker Symbol: VRTY
NAIC: 511210 Software Publishers

Company Perspectives:

Verity provides software that enables organizations to maximize the return on their intellectual capital investment.

Key Dates:

1988:: Dr. Michael S. Pliner and a group of researchers spin Verity off from Advanced Decision Systems; the company's first product, a full-text retrieval system called Topic, is introduced.
1990:: Verity is awarded a large contract to build a real-time automated messaging system for the U.S. Air Force.
1995:: Verity raises $40 million in its initial public offering.
1996:: Database Programming and Design Magazine names Verity one of the database industry's leading 12 firms.
1999:: Verity finally achieves profitability.
2001:: Fortune ranks Verity 17th on its list of the 100 fastest-growing companies, and as the second-fastest growing software firm.

Company History:

Based in Sunnyvale, California, Verity Inc. provides intellectual capital management (ICM) software to some 11,500 private and public organizations, including the U.S. Army, the U.S. Department of Energy, the U.S. Department of Justice, SAP, Hewlett-Packard, Cap Gemini Ernst & Young, Bristol-Myers Squibb, AT&T, and American Express. According to Verity, its solutions "provide integrated search, classification, recommendation, monitoring and analytics across the real-time flow of enterprise information, along with question and answer interfaces for effective online self-service." In addition to its own ICM products, Verity's technology is included in more than 250 software applications from other vendors.

A New Way to Search: 1988-92

Verity was spun off from Advanced Decision Systems in 1988 by Dr. Michael S. Pliner and a group that included David Glazer, Phil Nelson, Andrew Leak, Abe Lederman, John Lehman, and Clifford A. Reid. Prior to joining Advanced Decision Systems and founding Verity, Pliner co-founded a company called Sytek, which invented the local area network protocol NetBIOS.

Glazer and Nelson were the key engineers behind Verity's first product, a full-text retrieval system called Topic. Pliner and his colleagues developed Topic so that users could search for electronic information based on concepts or ideas, as opposed to more limited keyword searching with the traditional Boolean operators AND, OR, and NOT. In the November 1998 issue of Online, Pliner commented on the state of search technology during the late 1980s: "Searching out and retrieving the right documents using today's retrieval technology is like trying to eat spaghetti with a single chopstick. The second generation of products will give you a second chopstick."

Topic users had the ability to rank searches by assigning weights to keywords and subtopics, with the goal of obtaining more relevant results. In addition, Topic was designed to be format and hardware platform independent, and was available for individual, multi-user, and networked environments. An unlimited multi-user Topic license cost $39,500. For a networked setup, clients paid $15,000 for server software and either $695 (DOS) or $2,500 (Sun) for each workstation.

Among Verity's first clients was the Strategic Air Command, which had begun beta testing Topic in July 1987. Profits were elusive for Verity during the company's early years. However, from its headquarters at 1550 Plymouth Street in Mountain View, California, Verity quickly began to evolve. In 1990 the company rolled out Topic Real-Time, which analyzed information such as market data, news wire content, and e-mail messages and then routed it to businesspeople in real time based on their interests. Verity partnered with Dow Jones & Co. to resell its DowVision news service with Topic Real-Time.

The type of technology used in Topic Real-Time was of interest to Verity's government clients, which accounted for some 30 percent of the company's business. With the advent of Operation Desert Shield in 1990, Verity was awarded a large percentage of a United States Air Force contract, valued at $40 million, to build a real-time automated system that scanned and routed messages to the right intelligence personnel.

Growth continued at a steady clip, and by November 1991 Verity's employee base reached the 100 mark. Around this time, the company's client base included Borland International Inc., Motorola Inc., the U.S. Department of Defense, and the White House.

Striving for Profitability: 1993-99

In January 1993, San Jose, California-based Frame Technology Corporation signed a letter of intent to acquire Verity. At this time, Pliner announced that he would step down as president, chairman, and CEO, and would serve as a consultant to Frame Technology President and CEO Paul Robichaux. Although the planned merger fell apart in March 1993, after Frame suffered a first quarter loss of $3.9 million, Pliner moved forward with his decision to step down as the head of Verity, and Philippe F. Courtot became verity's new president and CEO. Prior to joining Verity, Courtot served as the CEO of cc:Mail, and also held positions with Thomson-CGR Medical Corporation, ADAC Laboratories, and Modular Computer Corporation.

By 1993, Verity's employee base had grown to 140 workers. While Pliner was gone, co-founders Glazer, Nelson, Leak, Lederman, and Lehman remained with the company. Courtot decreased the price of Verity's products in order to increase the company's customer base, and also ramped up spending on research and development by 30 percent. In addition, Courtot initiated a strategy to incorporate Verity's search technology in software applications from other vendors.

As part of Courtot's strategy, in April 1994 Verity unveiled its InfoAgent technology, which independent developers could include in their applications. The technology, which relied on so-called "intelligent agents," benefited individuals, groups, and entire organizations with tools to filter, analyze, and retrieve all available information, regardless of operating system, application, database type, or source. By 1995 intelligent agents were part of Verity's Topic Information Server, a client-server text retrieval system that allowed users to look for information across many different types of documents residing in different databases.

While Verity's product offerings expanded during the early and mid-1990s, so did its losses. Shortfalls, which totaled less than $1 million in both 1992 and 1993, reached almost $6 million in 1995. Nevertheless, when company went public in the fall of 1995, it raised $40 million in its initial public offering--double what it initially anticipated.

By late 1995 Courtot's strategy to shift the company's focus away from the enterprise sector and toward a variety of other end markets had successfully materialized. By this time Verity had deals in place with most leading PC manufacturers and a number of online services for the use of its search technology. The company adapted its technology to meet the unique requirements of many different customers. Verity ended the year by announcing it would release an enhanced version of its Topic Search Engine in early 1996, which it planned to bundle with Netscape Communications' World Wide Web Server 2.0.

In mid-1996 Verity acquired InSite Computer Technology, a consultancy based in the United Kingdom that had made Verity's search products compatible with Microsoft Exchange and BackOffice. Driven by higher software sales, Verity's revenues mushroomed 93 percent that year, climbing from $15.9 million in 1995 to $30.7 million. At the end of fiscal year 1996, the company's revenues from software licenses had increased for seven consecutive quarters. In the fourth quarter of 1996 alone, Verity's new applications customers included Wells Fargo Bank, Nortel, MCI, Intel, and British Broadcasting Corporation. Although the company posted a net loss of $313,000, this was an improvement over 1995's loss of $5.8 million. Ending 1996 on a high note, Database Programming and Design magazine named Verity one of the database industry's leading 12 firms, along with heavyweights Hewlett-Packard, IBM, Microsoft, and Oracle.

In January 1997 Verity acquired Bellevue, Washington-Based Cognisoft for $10 million in cash. Cognisoft, which became Verity's business applications unit, was established in April of the previous year by five Microsoft employees. The acquisition gave Verity IntelliServ, a content delivery product that delivered "customized content via the Internet or intranets from any data source--including file servers, Web servers, Microsoft Exchange, Lotus Notes and ODBC databases," according to the January 20, 1997, issue of Computer Reseller News. IntelliServ was a natural fit with Verity's Search '97 technology. Two other acquisitions in 1997 included the Keyview line of filtering products from FTP Software, and the database management firm 64K Inc.

In 1997, IDC reported that Verity's share of the text retrieval market was a leading 28 percent. Although revenues increased to $42.7 million that year, Verity's many acquisitions came at a price; a net loss of $17.9 million. This led the company's board to replace Courtot with a new CEO named Gary J. Sbona in July.

Verity began 1998 by winning a Market Recognition Award from Delphi Computing Group for offering the most popular information retrieval technology. Charged with making improvements, Sbona called for a 15 percent work force reduction, as well as a more streamlined product line and sales force. In an April 21, 1998, Business Wire release, Sbona explained: "In recent months we've realigned our products, our sales force, our pricing, our support and our market message around the needs of enterprise knowledge and retrieval."

In 1998 Verity sued IBM subsidiary Lotus Development Corporation, claiming that Lotus planned to use Verity's technology in a way that went beyond the scope of an existing licensing agreement. Specifically, the lawsuit charged "copyright infringement, unfair competition, breach of contract, misappropriation of trade secrets, and unjust enrichment and conversion," according to the March 11, 1998, issue of InfoWorld Daily News. The companies settled the lawsuit in June 1998.

After investing some 40 percent of revenues into research and development initiatives during 1998, Verity registered a net loss of $16.5 million on revenues of $38.9 million. Late that year, two new products were introduced. As opposed to search technology, Verity HTML Export 2.0 and Key View Pro 6.5 were document management applications.

New Directions: 1999 and Beyond

Verity finally achieved profitability in 1999, recording a profit of $12.1 million on revenues of $64.4 million. That March, Sbona was named chairman in addition to his responsibilities as CEO. New product introductions in 1999 included Verity Profiler and Knowledge Organizer. In August, the company sold 1.78 million shares of common stock in a public offering valued at $79.9 million. The following month, Verity Senior Vice President Anthony J. Bettencourt III was promoted to president, with responsibilities for product development, professional services, marketing, and sales.

In 2000, Verity unveiled new software called Portal One, which allowed customers to access business information from a multitude of devices and locations. The company also expanded in Japan through a new distribution agreement with Toshiba. That year, Verity's revenues reached a record $96.1 million, up 49 percent from 1999. Of this amount, software revenues were $69.7 million. The company remained profitable, with net income of $33.0 million.

International expansion continued in 2001, when Verity announced that it would open regional offices in Sweden, Singapore, Brazil, Mexico, and South Africa. In a May 9, 2001, PR Newswire release, Bettencourt said: "Verity's new offices will allow us to take greater advantage of the expanding market opportunities in these regions. However, we're not new to the international arena. Our business outside of North America generally accounts for about one-third of the company's revenue. International sales were strong before, but our direct sales presence in these areas will enhance our ability to make them even stronger." By this time, Verity's customer base had grown to include 80 percent of Fortune 50 companies.

In 2001 Verity remained focused on profitability. To this end, the company cut 13 percent of its work force in November to reduce expenses. Verity continued to work on substantial new projects, including a secure portal for the United States Air Force. Called My.AirForce, the portal used Verity's K2 portal infrastructure and provided a gateway to content from 1,500 different Air Force Web sites and 28,000 different legacy systems across the globe. Verity ended 2001 by receiving recognition from Fortune magazine, which ranked the company 17th on its list of the 100 fastest-growing companies, and as the second-fastest growing software firm. Additionally, Software Magazine included Verity on its Annual Software 500 list for the second consecutive year, naming it one of the leading portal vendors.

Sbona's efforts to remain profitable continued to pay off in 2002, as the company recorded its fourth consecutive year of profitability. At $93.8 million, revenues were down 35 percent from 2001 amidst weak economic conditions. However, the company's net income totaled $1.4 million. Verity's employee base reached 437 in 2002. That year, the company's technology was used by the Department of Defense as part of a message handling system that served some 40 different sites.

In 2003 Verity acquired the enterprise search software business of Inktomi Corporation for $25 million in cash. In addition to 44 new employees, the acquisition resulted in a newly branded search product called Ultraseek and gave Verity access to more "department-level" staff. In the March 2003 issue of Econtent, Bettencourt indicated that Verity's customer base grew to include 2,500 new department-level customers, in addition to its existing base of 1,500 corporate clients. Verity's revenues totaled $102 million in 2003, with net income of $11.6 million.

Another acquisition came in early 2004 when Verity obtained Cardiff Software, a developer of forms processing applications that was established in 1991, for $50 million in cash. With 185 employees and offices in California, Virginia, and London, Cardiff became a wholly owned subsidiary of Verity. True to its roots, Verity continued to strike new deals in the government sector. In April 2004 the Department of Homeland Security chose the company's K2 Enterprise software to power an intelligence-sharing network called the Joint Regional Information Exchange System. Verity's 2004 sales totaled $124.3 million, and net income remained unchanged from the previous year at $11.6 million.

Principal Competitors: Adobe Systems Inc.; Captiva Software Corporation; Documentum Inc.; Fast Search & Transfer ASA; IBM Software; Microsoft Corporation; Oracle Corporation; SAP AG.

Verity Inc. History

Company Perspectives:

Key Dates:

Company History:

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