While Kana, eGain soar, private competitor holds back on IPO

Despite the IPO success of customer service software companies Kana Communications and eGain this week, privately held competitor Brightware Worldwide is holding back for even better timing. Brightware's CEO said there are still advantages to being private.

Shares in Kana Communications Inc. (Nasdaq: KANA) more than tripled in value Wednesday after its initial public offering, in a week where investors rewarded e-commerce software providers across the board. eGain Communications Corp. (Nasdaq: EGAN) also climbed 154 percent to 30 1/2 Thursday.

Cisco Systems Inc.'s (Nasdaq: CSCO) acquisition of WebLine Communications also contributed to the recent buzz around companies in the market for handling customer service over the Web. Cisco bought the maker of software for customer service and e-commerce applications for $325 million in stock.

Though companies specializing in email response software seem to be the flavor of the week for the fickle IPO market, CEO Chris Erickson of Brightware isn't worried about missing out. According to a recent study by International Data Corp, Brightware ranks first in revenue in a market set to grow from just under $30 million in 1998 to $342 million in 2003. Erickson said that Brightware, which has not yet filed to go public, sees more advantages to staying private for now.

Holding out

Erickson said he is holding out for a big pop in customer growth expected after the Y2K issues settle down. Brightware is also working to develop a more complete package of software that encompasses Web and e-mail customer assistance based on an intelligent automated response system

"We're rolling out a broader product line," Erickson said. Brightware is developing automated response software The system is much more scalable, an important asset to the higher volume, more sophisticated users, which Erickson said Brightware targets.

"Kana and eGain's IPOs validated the market," said Erickson. The primary difference between Brightware and Kana and eGain, its main competitors, is its "AI (artificial intelligence) based system that parses and reads email."

"We see e-mail as a problem, not a market," Erickson said. As "dot coms" start concentrating more on how to keep customers coming back, the e-business emphasis is going to move to customer assistance. Erickson said the eCustomer assistance market took off late last year, and noted a growth rate in the second quarter for eGain.

A better mousetrap?

"Brightware is coming at the market from a different perspective," said Bob Chatham, a senior analyst at Forrester Research. "Their perception is 'we can answer 70 to 80 percent of customer e-mail by auto-response.' But it's really not true, I would say only 20 to 40 percent could be answered automatically. The sweet spot in the market is for routing email chat to an appropriate agent. Auto-response is too risky for most companies that really care about their customers."

"Everybody's missing something," Chatham says of companies in the market for eCustomer service." There are so many different channels for customer service. and they're all converging. A single set of management software is needed."

Brightware plans to go public right after the beginning of next year, Erickson said. "That's when our customer base will explode." He's not concerned about being a first mover, and is confident that Brightware can be a winner in the eCustomer assistance market.

"Our revenue is higher, and our growth rate is equivalent to Kana's," Erickson said According to a study by International Data Corp., Brightware has 24.4 percent of the worldwide revenue for the market in email response software, and 48 percent of market share in Europe according to 1998 revenue.

A huge market

"All boats are rising in the e-commerce software market," said Greg P. Vogel, an analyst with Bank of America Montgomery who covers Silknet (Nasdaq: SILK), a company that competes with eGain and Kana. He sees these companies as all offering "features of what should be a broader solution" that include Web and e-mail customer assistance.

"If you're building a big company you don't build it around a hot market," Erickson said. Its great to get a pop on the first day, but you want to make sure you are still getting $100 a share by the end of the year."

He isn't worried that newly public competitors will outpace them in the meantime with more dollars to spend on marketing or R&D. "It's more sophisticated than having an extra $20 million," he said. "And in terms of bringing in engineers, they may have a problem recruiting people with shares at $53. Who wants to work for a company that's already gone public?"

Brightware's current customers include TD Bank, Advanta Corp, Mortgage.com, Merrill Lynch, Neiman Marcus.